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OIL SHOCKS YALE: RISING COSTS STRAIN BUDGET

OPEC cartel, Jack Frost conspire to raise oil prices to highest level in years

BY CHARLES FORELLE - Published 2/22/00 At the Amoco station on the corner of Crown and Chapel streets, a gallon of regular unleaded gasoline runs $1.56. In homes across the state, residents are opening their utility bills and finding shockingly high numbers.

Just about any consumer in the state of Connecticut can tell you what's going on: There's been a major run-up in fuel costs.

Thanks to a dwindling worldwide supply, the vagaries of the OPEC oil cartel, a sudden cold spell in the northeast and transportation problems in the New York receiving harbor, oil and energy prices of all kinds are the highest they've been in the region -- and indeed across the country -- in a long time.

And Yale, which heats 10 million square feet of building space and in 1999 consumed nearly 100 million kilowatt-hours of electricity in the central campus and science areas alone, is worried.

The budget for fiscal year 2000 -- the period from July 1, 1999 to June 30, 2000 -- allocated about $23 million for utility costs. But because of rising energy prices, Yale expects to spend about $1.5 million more.

Spot prices for West Texas Intermediate -- a common oil benchmark -- closed at $29.51 per barrel on the New York Mercantile Exchange on Friday after peaking above $30 earlier in the week. Markets were closed yesterday for the holiday. At this time last year, the same barrel cost $13.

And Yale's utility costs are heavily dependent on oil prices. The University's contract to purchase the natural gas that runs its Tower Parkway power plant pegs the gas price to the cost of oil. And one month each year, Southern Connecticut Gas can shut off Yale's gas supply and force the University to buy oil to run the plant. In exchange for the interruption, Yale buys natural gas at a discount.

The plant, known as a "cogeneration" type, produces both electrical power and steam for heating buildings.

So after years of declining energy costs, next year's operating budget will include an increase of about $2 million for utilities, according to University Budget Director Gary Sax.

It's a sudden reversal: "Lower fuel costs were part of how we closed the gaps in deficit years," said Provost Alison Richard, Yale's chief academic and financial officer.

And now, rising costs will likely eat into any surplus, although the University has budgeted a $5 million contingency to handle unforeseen expenses.

"You can't do much about it," Sax said. "You can't not heat the buildings."

And that's precisely what frustrates the Yale administrators who assemble the operating budget: Of all the various budget components, utility costs are the least predictable. When they shoot up, they eat up money that could otherwise be spent on programmatic efforts such as faculty hiring or financial aid.

And there's not a thing anyone can do about it.

In the budget office, administrators make models to estimate utility costs. But as Yale well knows, models can only go so far, especially in the wild world of oil prices.

"The difficulty of doing price forecasting is the OPEC portion. OPEC can do in a sense whatever it pleases," said James Williams, the president and chief economist of WTRG Economics, an Arkansas-based firm that does forecasting and economic analysis for the oil service industry. "If you do a straight econometric model on the OPEC portion, it just doesn't work."

But just as the current price spike is vicious, it's also probably temporary.

"History tells you that $30 a barrel is not sustainable for more than a year or so," Williams said. "$18 to $20 is the norm -- we can expect a return to that in two years or so."

The reason, Williams explains, is that consumers will turn to energy-efficient products, and non-OPEC countries will search aggressively for new oil reserves, thus driving the price back down and reducing OPEC's influence in a market saturated with energy-efficient homes, fuel-efficient cars and new oil supplies.

Copyright ) 2000 Yale Daily News. All rights reserved. http://www.yaledailynews.com/news/article.asp?AID=4720

-- Dee (T1Colt556@aol.com), February 22, 2000

Answers

Hi Dee! I posted this on a thread started by Carl below, but thought I would repost here just to hear what you all are thinking.

First of all let me say that I really admire you and Carl for ya'alls diligence and pesistance in digging up these news articles for us. There is no better source of quick, current news than in this forum thanks to Dee, Carl and Homer.

The price here in Miami is hovering around $1.46. I noticed that gas was much cheaper in Tampa ($1.32 more or less) when I was up there last week. NBC predicted $2 per gallon by this summer.

My question is this, (I Hope I don't upset anyone 8))

Do any of you seriously believe that the price of gasoline is connected to y2k? I know the standard line; big corporations would not report it if they were having computer problems or embedded systems problems. However, has anyone found any concrete evidence that there have been embedded problems in oil wells, refineries, pipelines or tankers? I know there have been a lot of problems in all of these categories, but have any of them been shown to be y2k related?

forgive me for a little scepticism, but I have seen little evidence that y2k has affected the economy or the infrastructure. It looks like the stock market is in for a "correction" but it has been due for a downturn since Greespan made his "irrational exubrance" remark in 1996. I see no evidence that it is y2k related.

