HVAC Contractors Brace for a Cold, Long Winter
Natural gas prices expected to reach highest costs since winter of 2010-2011
While most Americans cringe at the thought of colder, longer winter forecasts and more expensive fuel costs, these forecasts are music to HVACR contractors’ ears.
And, based on information recently released by ACCUWeather and the U.S. Energy Information Administration (EIA), the 2016-2017 winter is set to be one of the longest, most expensive we’ve experienced in years.
Temperatures this winter, based on the most recent forecast of heating degree days from the National Oceanic and Atmospheric Administration (NOAA), are expected to be much colder than last winter, especially east of the Rocky Mountains. NOAA anticipates the Northeast and Midwest will be 17 percent colder and the South, 18 percent colder. In the West, temperatures are forecast to be about 2 percent warmer than last winter. However, recent winters provide a reminder that weather can be unpredictable.
“For the beginning of the meteorological winter [December], it looks like the most extreme area will be the northern Plains,” said Evan Duffey, meteorologist, AccuWeather. “From the Dakotas and Montana, down to Kansas, and east toward Chicago, we’re expecting to see below-normal temperatures in December as cold shots get into the area frequently. Outside of this region; however, winter may be slow to start with above normal warmth across a majority of the country.
“This warmth will come to an end in January, which could be a big month for HVAC contractors as the jet stream changes and cold air spills into the eastern two-thirds of the nation,” continued Duffey. “This even includes Florida, where we are concerned for a freeze this year, which is a very rare event for the Florida Peninsula. The northern Plains will still be the most extreme, but there could be some very, very cold snaps in the Great Lakes and Northeast, as well, which could bring that region’s heating degree days up above normal.
“In February, things may settle down for the East, but the cold will continue in the Plains, and the storm track may shift into the Great Lakes as some really extreme cold temperatures may reach into the Midwest,” he said.
Households heating primarily with natural gas should expect to spend $116 (22 percent) more this winter compared with last winter, according to the EIA’s recently released Short-Term Energy and Winter Fuels Outlook.
The increase in forecast expenditures compared with last winter is driven by comparatively similar increases in price and consumption. Residential natural gas prices are forecast to average $10.37 per thousand cubic feet (Mcf), which is 11 percent higher than last winter. Prices at this level would be the highest since the winter of 2010-2011.
Consumption is forecast to increase 10 percent when compared to last winter. The increase in consumption is based on a return to temperatures that are closer to normal following last winter’s El Nino weather pattern that resulted in winter temperatures that were 15 percent warmer than the previous 10-year national average.
Although residential natural gas prices are forecast to be 11 percent higher than prices last winter, Henry Hub spot prices are expected to average $3.16 per MMBtu ($3.26/Mcf), which would be 53 percent higher than last winter.
“The picture that has emerged for the upcoming winter is one of a flexible natural gas market that is able to respond to changes in weather and customer demand with ample supply and full storage facilities. Because of colder weather and growth in demand for natural gas, the Natural Gas Supply Association [NGSA] anticipates upward pressure on prices compared to last winter,” said Bill Green, chairman of NGSA and vice president of downstream marketing for Devon Energy Corp. “We’d like consumers to keep in mind that wholesale natural gas prices were unusually low last winter due to record warm winter weather. Last winter, wholesale prices averaged less than $2 per MMBtu, which is the lowest since the 1990s, and that’s not just because the winter was so mild. It’s also because of abundant gas from shale with even more gas on tap from storage and a flexible and responsive pipeline infrastructure system.”
The EIA expects households heating primarily with heating oil to spend an average of $378 (38 percent) more this winter than last winter, reflecting retail prices that are $0.42/gallon (20 percent) higher and consumption that is 15 percent higher.
Reliance on heating oil is highest in the Northeast, where, according to the EIA, about 22 percent of households use oil for space heating, which is down from 27 percent five years ago as an increasing number of homes switch to using natural gas and electricity for space heating. Nationwide, 5 percent of households use heating oil.
Heating oil prices are expected to be higher than last winter because of crude oil prices which are forecast to be 24 percent higher than last winter. The Brent crude oil price, which is the crude oil price most significant in determining U.S. petroleum product prices, is forecast to average $48/b this winter, which would be $9/b (22 cents per gallon) higher than last winter.
Despite the immediate price increases, expected average household heating expenditures this winter will be about 32 percent less expensive than the five winters prior to last winter.
“We are always pleased to hear our customer base will be spending less money [based on the five-year average] to heat their homes due to lower cost of the fuel,” said Ralph Adams, president, Oil & Energy Service Professionals (OESP). “This lower cost gives customers more money in their pockets for upgrades in equipment or other needs around the home.”
Adams added that this winter would be a great time for customers to consider upgrading to higher-efficiency equipment. “We all know that lower fuel costs will not stay like that forever,” he said. “While heating fuel costs are still somewhat affordable, this is a great opportunity for consumers to replace their old outdated equipment with higher efficiency equipment. The savings with the lower cost can help offset the equipment cost; as the cost of energy goes up, so does the savings.”
