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No need to shiver: Heating costs should drop this winter

Don't feel guilty about turning on the heat when temperatures dropped into the 30s last weekend. It didn't break the bank.

In fact, it's likely that this will be one of the most affordable winters in decades for heating your home, according to a new forecast from National Fuel Gas Co.

The Amherst-based energy company predicts that heating bills for the average Western New Yorker will drop by almost 15%, compared with last winter.

National Fuel predicts that its average customer will pay $511 to heat their home from November to March. That's down from $599 last winter, when temperatures were nearly 3% colder than normal and natural gas prices were higher.

If National Fuel's forecast holds up – and it's based on the assumption that temperatures this winter will be normal – heating costs would be the third-lowest since 2000. Only the unusually warm winters of 2015 and 2016 had lower heating costs.

The reason for this year's lower costs: A steep drop in natural gas prices, which have dropped by 20% over the past year as record growth in natural gas production has sent prices tumbling.

That's good news for the nearly 94% of homes across Western New York that heat with natural gas, said Karen Merkel, a National Fuel spokeswoman.

Further helping drive costs lower is the Buffalo Niagara region's location near the prolific natural gas fields in central and western Pennsylvania, where abundant supplies have pushed gas prices about 10% below the national average, she said.

"This is going to be a low-cost winter," said Gary Marchiori, the president of EnergyMark, a Williamsville energy services company. "It's much different this year – much lower – given the fall in natural gas."

While new pipelines in Pennsylvania have reduced the discount on gas produced there, the ability of producers to quickly ramp up production at the first hint of improved pricing has kept a lid on gas costs, he said.

For Western New Yorkers, the proximity of those natural gas fields to the region is an added benefit, reducing the costs of transporting the natural gas drawn from Pennsylvania's shale formations using controversial hydrofracking techniques.

"We're right next door and we can access it pretty easily," Marchiori said.

There is one caveat to National Fuel's forecast: It's based on the assumption that temperatures won't be unusually warm or abnormally cold. Warm weather could push bills even lower, since residents would use less natural gas. A cold snap would drive bills higher since furnaces would have to run more frequently.

But even if temperatures turn colder, the ample supplies of natural gas from the shale gas region in Pennsylvania, where state regulators allow drillers to use the controversial hydrofracking methods that are barred in New York, should keep natural gas prices from returning to the levels they were at a decade ago, when winter heating bills routinely topped $1,000.

About half of the natural gas that National Fuel’s customers will use this winter was purchased during the summer – a practice that reduces potential price spikes should gas costs soar, while also limiting the potential savings if they plunge, Merkel said. The utility also buys some gas through advance-purchase contracts or on the spot market, Merkel said.

Nationwide, heating bills are expected to drop by about 1% for the half of all American households that heat with natural gas, according to a forecast this week from the U.S. Energy Information Administration. If this winter turns out to be 10% colder than normal, the agency says heating bills could rise by 7%. If temperatures are 10% warmer than normal, bills could drop by 12% compared with last year.

What's keeping heating costs down is a glut of natural gas, which has pushed gas prices steadily lower. The Energy Department expects natural gas spot prices this winter to be 24% lower this year than they were last winter.

That's because natural gas production keeps rising, pushing prices lower even as the U.S. exports of liquefied natural gas grow rapidly.

"It's simply too much too fast," said Sam Andrus, the executive director of IHS Markit in a report last month on the natural gas market.

"Drillers are now able to increase supply faster than domestic or global markets can consume it," Andrus said. "Before market forces can correct the imbalance, here comes a fresh surge of supply from somewhere else."

National Fuel, which drills for natural gas in Pennsylvania, is a prime example. The company is scaling back its drilling program in central and western Pennsylvania because of low prices. But even with fewer wells being drilled, the company still expects its gas production to rise because its newer wells are more prolific.

Still, heating costs can be a burden for low-income consumers, who often use more gas because their homes and apartments tend to be older, draftier and less insulated than residences of wealthier consumers.

Low-income consumers in New York spend between 20% and 40% of their income on energy costs, according to the state Public Service Commission. Nearly 1 in 6 National Fuel customers is considered to be low-income.

National Fuel, like all utilities in the state, does not make a profit on the natural gas that it sells its customers. Its profits come through the delivery charges paid by consumers that are set through negotiations with state utility regulators.

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