Just curious what you think.

-- JoseMiami (caris@prodigy.net), February 22, 2000.

Jose,

Thank you so much for kind post. I have been so absorbed in research that I haven't read the board much at all today. I apologize for any duplicate posts. My eyes are buggy and I look like this ===> ( @ - @ ) LOL

As for your question about any of this being related to Y2K, I personally do not have an opinion on this since I don't feel qualified to comment. I do not have mechanical, electrical, or technical, expertise--so I leave it up to the experts.

I am, however, trained to observe patterns and to see things from a 360 degree viewpoint. IMO, I feel it is much too early to draw conclusions. We still have a long year ahead, and it will be interesting to see how it all plays out. I am a "connect the dots" person--Polloomer to the max...still drawing lines in the sand at this point.

I have preps and will hold onto them. It makes good sense. I have gone through 3 major hurricanes and have learned lessons from those experiences.

I will continue to monitor happenings throughout the year and will bring the news to the forum as best I can. I am grateful for everyone who makes contributions. This is a "happening" place. =)

Best wishes Jose, Dee

-- Dee (T1Colt556@aol.com), February 22, 2000.

Yale is feeling the pinch from rising oil prices. Gad! Quick, let us pass the hat so that Muffy and Skipper have adequate protection from the cold. Something from L.L. Bean, perhaps, or Land's End in a pinch. One MUST dress well in these perilous times, you know.

-- DeeEmBee (macbeth1@pacbell.net), February 22, 2000.

DeeEmBee- I BELIEVE that is spelled "Parlous".

C

-- Chuck, a night driver (rienzoo@en.com), February 22, 2000.

First, check out Marcias good work. Now she is too busy and the news is several weeks old. Has Y2K hit the oil industry  oh yes, and the airlines, and the water and sewage.

http://nckodokan.com/charts/crude1.html

Then go here and start reading, and make sure to go several pages back, since I dont have time to collate all the info, but refineries, and many many oil and sewage, and water pipeline breaks are popping out all over. 6 major oil pipeline breaks, at least, since rollover, at least two in wildlife zones  havent seen any of it on your evening news have you? Two in S. America, one of coast of Texas, one in UK oil rig, one off coast of Africa, on just outside of Philly a week or so ago, all reported to have leaked at least 32,000 gallons  something magic about 32,000 gallons I guess.

Anyway, here are some of the news posts  some links will have gone away, but it gives you somewhere to start, and a good link at the bottom also. And of course, all since the New Year.

Oh, and check out some of the water problems, also a couple of weeks old news now

http://pub5.ezboard.com/fprudentlivinginthenews.showMessage? topicID=236.topic

Heres some oil stuff

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets

Rumour, two refinery fires in CA

http://greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=002csc

Huge deviation in API oil stocks vs US government

http://www.canoe.ca/MoneyOil/mw_oilnews.html

Another oil refinery down

http://quote.bloomberg.com/news2.cgi?T=energy_refout.ht&s=77624601

Another day, another two refineries down

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=543.topic

UK production has slipped since Dec 23

http://www.brecorder.com/story/S00DD/SDB17/SDB17202.htm

Another glitch, KOSCO loses refractor

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=531.topic

Rebels bomb Columbias Pipeline again!

http://www.canoe.ca/MoneyOil/mw_oilnews8.html

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=520.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=513.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=480.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=499.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=457.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=449.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=446.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=432.topic

http://pub3.ezboard.com/fdownstreamventurespetroleummarkets.showMessag e?topicID=404.topic

And of course, check out this site and go back several pages

http://pub5.ezboard.com/fprudentlivinginthenews.html

-- dragonslayer (y2kmaybe@pollybegood.com), February 22, 2000.

Good post Dragonslayer.

-- Dee (T1Colt556@aol.com), February 22, 2000.

Thanks Dragonslayer, I'll check it out.

Thanks to you, Dee for your gracious response. you are right, no need to form opinions based on speculation and possibilities, we just need to stay informed and aware and hold on to our preps.

I have gone through several hurricanes myself, including Andrew. Not fun. I guess at the very least I have a head start on hurricane season! thanks for your hard work and pleasant attitude.

-- JoseMiami (caris@prodigy.net), February 22, 2000.