November 10, 2010
(Next Release on November 17, 2010)

Propane Costs This Winter

The Energy Information Administration (EIA) expects households heating primarily with propane to spend an average of $1,974 this winter heating season (October 1 through March 31), an increase of $144 or 8 percent over last winter (Table 1). In the November 2010 Short-Term Energy Outlook, EIA projects residential propane prices this winter will average about $2.46 per gallon, $0.28 per gallon (13 percent) higher than last winter. Expected U.S. consumption of residential propane decreases by more than 4 percent compared with last winter, partially mitigating the effect of the higher prices.

Fuel expenditures for individual households are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings. The National Oceanic and Atmospheric Administration (NOAA) projects population-weighted U.S. heating degree-days will be about 4 percent lower than last winter. However, heating degree-day projections vary widely between regions. For example, NOAA projects that the South, a large market for propane, will be about 17 percent warmer than last winter, while the Northeast will be about 4 percent colder. The largest residential propane consuming region is the Midwest, where 8 percent of the homes heat with this fuel. Projected temperatures in this area are 2.2 percent warmer than last year. EIA projects Midwest propane prices to increase by 18 percent this winter while consumption in that region falls by 2.3 percent, resulting in an expenditure increase of 15 percent.

One factor pushing up propane prices this winter is higher crude oil prices. About 44 percent of the propane supply comes from petroleum refineries, with an additional 44 percent from natural gas processing plants, and 12 percent from imports. EIA expects the average cost of crude oil to U.S. refiners to increase from an average $74.50 per barrel last heating season to $81 per barrel, a gain of about $6.50 per barrel or 15 cents per gallon.

Total U.S. stocks of propane are about 5 million barrels below the level at this time last year and almost 3 million barrels lower than the previous 5-year average, but still within the typical range for this time of year as published in the Weekly Petroleum Status Report. EIA expects propane supply will be sufficient to meet this winter’s heating season requirements. However, there are distribution issues in the New England region. A leak was found in the TEPPCO propane pipeline east of Watkins Glen, New York in late August. The pipeline closed its Oneonta, Harford Mills, and Selkirk terminals in New York. Those terminals have been closed since the start of September and are not expected to reopen until later this month and next, following successful completion of hydrostatic testing of the pipeline, which involves injecting water at high pressure to confirm its integrity. These markets are currently being supplied from other sources. The TEPPCO pipeline is a propane-only pipeline and heating oil distribution has not been affected.

Retail Gasoline and Diesel Prices Increase
The U.S. average retail price for a gallon of gasoline shot up 6 cents from last week to $2.87 per gallon and was $0.20 per gallon higher than last year at this time. The increase was most pronounced in the Midwest, where the gasoline price soared 13 cents versus the previous week. Prices on the Gulf Coast gained four cents, followed by a three cent rise on the East Coast. Relative to the rest of the country, price increases in the Rocky Mountains and on the West Coast were muted, with each region seeing a gain of less than penny from the week before. Prices on the West Coast remained the highest in the country at $3.08 per gallon.

The average retail diesel price was a nickel higher than last week, with the national average for a gallon of diesel now up to $3.12 per gallon, $0.32 higher than last year at this time. Prices in the Rocky Mountains led way, gaining six cents versus last week. Comparable to the national average, the East Coast, Midwest, and Gulf Coast regions each registered a gain of about a nickel. The diesel price increase on the West Coast lagged the rest of the country, growing three cents from the week before, but like gasoline, remained the highest in the country at $3.27 per gallon.

Residential Heating Fuel Prices Record Significant Gains
Residential heating oil prices increased during the period ending November 8, 2010. The average residential heating oil price increased by approximately $0.09 per gallon last week to reach $3.08 per gallon, an increase of $0.33 per gallon from the same time last year. Wholesale heating oil prices increased by $0.13 per gallon last week, reaching a price just shy of $2.46 per gallon. This is $0.40 per gallon higher than last year’s price.

The average residential propane price increased by almost $0.05 per gallon to reach $2.50 per gallon. This was an increase of $0.29 per gallon compared to the $2.21 per gallon average from the same period last year. Wholesale propane prices increased by about $0.05 per gallon from $1.29 per gallon to $1.34 per gallon. This was an increase of $0.15 per gallon when compared to the November 9, 2009 price of $1.19 per gallon.

Propane Inventories Draw Down
U.S. inventories of propane experienced a draw last week with the arrival of colder weather in the Northeast and Midwest. Total stocks were down 0.6 million barrels to end at 63.8 million barrels. Most of the decline happened in the Gulf Coast region, which drew 0.7 million barrels. The East Coast regional stocks fell 0.3 million barrels and the Rocky Mountain/West Coast region drew 0.1 million barrels of propane. The Midwest region added 0.4 million barrels to inventory. Propylene non-fuel use inventories represented 2.8 percent of total propane inventories.

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