EIA sees high US energy costs this winter

By OGJ editors
HOUSTON, Sept. 12 -- Tight world oil markets coupled with the ravages of Hurricane Katrina have set the stage for a potentially expensive winter heating season, the Energy Information Administration said in its latest Short-Term Energy Outlook.

Heating oil prices averaged $1.83/gal during the 2004-05 heating season, 34% higher than the winter of 2003-04. Sharp increases are expected for the 2005-06 heating season, EIA said in the Sept. 7 report (OGJ Online, Sept. 7, 2005).

Average US heating oil prices rose by 48¢/gal, or 34%, during the first half of 2005 compared with the first half of 2004. The increase reflected strong world distillate demand as well as high crude oil prices, EIA said.

While the oil industry continues to assess the damage from Hurricane Katrina and its resulting effect on oil and gas supplies, EIA issued three possible price scenarios because the winter fuel price outlook remains uncertain.

Under a medium recovery case, EIA projects that average heating oil prices will be 31% higher this winter compared with the 2004-05 winter. Under a projected fast recovery case, heating oil prices would be nearly 29% higher than last winter. Under a slow recovery scenario, heating oil prices would be 33% higher.

Winter conditions that differ from current expectations could significantly change the expenditure forecasts, which also vary depending upon the region of the country, EIA noted.

"These estimates are somewhat sensitive to the speed of recovery from Katrina due to different expectations about consumer prices between the fast recovery case and the slow recovery case," EIA said. "The ranges for expected heating fuel expenditure increases this winter are 69% to 77% for natural gas in the Midwest, 17% to 18% for electricity in the South, 29% to 33% for heating oil in the Northeast, and 39% to 43% for propane in the Midwest."

The fast recovery scenario assumes that oil and gas production and distribution from the Gulf of Mexico will be restored to normal quickly. The slow recovery scenario assumes significant outages in production and delivery continue until at least November.

The medium recovery scenario calls for all but 900,000 b/d of crude oil refining capacity to be restored to its full rate by the end of September.

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