Wednesday, October 12, 2005

Heating bills will jump by an average of $350, or 48 percent, if this winter is slightly colder than normal and people cut back on their energy use, the government estimated yesterday.

But the range of potential increases is wide, given forecasts for a cold winter and the widespread destruction of oil and natural gas facilities by two recent Gulf Coast hurricanes. Fuel prices and demand for energy have fluctuated wildly in the aftermath of the storms.

Bills could climb by as much as 95 percent if the winter is harsher than expected for Midwestern households using natural gas, or they could decline by 5 percent for homeowners locally who heat with electricity, if the winter is warm, according to the Energy Information Administration.

In Washington and the rest of the Mid-Atlantic, where most households use natural gas, bills from October through March will jump 48 percent to $1,461 if the winter is 10 percent colder than expected. But they could rise by less than half that much if the weather is 10 percent milder than expected, the agency said.

“Still-higher energy prices remain a threat,” said Richard Berner, economist at Morgan Stanley, who said astronomical heating bills are the biggest shock looming for consumers already stricken by the record cost of gasoline.

While oil and gas prices have settled some lately as damaged facilities have been repaired and put back online, “energy markets are vulnerable to more shocks” that could continue to destabilize prices throughout the heating season, he said.

But Federal Reserve Chairman Alan Greenspan yesterday again expressed his faith in the ability of U.S. consumers and the economy to withstand the energy price shock.

“The flexibility of our market-driven economy has allowed us, thus far, to weather reasonably well the steep rise in spot and futures prices for oil and natural gas that we have experienced over the past two years,” he said.

The surge in prices is expected to hit low-income households the hardest. The Bush administration yesterday released $1.3 billion in funding to help those households cope this winter.

The Energy Information Administration in its forecast makes the critical assumption that both residential and industrial users of gas and oil will cut back substantially on consumption in response to sharply higher prices this year.

If that forecast is incorrect — for example, if Gulf-area chemical companies that are heavy users of natural gas and are now sidelined by damage from the storms come back this winter — costs could jump significantly over the forecast.

Another critical assumption is that damaged oil and gas drilling rigs, pipelines and processing facilities will be repaired and come online steadily, so that most are producing again by the end of the year.

But a Federal Energy Regulatory Commission official yesterday warned that recovery could be slow and lead not only to higher prices but actual shortages of natural gas.

“If the winter is severe enough, there could be supply issues toward the end of winter,” Stephen Harvey, the agency’s deputy director, told Bloomberg News.

Another assumption — that the weather this winter will be 0.4 percent colder than normal — is questioned by AccuWeather and some other forecasters.

“Much colder than normal temperatures should be expected in the Northeast this winter,” said meteorologist Ken Reeves. “Extremely active tropical seasons in the Atlantic and Gulf of Mexico in the past have translated to succeeding harsh winters in New England.”

The National Weather Service said yesterday there is a 60 percent chance of warmer-than-normal weather in the Midwest and parts of the West. States adjoining that area, plus Washington, Oregon, Alaska and Hawaii also have a chance of being warmer than usual.

Other regions could be warmer or cooler than usual, but the federal agency did not single out any area to be especially cold.

The energy information agency did note, however, a potential pitfall for the majority of consumers who rely on natural gas: Any shortfalls that develop this winter cannot realistically be made up with imports. The U.S. has only a limited number of ports that can accommodate shipments of liquefied natural gas, and even current high prices have attracted few shipments from abroad.

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