As harsh winter weather continues to wallop the Midwest and Northeast, many consumers will be facing higher heating costs.
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“The thing to note is these storms came back to back and it’s sending home heating costs through the roof,” says Samantha Santa Maria, managing editor of the U.S. natural gas group at Platts, a global energy information provider. “We are seeing record prices.”
Parts of the Northeast were blanketed in up to 12 inches of snow Tuesday as temperatures dipped below zero. And as the thermostat was plunging, energy prices were spiking to new highs.
According to Santa Maria, natural gas prices in the New York tri-state area and all the way down to Carolinas rose to above $100 from the average price of about $5. What’s more, she says higher natural gas prices can also push up wholesale electricity prices.
Consumers can rest assured that the entire price hike won’t be passed along to them, but some of it will. Santa Maria explains that utility companies and distributors have to petition states' public utility commissions for approval for passing along added costs to residents.
“How much of these price jumps that get passed along depends on how well the companies were hedged for the severe weather,” she says. “The commissions will approve the costs being passed along, just not all of it.”
Midwest residents who have also been slammed with freezing weather will also see their heating costs rise even if that area of the country is less dependent on gas. The cost of wholesale spot propone jumped 70% from Friday to Tuesday to $2.45 a gallon, which can translate to people paying $100-$200 more to fill up a tank.
“Propane isn’t just heating, it’s also used for crop drying,” says Santa Maria. “We’ve had a lot of rain in the Midwest so there’s been an uptick in propane demand from that as well. Homeowners are duking it out with farmers.”
While the price hikes can pinch consumers' budget, Santa Maria says the problem won’t be long term since inventory is not an issue.
“Higher prices kick producers in the rear end and they start producing more. For gas, it’s easy to pull supply out of the ground. We are talking about a day-long process. We are sitting on a boatload of inventory.”
The only issue she foresees is having the cold weather freeze gas heads. “Thankfully, most producers learned their lesson from the 2008 deep freeze and have been using technology to avoid this. The only question that is lingering is if they can get the supply to the consumers.”
Last fall, the government forecast that Americans would face higher heating bills with expectations that prices for propane, electricity and natural gas would rise. The Department of Energy predicted natural gas heating bills would increase 13% to $679 on average for heating October through March.
“Consumers need to keep in mind that we are only halfway through the winter season, so you better buckle up,” says Santa Maria.