Winter heating costs to soar, Energy Department says

October 13, 2005|By WILLIAM NEIKIRK | WILLIAM NEIKIRK,CHICAGO TRIBUNE

WASHINGTON -- The Energy Department provided some chilling news for American consumers yesterday, estimating that natural gas prices nationwide would average 48 percent higher this winter over last winter. And that's assuming a moderate winter.

On top of that, short-term interest rates are likely to go up this winter, too, the result of anti-inflation policies by the Federal Reserve, so that families with home equity loans will experience higher monthly payments on adjustable-rate mortgages.

"That will be a double whammy" for many families, said James Levinsohn, associate dean at the University of Michigan's National Poverty Center.

This winter's prices for home heating oil, a fuel used widely in the Northeast, will average 32 percent higher, the department's Energy Information Administration said. Its report also predicted higher average oil and gasoline prices throughout 2006.

The winter energy price outlook stirred political reaction. Senators from Massachusetts and Maine urged the Bush administration to change its mind and provide an additional $3.1 billion to help low-income Americans pay their heating bills.

"We must provide adequate funding for an essential program that serves as a lifeline to some of our most vulnerable citizens," said Sen. Olympia J. Snowe, a Maine Republican.

The administration's estimates are not surprising in view of the damage done to refineries and natural gas facilities by Hurricanes Katrina and Rita, but some analysts said that home heating costs and gasoline prices could be much higher than the department's estimates.

Jason Schenker, an energy economist at Wachovia Securities in Charlotte, N.C., said he thought natural gas prices this winter would double over last year and hit consumers hard.

"People at the lower end of the income distribution scale could be hit sharply," he said. "This will cause weaker sales at the discount chains." And, he said, some consumers might be unable to pay their bills during the winter.

Philip Verleger, a Colorado energy consultant, said gasoline prices could reach $4 a gallon in 2006. By contrast, in its report, the Energy Information Administration predicted gasoline prices would average $2.45 a gallon in 2006, up 10 cents a gallon from this year's expected average. It also said that oil prices would average $64.50 a barrel in 2006, compared with $57.50 this year.

Verleger said he is concerned that U.S. refineries, hard hit by the two hurricanes, would be hard-pressed to meet rising gasoline demand in 2006.

If the government's estimates for home heating costs are accurate and the winter is moderate as expected, the average consumer would pay $354 more for natural gas than last year and $378 more for home heating oil. In the Midwest, the cost could be $452 more because it is generally colder in the region than elsewhere.

Throughout the country, 55 percent of homeowners heat with natural gas. Nationwide, 29 percent of homeowners use electricity as their heating source, 7 percent use heating oil and 4 percent use propane, with the remainder using other means.

As the Energy Information Administration outlined its estimates, the National Weather Service provided some good news, predicting a warmer- than-normal winter for much of the United States, which would tend to keep energy costs under control.

"Should colder weather prevail, expenditures [to heat homes] will be significantly higher," the Energy Information Administration said. A winter with 10 percent lower temperatures could cause nationwide natural gas costs to soar by 67 percent and heating oil prices by 57 percent, the report said.

The higher prices will cause Americans to cut back on their demand for energy and will, in time, lead to an increase in supplies, said Pietro Nivola, an energy analyst at the Brookings Institution.

"It takes time to bring that production on line," he added.

Last week, the House of Representatives passed a bill that would ease restrictions on building new refineries and relax some environmental standards that they must meet. President Bush praised it, saying new refining capacity "is critically needed."

Howard Dean, the chairman of the Democratic National Committee, criticized the legislation yesterday. He said the measure would not help low-income Americans pay their energy bills this winter but would assist "special interests" supportive of Republicans.

William Neikirk writes for the Chicago Tribune.

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