American Oil and Gas Reporter - December 2016 - 47

ation, storage injections for most weeks
last summer were lower than the fiveyear average. Under the base case winter
forecast, EIA says it expects inventories
to end the winter at 1.9 Tcf.
In the event of a colder-than-forecast
winter, high stock levels should help
moderate price volatility, EIA notes. Although pipeline transportation constraints
have eased somewhat in recent years, the
agency says they remain a challenge to
markets in the Northeast. Basis differentials
last winter to the benchmark Henry Hub
price in major Northeast demand centers
were lower compared with the winter of
2014-15, as mild temperatures and some
pipeline capacity additions in the Middle
Atlantic region helped limit spikes, according to EIA.
This year, additional capacity will be
available to deliver natural gas from the
Marcellus region to New England with
the startup of the Algonquin Incremental
Market project. This incremental pipeline
capacity has helped lower expected prices
for natural gas delivered to Boston during
the peak winter months by about
$1/MMBtu compared with expectations
from a year ago.
However, EIA notes that the Northeast
still faces pipeline constraints, particularly
in the New England market, contributing

to significant basis differentials to Henry
Hub futures. These constraints could contribute to day-to-day price volatility during
periods of cold temperatures, the agency
warns.
Propane
Propane is the primary heating source
for 5 percent of U.S. households. U.S.
propane inventories were at record levels
going into the heating season, reaching
104 million barrels at the end of September, 4 percent higher than at the same
time in 2015. EIA says it expects an inventory draw of 40.6 million barrels this
winter, compared with 33.8 million barrels
last winter. The projected draw still would
leave inventories 32 percent above the
five-year average at the end of the heating
season.
With the colder weather, EIA predicts
propane consumption in both the Midwest
and Northeast markets will be 13 percent
higher than last winter, and projects that
prices will be 14 percent higher in the
Midwest and 7 percent higher in the
Northeast.
High inventories should be sufficient
to allow for even stronger-than-projected
inventory draws, given colder weather,
higher crop-drying use, or stronger exports.
With the addition of new export facilities

during the past several years, and a new
Gulf Coast terminal expected to begin
operations later this month, EIA says the
United States has the capacity to support
higher-than-forecast levels of propane
exports when spot shipments are economically viable.
Heating Oil
Nationwide, 5 percent of households
use heating oil as the primary fuel, with
the vast majority of them located in the
Northeast, where 22 percent of all households rely on heating oil. EIA says it expects heating oil prices to be higher than
last winter, given that crude oil prices
are forecast to rise 24 percent with gradually tightening global supply balances.
Under the base case, EIA estimates
that households using heating oil will
spend 38 percent more than last winter,
reflecting higher consumption and retail
prices. In a 10 percent-colder weather
scenario, consumption would be 25 percent
higher than the base case and prices
would increase another 24 percent.
Although forecast to be higher than
last winter, EIA says crude prices should
remain well below the levels seen from
2010 to 2014 as the global market continues to move toward balance. "However,
crude oil prices remain highly uncertain,

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