- The Washington Times - Wednesday, October 11, 2006

The government projected a decline in winter heating bills yesterday, adding to the already sizable benefit to consumers from falling energy prices.

The Energy Information Administration yesterday predicted that for the first time since 2001, home heating bills will stay the same or decline from last year’s levels, thanks to plunging oil and natural gas prices and forecasts of a mild winter ahead.

Add that to rapidly dropping gasoline prices — pump prices have plunged 75 cents to $2.26 since August, the fastest decline on record — and consumers are set to enjoy an energy dividend just in time for the holidays, economists said.

“We expect a powerful surge in discretionary income will lift spending, courtesy of the recent plunge in energy quotes,” said Richard Berner, chief economist at Morgan Stanley. He estimates consumers’ discretionary income has jumped at a $100 billion annual rate since August because of falling gasoline prices, and will grow by another $20 billion to $30 billion because of lower heating bills.

This should give a small boost to economic growth, he said, but he cautioned that much of the windfall could be wiped out if the weather turns out to be colder than expected.

“We already know that consumers celebrated the drop in gas prices by going shopping in September,” said Gina Martin, economist with Wachovia Securities, who predicted gas prices will bottom out between $2 and $2.25 on average this winter before heading up again in the spring.

But consumers may not spend the windfall too wisely, she said. Wachovia expects consumers to blow some of their spare change simply by driving more, leaving about $12.6 billion for spending at shopping malls and stores — not enough to make a major impact on the economy.

The fall in pump prices already has prompted consumers to revisit their love affair with sport utility vehicles after a flirtation with more fuel-efficient cars brought on by $3 gasoline in the spring and summer, said Patrick Olsen, a managing editor at Cars.com.

“Consumers have a short memory,” he said. “It has been less than a month since gas prices dropped below $3 a gallon, and we have seen a surge of consumers looking for SUVs on Cars.com.”

Energy analysts expect the drop in energy prices to be temporary, as crude oil prices remain high and world supplies remain fairly tight. Despite the renewed enthusiasm for big cars, surveys show that consumers also are skeptical that gas prices will remain low.

Consumers are enjoying the windfall from lower gasoline prices right now, but the benefit they will receive from lower projected heating bills will not be felt fully until December and January.

The energy agency said the majority of Americans who use natural gas to heat their homes will see a 12.5 percent drop in heating costs this winter as a result of a decline in gas prices and a mild winter. The agency said the winter will be 2 percent warmer than normal but 6 percent colder than last year’s extraordinarily balmy winter.

Natural gas prices have plummeted since last year because of the unusual warming trend, which caused a record buildup of stored gas at utilities. People who heat with propane also will see a 1.1 percent decline from last year’s prices.

But oil prices are higher than last year, and electricity rates are up, so those who heat with electricity and heating oil will see increases of 7.4 percent and 6.3 percent, respectively, the agency said.

Bill Cooper, executive director of the Center for Liquefied Natural Gas, said he is concerned that consumers will be lulled into a false sense of energy security because of the break from high gas bills that is occurring largely because of abnormally warm weather. Gas prices, while down, are still double what they were five years ago.

“We are at the mercy of the weather, and that’s a dangerous place to be as we saw when Hurricanes Katrina and Rita knocked out much of the Gulf of Mexico’s natural gas production and prices spiked” last year, he said. “To rely on one of the most unpredictable elements … to determine whether we’ll be able to heat our homes and power our industries — that’s no way to run a railroad.”


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