Predictions: Drier Weather and Higher Bills

With this winter expected to be colder than last year, and global oil prices significantly higher than in late 2006, U.S. consumers will face higher heating bills and little relief at the gasoline pump in the coming months, the government's energy forecasting agency predicts.

The annual winter fuels outlook unveiled today by the U.S. Energy Information Administration shows households paying an average of $86 more to heat their homes, a 10 percent increase over last year. But the burden is far worse for homes concentrated in the northeastern part of the United States that rely on heating oil. Those costs are expected to go up 22 percent, or $319.

EIA Administrator Guy Caruso said the tight worldwide balance between oil supply and demand means that any one of numerous factors—disruptions in Iran, Iraq, Venezuela, or Nigeria, faster-than-expected economic growth, or harsh weather—could worsen the picture. "It's difficult to overemphasize how uncertain crude oil prices are," he said.

Not all homeowners are feeling the same amount of pain. Those who rely on electricity for heat—about 30 percent of the households in the country, heavily concentrated in the South—will see only about a 4 percent increase in prices. Electricity is partially shielded from the price swings associated with oil because more than half of the electricity generated in the country is fueled by coal and 20 percent by nuclear power. Also, state public utility commissions play a strong role in regulating consumer electricity rates, preventing the strong seasonal fluctuations often seen with the other heating fuels.

But across the country, the majority of homes—nearly 60 percent—are heated with natural gas, and winter costs for those homes face a $78 increase, or 10 percent.

Meanwhile, motorists will see a slight decline in gasoline prices from October through February, but far less than in recent winters. Caruso said EIA expects gas prices to decline about 10 cents from the current $2.78 average. But high global oil prices will prevent the usual winter dip in gas prices due to the seasonal drop in driving. Also, gas prices are expected to increase again in spring 2008, as they did this year, because U.S. refineries are running near full capacity.

Caruso said his agency's projections are based on the assumption that this winter will be 4 percent colder than last year, but still 2 percent warmer than the 30-year average for the United States.

But the government's top climate forecaster told the state and industry officials gathered at the winter fuels conference that the big weather story in the nation this winter is likely not to be temperature but precipitation—or lack of it.

Mike Halpert, head of forecast operations for the National Oceanic and Atmospheric Administration's Climate Prediction Center, said that La Niña, a cold episode already evident over the eastern Pacific Ocean, is likely to be the driving force behind the nation's weather in the coming months.

La Niña typically has different impacts in different portions of North America, and those effects also vary depending on the system's strength. With the government predicting a strengthening La Niña, NOAA's forecast is for dry weather in the southern half of the United States and greater-than-normal precipitation in the Ohio and Tennessee valleys and the northern Rockies.

This could create hardship in both the Southwest and the Southeast, regions that already have been in a state of severe drought, Halpert said. The West, which depends on the winter months for the bulk of its precipitation, will be entering its second consecutive dry winter season.