Expect a hit in the wallet from home heating this winter

CALGARY -- Home heating costs this winter will likely be higher than last winter, economists say, but prices are expected to be less up and down because there's a comfortable amount of oil and gas in storage ahead of the coldest days of the year.

"At the moment things don't look particularly troublesome," said Judith Dwarkin, chief economist at Ross Smith Energy Group in Calgary. "But it's not like prices are going to be lower this winter."

Soaring crude oil prices and consistently higher natural gas prices are to blame for the expected increase in heating costs. The high prices will likely stay as a result of a variety of factors, including soaring demand but tight supply.

High crude prices -- the commodity traded for more than $46 (U.S.) a barrel last Friday, up about 50 per cent in the past year -- have pushed the price of heating oil higher. It has traded at more than $6 per million British thermal units all through this year and recently cracked through $8, compared with prices of between $5 and $6 through most of 2003.

Natural gas prices have been in steady decline since early June, pushed down by lower-than-expected demand. People have used their air conditioners far less than usual because of a cool summer in much of North America. But benchmark prices on the New York Mercantile Exchange so far this year have still averaged about $5.95 per million British thermal units, 5 per cent more than the same year-to-date period in 2003.

The cooler summer has also meant that more gas is being injected into storage for use during the winter. Stocks of crude used for heating oil are at reasonable levels as well.

For consumers, rising commodity prices exact a direct toll on home energy bills. "If gas prices change, we do adjust the price accordingly," said Lisa McCarney, a spokeswoman at Enbridge Gas Distribution Inc. in Ontario.

Distributors, which are regulated entities, only profit off distribution and do not gain from higher prices.

Consumers can opt to buy contracts from companies such as Direct Energy Marketing Ltd. if they want fixed rates that don't change constantly, though they might end up paying more than necessary.

Enbridge, like Terasen Inc. in British Columbia, reviews and generally adjusts its rates every three months.

Costs are already on the rise. As of July 1, Enbridge gas supply rates increased by a sixth -- adding $122 (Canadian) a year to the typical home's bill, based on the new rate.

The price of natural gas accounts for between a half and three-quarters of a home heating bill, according to the Canadian Gas Association. Delivery accounts for most of the rest.

Delivery is cheapest in Alberta, given proximity to natural gas production, and most expensive in Quebec.

A serious effort to make one's home more energy efficient and reduce usage can potentially slash about 20 per cent from gas supply costs during the winter home heating season, according to Enbridge. Tips include sealing all cracks and drafts around windows, doors and sockets, and reducing the temperature in the home by 3 C for eight hours each day.

Weather has a big effect on prices, industry players say, though fretful commodity traders can have an impact too.

Ahead of last winter, storage levels weren't strong and despite relatively warm weather, there were serious spikes in gas prices, on worries there wasn't enough supply in storage to make it through winter with reasonable amounts left for the following spring and summer.

That probably won't occur this year, said economist Douglas Porter of BMO Nesbitt Burns Inc., though it does suggest underlying tensions in supply and demand that could keep prices high for several years to come.

"I'd hardly call gas prices moderate or low but at least they haven't taken off like a scalded cat like [the price of] oil," Mr. Porter said.

Predicting the future of oil and gas prices is difficult; predicting the weather is more so, especially five months from now -- but it is that variable that Mr. Porter said can be the "dominant" factor.

The winter weather forecast, at this early stage, suggests continuing cold weather after a cool summer, said Jay Anderson, a meteorologist at Environment Canada.

"I would tend to see a cool winter, but at some point we're going to kick out of that," Mr. Anderson said. "There are also hints -- though no one is willing to predict it yet -- that an El Nino is developing.

"A warm, dry winter can shave $200 from heating costs, Environment Canada has estimated.

El Ninos are the occasional weather phenomenon that sees water in the Pacific Ocean warm through the summer months and notably alter normal winter weather patterns.

In some years that an El Nino occurs, they are relatively mild. In others, such as in 1997-98, they can produce temperatures far above normal in some regions and heavy precipitation in others.

"If an El Nino happens," Mr. Anderson said, "all bets are off."