U.S. consumers likely to pay more for propane heating during the upcoming winter

In our October Winter Fuels Outlook, we expect U.S. households that primarily heat with propane will spend more this heating season (October through March) than during the past several winters because of higher propane prices and slightly colder temperatures compared with last winter.

About 5% of all U.S. households use propane as their primary space heating fuel. At least 14% of homes in Vermont, New Hampshire, South Dakota, North Dakota, and Montana use propane as their primary heating fuel. We forecast seasonal expenditures for the average household that uses propane as its primary space heating fuel will be $2,012 in the Northeast, $1,805 in the Midwest, and $1,643 in the South this winter. These forecasts are 47% more in the Northeast, 69% more in the Midwest, and 43% more in the South compared with last winter. Higher retail propane prices are the main contributors to these increases.

Heading into the winter heating season, propane inventory levels are low, and wholesale prices are high, which is driving up retail prices. As of October 13, the wholesale propane spot price at the Mont Belvieu hub near Houston, Texas, was $1.42 per gallon (gal), up 90 cents/gal from the same time in 2020 and the highest level since February 2014, when especially cold weather and distribution bottlenecks led to significant price increases in the Midwest.

Wholesale propane price increases have been driven by relatively high global demand, relatively flat U.S. propane production, and lower global production. These factors have contributed to relatively low propane inventories, which measured 71.7 million barrels on October 8 (including propylene at refineries), or 21% below the previous five-year average.

Another factor is the National Oceanic and Atmospheric Administration’s forecast for a slightly colder winter this year compared with last winter. Cold weather can affect household heating expenditures in two ways. First, it raises the amount of energy required to keep a house at a specific temperature, which increases demand. Second, very cold weather events have the potential to cause supply disruptions. High propane demand and low propane supply situations can be more acute when fuel inventories are already low.