Winter heating bills to drop

WASHINGTON -- Most Americans hard hit by the economy's downturn have one less thing to worry about: energy prices.

With plenty of supplies and weak demand, the government predicted Thursday the cost of gasoline, heating fuel and electricity all should be much lower this winter than last.

That's in sharp contrast to a year ago, when short supplies and spikes in demand saw prices soar.

The Energy Information Administration's winter fuels report said that prices have been declining and should continue to do so in the coming months because of solid inventories and sagging energy demand triggered by the poor economy.

The most striking turnaround is seen in natural gas prices, expected to average about a third of what they were last winter on the wholesale market. Gas is used to heat more than 56 million homes, especially in the Midwest.

A typical household using natural gas is expected to spend about a third less this winter for heating, a savings of about $320 over last winter, said the agency. Homes using heating oil and propane are likely to see costs drop 17 to 23 percent, a savings of at least $170.

But state officials and private assistance groups warn that for low-income families, there still could be tough times despite the lower energy prices. Many of them are still trying to recover from the financial setback of last winter's high prices.

"Even a normal winter and normal energy prices could lead to severe hardship among the nation's low-income households," said Mark Wolf, executive director of the National Energy Assistance Directors Association.

Last year almost 5 million households received energy assistance money from the government.

Gasoline prices, which normally dip in the winter months, were projected to decline on a national average to below $1.35 a gallon by the end of the year. The price could be lower in some states with low fuel taxes.

Gas down from year ago

The average price of regular gasoline nationwide was $1.41 a gallon this week, about 11 cents cheaper than at the same time a year ago, according to the EIA. The average price at gas pumps has tumbled 11 cents a gallon nationally in the three weeks since the Sept. 11 terrorist attacks, the EIA report said.

The forecast for lower heating costs was welcomed at the annual fall conference Thursday in nearby Alexandria, Va., of the National Association of State Energy Officials.

"We're in much better shape this year than last," said David Terry, the group's managing director. He noted that two years ago heating oil soared, and last year natural gas reached a record high along with higher heating oil costs.

"It's a nice return to normal conditions," he said, although adding a word of caution. "If we have a cold winter that catches people by surprise, that could cause prices to spike. Weather is always a factor."

Crude oil prices down

The lower energy prices across the board reflect largely the drop in crude oil prices combined with an expectation that the poor economy will lead to a further drop in demand this winter.

The spot price for light sweet crude on Thursday was $22.27 in New York with price for delivery in December only 17 cents higher. Crude prices reached $31 a barrel earlier this year.

The government report estimated that oil prices this winter will be on average $7.60-a-barrel cheaper than last winter.

Lower demand

Meanwhile, industrial demand for natural gas fell by 18 percent during the first half of the year and is expected to continue falling because of the declining economy, the report said.

Natural gas prices on wholesale markets are expected to stay at about $2.10 a thousand cubic feet compared to an average of $6.20, peaking at $10, last winter, the report said. The collapse of the gas market is likely to push down heating oil and electricity prices as well, according to the EIA analysis.

With gas in ample supply and cheap, fewer industrial users or power plants will shift to oil, as they did last winter. Electricity prices also could benefit since a growing number of power plants use gas.

Distillate stocks -- heating oil, diesel and jet fuel -- were 8 percent higher at the end of September than at the same time a year ago and are expected to continue to increase in the coming months, the report said.

With airlines cutting back flights in the aftermath of the terrorist attacks, demand for jet fuel has dropped by 20 percent, the report said. As a result refiners are expected to push out more heating oil, adding to supplies and pressuring prices downward.