Households heating primarily with electricity are forecast to spend an average of $49 (5 percent) more this winter, as a result of 5 percent higher consumption, including both heating and non-heating uses of electricity, and about 1 percent higher residential electricity prices than last winter. Among U.S. households, 39 percent rely on electricity as their primary heating source, ranging from 63 percent in the South to 15 percent in the Northeast.
“In the long term, the electroindustry will regain some of the strength it has lost. Though, the idea it will receive the same level of economic growth it saw before the recession is unlikely, said Don Leavens, chief economist, National Electrical Manufacturers Association (NEMA), in a podcast interview. “The economy has fundamentally changed and the underlying productivity of the economy has changed, and this will impact overall demand. However, this sector is one of the more innovative sectors out there, so there is great potential for economic output even though the rest of the country may not grow quite as quickly.”
Winter brings many challenges for HVAC contractors, including competitive purchasing; locating, hiring, and retaining qualified workers; and also keeping staff busy every day.
“Volatile utility prices tend to be a large concern in our market, where our clients research and understand market drivers,” said Kathy Townsend, director of government procurement, Trademasters Service Corp. in Lorton, Virginia. “Even though many of our clients in the Washington, D.C., area seem to relocate more frequently than some markets, well-informed clients are interested in energy-efficiency solutions like dual-fuel systems and geothermal. Preventive maintenance and system efficiency are also well understood in our market.”
In addition to prices, Trademasters, much like many other contractors, is tasked with keeping its highly skilled workforce busy year-round. “Routine maintenance helps us fill that need,” said Townsend. “We find that lack of maintenance is a major cause of system failures, so, more importantly, preseason maintenance allows us the opportunity to check our clients’ systems and spot problems before the peak season comes and the added stress causes failures.”
Denise A. Webb, service manager, Welsch Heating and Cooling in St. Louis, agreed that keeping installers and service techs working throughout the summer is among the company’s greatest challenges.
Outside of keeping everyone busy, the company must overcome snow and other inclement Midwest weather challenges.
“Rear-wheel drive vans are not equipped to get around in any type of measurable snow,” Webb said. “Fortunately, it doesn’t happen very often here, but, unfortunately, when it does, it’s usually when we are having some of our coldest temperatures.”
While some contractors struggle with an abundance of snow, Travis Smith, owner of Sky Heating and Air Conditioning in Tualatin, Oregon, said his crews struggle when even a trace of snow is present.
“We only average 3 inches of snow per year, which means we do not have the city or state resources to handle snow when it comes in,” Smith said. “It only takes 3 inches of snow to shut down our entire city. The schools and malls will close, and heating contractors scramble to get to customers when roads are not plowed or sanded. It’s hard to want to spend $1,000 per truck to outfit them with snow tires for one or two days per year. We can’t really charge more when it snows, so it’s difficult to want to do business on snow days.”
While fluctuating prices are worth keeping an eye one, Matt Bergstrom, owner and president, Thornton and Grooms, Farmington Hills, Michigan, said the amount will have little impact on his business. “Prices likely won’t rise until January or February, so consumers won’t set those bills until a month or so later. Also, many folks are on a fixed-pay plan, so those increases are averaged throughout the year.”
PUTTING THE WIN IN WINTER
Prior to the heating season, Trademasters Service implements preseason training on relevant topics, like the identification of heat exchanger failures, combustion analysis, and manufacturer training.
“Since our company shares resources among our multiple departments, we continuously alter our schedule to keep our staff working full time, year-round,” said Townsend. “As a result, our workforce is very flexible in accommodating our clients’ after-hours and weekend needs.”
Bergstrom said he doesn’t change his service and installation schedules in the winter, though the company does many more same-day furnace installs during Michigan’s long winters than air conditioner installs during the state’s mild summers. “We are usually running at full capacity through February,” he said. “March and April can be a bit of a challenge if we get the extended blah weather that’s not real cold or hot enough to start tuning up air conditioners.”
To overcome the late winter doldrums, Welsch’s offers a discount on maintenance in February and March.
“We also offer an additional discount on recommended repairs that were found earlier in the heating season but have not yet been completed,” said Webb. “We meet with our sales team every other week and, depending on the temperatures and the need for replacements, determine which of our discounts we want to put into effect.”
While a meteorologist by trade, Duffey grew up in the industry, as his dad serves in the industrial refrigeration market. He offered a few final tips for contractors seeking advice on how to navigate the winter blues.
“Advertising how this winter will be different, especially in the Plains and Midwest, may help some HVAC contractors get system maintenance out of the way before the extreme weather hits,” he said. “By January, though, I expect maintenance demands, fuel demand, and general work to be up. If some people thought last winter didn’t put enough stress on their heating systems, they may have skipped out on annual maintenance, which could lead to furnaces or boilers that don’t function properly.
“Staffing at HVAC contracting companies may struggle to keep up, especially in the northeast where the warm start may be deceiving,” Duffey said. “So, HVAC owners may be wise to get the word out more so than usual to schedule service now and to curb emergency requests mid-winter.”
Publication date: 10/31/2016