Falling leaves and declining temperatures turn our thoughts to the thermostat and what is going to happen to heating costs this winter.

Well, first the good news. For the over 50% of households in Canada that heat with natural gas the cost of heating this winter should decline. This outlook is based on several key factors.

First, natural gas inventories in the third quarter of 2009 were some 20% above their average of the past five years.

Second, after hitting a high of $10.71 per gigajoule in June of 2008, gas prices have dropped by almost seventy per cent and according to the National Energy Board’s Energy Briefing Note, they should remain in the range of $3.35 to $5.25 well into 2010.

Third, bearing in mind that short term weather forecasts are notoriously unreliable, the U.S. National Oceanic and Atmospheric Administration is projecting that the temperature in the U.S. (and by implication Canada) will be 1% warmer this year compared to last winter.

Another factor weighing on natural gas prices is the lingering effect of the economic recession on natural gas usage for industrial processes. This has declined significantly.

Finally, advances in gas drilling technology in the U.S. have contributed to a sharp increase in natural gas production in North America over the past five years.

For the approximately 33% of Canadian households that heat using electricity, there is a possibility that they will spend slightly less this winter than last due to milder winter weather. However, since a majority of energy in Canada is generated using hydro (60%), coal (23%) and nuclear (10%), it is not significantly affected by changes in the price of natural gas or oil.

In Canada, an estimated 13% of households, mainly in Atlantic Canada, who use fuel oil as a primary source of heat should also see their heating bill drop. This assumes that it is no colder than last winter, that crude oil prices remain in the range of $65 to $75 US per barrel and that the Canadian dollar remains in the range of $0.90 to $0.95 US.