Ups And Downs In Oil And Gas But Gas Remains A Cheaper Heat

The government is out with its annual forecast for the cost of heat. The feds say the cost of heating with natural gas is rising a bit after a few years of decline. The cost of heating oil is lower than last year, but even with those trends people who heat with gas will still enjoy an advantage.

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You're listening to ALL THINGS CONSIDERED from NPR News. For many parts of the country, winter has already struck and struck hard. Residents in those areas have started turning up their thermostats and according to federal predictions, they're likely to notice an increase in how much it costs to heat their homes. As Fred Bever from member station WBUR reports, after years of natural gas being the cheapest heating option out there, the price is starting to go up.

FRED BEVER, BYLINE: Federal forecasters say temperatures this winter will probably be similar to last year's although slightly warmer in the West and slightly cooler in the East. Michael Halpert is deputy director at the federal Climate Prediction Center. He says there are no big weather patterns developing that would change the winter outlook.

MICHAEL HALPERT: Things such as the El Nino or La Nina phenomena. Right now, we have neutral conditions. We've had neutral conditions now for well over a year, and it looks like that's going to continue.

BEVER: OK. So that's good for stability in heating bills. But it's not just about how often the furnace fires up. It's also the cost of the fuel that keeps it stoked. Take oil for instance.

JULIUS WALKER: We can see the supply tightness easing.

BEVER: Julius Walker is the senior energy markets strategist at UBS Investment Bank. He says oil supplies were limited through late summer by unrest in the Middle East and labor strikes in Libya. But that's changing.

WALKER: Libya in itself - Libyan production, at least in the west of the country, is recovering. We're seeing some more Sudanese oil supplies reach global markets, and we're seeing continued strength in outputs of U.S. shale oil and other sources of supply.

BEVER: So that looks good too. Walker is expecting a pullback in crude oil prices, and federal economists are predicting about a 2 percent cost reduction for homes that heat with oil. It's a different story for natural gas, which is used in more American homes than any other heating fuel.

Tancred Lidderdale is senior economist at the federal Energy Information Administration, which issued today's forecasts.

TANCRED LIDDERDALE: So over the last four years, gas prices have been falling and reached a bottom as natural gas production boomed. Now, actually we see gas prices turning around, starting to rise slowly, and that's contributing to higher gas prices this winter.

BEVER: Still, even with a predicted 13 percent increase in the cost of heating a home with natural gas, it remains much more efficient and cheaper than burning oil for heat.

GEORGE PATON: I want to go all the way to 3.5.

BEVER: Which brings us here, to the boiler room of the century-old Hyde Mansion, near the coast of Maine. It's now a boarding school, and George Paton is the facilities manager. He says until just last year, the campus was heated by oil.

PATON: It was state of the art in 1913 so...

BEVER: The Hyde School's heating system is state of the art again, with a brand new natural gas-fired furnace. Paton says the makeover was an easy sell to the school's trustees once they realized that the $200,000 cost of the retrofit would be immediately paid back by equal savings on lower natural gas prices.

PATON: They're savvy business people. They said, a one-year payback? Let me think about that for a minute. OK. Let's go. You know, I mean, it's turned out very well.

BEVER: Even with higher natural gas prices this year, the school's heating fuel bill will be about half of what it was. And according to a long-term federal forecast that extends to 2040, heating with natural gas likely will never again be as expensive as oil. For NPR news, I'm Fred Bever.

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