Lower fuel prices foreshadow cheaper heating bills this winter

WASHINGTON -- After years of relentlessly rising heating bills, homeowners are likely find some relief this winter. Supplies are plentiful, and prices are falling for natural gas, heating oil and propane.

The cost of natural gas on wholesale markets is about half of what it was last January because of high inventories and anticipation of record amounts in storage by the time heating season begins in November.

"There is good news for consumers going into this winter. For the first time in four years we're seeing downward pressure on prices," Chris Conway, chairman of the Natural Gas Supply Association, said at a news conference Thursday.

The trade group represents natural gas producers.

Gas is the most widely used source of fuel for residential heating in the country especially across the Midwest.

Fuel oil, which is used heavily in the Northeast, also has seen dramatic price cuts in recent weeks as crude oil prices have declined and inventories of the fuel have increased. Propane prices also have dropped amid substantial supplies, according to the Energy Department.

But government analysts and industry executives cautioned that weather remains an unknown. If the winter turns unusually cold, heating prices again could jump.

Another major factor could be the cost of crude oil, which has fallen by one-fifth since reaching a brief high of $78.40 a barrel on July 14. That has seen the wholesale price of fuel oil drop by about 40 cents a gallon since early August.

The price of $1.58 cents a gallon for fuel oil on the spot market last week was 32 cents cheaper than a year ago, according to the federal Energy Information Administration. The price has rebounded some in recent days to $1.66 a gallon on Thursday on the New York market.

Natural gas has seen an even sharper decline.

Traders paid $4.32 per thousand cubic feet Thursday on the spot market, about half of what gas was selling for last January and a third of what it cost a year ago in the aftermath of Hurricane Katrina. The price for November delivery on Thursday slid nearly 13 cents to $5.54 a thousand cubic feet. And prices could decline further.

"At this point I don't see a bottom for natural gas," said Tom Bentz, an analysts at BNP Paribas Commodity Futures in New York. But he too cautioned an early cold spell could scare the market and cause prices to reverse.

It's too early to predict how the current wholesale price drops will translate into the price consumers will pay four months from now in the heart of winter. Consumers may not see all of the benefits of the recent price drops.

Daphne Magnuson, a spokeswoman for the American Gas Association, said many utilities began buying their gas six months ago when prices were higher, not anticipating such a dramatic decline, and put it into storage. Those higher costs will be reflected in the retail price this winter when the gas is used, she said.

Neil Gamson, an analyst at the Energy Information Administration, said it's too early to predict what residential heating costs will be, although looking at today's wholesale prices there's room for optimism. Still, those numbers also might be misleading, said Gamson.

"We think crude oil and heating oil prices are going to head back up from where they are now as the heating season begins," said Gamson.

The biggest wild card remains the weather, says Conway, the NGSA chairman and ConocoPhillips executive. If there is an early cold spell it could drive up prices.

Last year, as the oil and gas industry struggled to recover from the lost production caused by hurricanes Katrina and Rita, there was widespread worry that winter heating bills would soar out of sight.

But then, the warmest January on record brought down demand and tempered some of the expense for consumers.

Still, heating costs have been on the rise for a succession of winters.

According to EIA figures, the average winter heating bill for a home using natural gas was $465 in 2001-02, increasing each year to $944 last winter. For those homes using fuel oil, the cost has increased from $627 in 2001-02 to $1,429 last winter, again increasing each year. Users of propane paid $736 in 2001-02, compared to $1,236 lasts winter.