EIA: Katrina is Likely to Cause High Winter Heating Costs

September 14, 2005

Hurricane Katrina's devastation in the Gulf states is currently driving fuel prices to record levels, but according to DOE's Energy Information Administration (EIA), the impact on winter heating bills may be worse. The EIA's "Short Term Energy Outlook," released on September 7th, is surely the most complicated report yet, since it features three scenarios for recovering from the hurricane: a slow, medium, and fast recovery. Focusing on the "medium recovery" scenario, gasoline prices will average near $3 per gallon for September, but should drop to an average of $2.58 per gallon for the fourth quarter of 2005.

The EIA's first look at winter heating costs contains a great deal of uncertainty, but tight supplies combined with the growing energy demand in winter are expected to keep fuel prices high. As a result, households in the Midwest fueled with natural gas are expected to see a 71 percent increase in heating costs compared to last winter; Midwest households using propane could see a 40 percent increase; households in the Northeast using heating oil could see a 31 percent increase; and households in the South using electricity could see a 17 percent increase. See the EIA's "Short Term Energy Outlook."

According to the September 13th situation report from the DOE Office of Electricity Delivery and Energy Reliability, less than 320,000 customers in Louisiana and about 84,000 customers in Mississippi remain without electricity. It appears that most of the remaining customers without power cannot receive it due to flooding, damaged substations, or damage to the customer's building. Meanwhile in the Gulf of Mexico, 56 percent of oil production and 37 percent of natural gas production remain shut down. According to the EIA daily report on Katrina, five refineries remain shut down, including three in Louisiana that lack power. The EIA report says four of the refineries, representing 5 percent of U.S. refining capacity, could remain shut down for an extended period. See the latest Hurricane Katrina situation report and EIA daily report.