NEW YORK (MainStreet) — As winter approaches, most consumers can expect to pay more to heat their homes.
Homes that use natural gas, propane and electricity as a source of heat should expect higher prices, said the Energy Information Administration. Still, home heating oil prices are expected to be cheaper than last winter.
Temperatures for this winter are close to what occurred last year, but the Northeast is projected to be about 3% colder while the West will be 3% warmer, the EIA said. The projected changes in residential expenditures from winter of 2012 are 13% higher for homes that heat primarily with natural gas, 9% higher for propane, 2% higher for electricity and 2% lower for heating oil.
One positive note for consumers is that natural gas prices are falling because of "continued efficiency gains through pad drilling," said Campbell Faulkner, quantitative analyst for OTC Global Holdings.
"Each marginal well drilled in the North American shale adds more gas while being cheaper to complete and more efficient to operate," he said. "This should continue to put pressure on gas especially as switching between coal and gas only allows gas to rise so far before the thermal spread of coal and its efficiency forces gas consumption to fall."
Gas prices through the end of 2013 will likely continue on its "sideways trend bearing any structural shifts in the power markets that are unforeseen," Faulkner said. He estimates that natural gas prices will range between $2.90 to $4.70 for 2014.
Whether natural gas prices have hit the bottom remains to be seen, said Peter Jucha, vice president of Clearview Energy, which serves customers in 13 states.
The mid Atlantic, Midwest and Texas markets are likely to see natural gas prices stabilize, he said.
The increases in gas reserves have contributed to the drop in prices and the increase in price stability, Jucha said. The discovery and the economic benefit of hydraulic fracturing and horizontal drilling of natural gas trapped in underground shale rock has led to shale gas fields being developed successfully in the U.S.
Natural gas prices could increase if colder temperatures persist throughout the winter months, increasing demand, said Chris Faulkner, CEO of Breitling Energy Companies, a Dallas oil and gas exploration and production company.
"In the near term I am still pretty bearish on natural gas prices," he said. "We may see a little tailwind in prices due to temporary supply disruptions, including flooding in Colorado and from the various outages we had at gas processing plants around the country. I think we should all realize $4.00 has become expensive gas in this market. On the bright side, we may see demand grow in the latter part of 2014."
The price consumers pay for natural gas depends on how close they are to accessing the commodity and the capacity of the gas pipelines in their area.
New Englanders must pay higher energy prices during the winter because of capacity constraints on the pipelines and the lack of shale gas drilling in the region.
Americans who live elsewhere in the U.S. should "enjoy the low prices while they last," Jucha said.
Consumers can also count on cheaper and more stable electricity prices for the near term, he said.
"This means lower cost options especially in markets that have deregulated electricity since the marginal fuel -- the fuel that determines what the electricity prices will be -- is almost always natural gas," Jucha said. "The savings in non-deregulated markets will be slower coming since default service pricing(both in regulated and deregulated markets) is determined for the most part based on a rolling three year mix of contract costs, so a part of that mix still reflects some old higher gas prices."
For consumers in deregulated states, competitive suppliers can lock in rates based on the new lower gas price paradigm, so savings get passed onto the consumer, he said. Consumers can choose either low variable rates that change with changing underlying costs or lock in rates with longer term contracts. Consumers can often find longer term contracts that can lock them in at lower rates than shorter term contracts.
Lower oil prices, the move past the peak summer driving season and the transition to winter fuel mixes are key drivers in the decline of gasoline prices, said Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis.
Oil prices have been dipping, because there is plentiful supply in the U.S. while demand for oil globally has been tepid, he said. Refineries are running relatively well, so there is plenty of supply coupled with the fact that geopolitical issues with Iran have also been easing.
"Gasoline prices have followed oil prices down," Youngberg said. "Oil is obviously the key driver in the direction of gasoline prices. Oil has fallen about 15% since late August before steadying in November to $94 to $95 a barrel. There is plenty of supply with U.S. production continuing to ramp up and demand has been slow."
The trend toward lower gasoline prices helps consumers and could boost the economy, Youngberg said.
"Gasoline is a major cost for the consumer, so any relief they receive is positive for them and the economy as a whole," he said.
The downward trend could hold for the near term, Youngberg predicts.
"We expect prices will stay close to or decline slightly more through the end of the year," he said. "Now that we have made the transition to winter gasoline formulas, we see them steadying overall. If they move, it is much more likely downward, but much of the decline is likely done."
--Written by Ellen Chang for MainStreet