NJ:Thin supplies raise fears of fat fuel bills

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Thin supplies raise fears of fat fuel bills

09/05/00

By Tom Johnson STAFF WRITER

John Andrea, the owner of a tractor-trailer, unhappily watched the price of diesel fuel rise the past couple weeks from $1.39 a gallon to $1.53 -- no small spike considering he already lays out nearly $1,000 a month running his vehicle.

Now, the 48-year-old Rockaway Township resident is worried that low inventories of home heating oil -- which have reached a two-decade low -- could push the cost of that fuel to as high as $2 a gallon this winter, the same record price it hit last year during a brutal three-week cold snap.

"I just don't understand how the government can allow these private companies to let the supplies get so low," he says, fuming at the prospect of absorbing price increases in both diesel and home heating fuel, which are made from essentially the same product. "The government has to get involved."

The prospect for natural gas customers is equally bleak. Natural gas prices are double what they were a year ago, leading three of New Jersey's gas utilities to file rate increases ranging from 12 to 18 percent. And like home heating oil, inventories are down and supplies are tight -- a sign prices will soar this winter when demand typically rises, especially if the winter is colder than normal.

The inventories are so low the governors of 37 oil and gas producing states have convened a special natural gas crisis summit meeting of the Interstate Oil and Gas Compact Commission later this month in Ohio. The summit aims to alert consumers about the potential for huge price increases, said Christine Hansen, the commission's executive director, and to alert governments to prepare for possible shortfalls in supplies.

"The last time we had a supply crunch schools closed in Pennsylvania and Ohio," she said.

Whether things will get that bleak this winter remains to be seen, but rarely have inventories of both natural gas and home heating oil reached such low levels, experts said.

"It does make for a potentially tight situation all the way around," said David Costello, an analyst with the Energy Information Administration, a branch of the U.S. Department of Energy.

While not ruling out price increases, Public Service Electric & Gas, the state's largest gas supplier with more than 1 million customers, does not expect any supply shortfalls this winter, according to John Scalata, general manager of gas systems.

The reason for the dwindling inventories is mixed.

On the natural gas side, suppliers had stopped exploring for and drilling new wells as prices for natural gas steadily dropped in recent years. But demand for the product has been growing as more and more electricity plants are powered by gas because they run more efficiently and produce less pollution than coal-fired or oil-powered generating stations.

The result is that prices for natural gas at the wellhead hit an all-time high this week on the New York Mercantile Exchange, at $4.86 per 1,000 cubic feet, compared with the $2 to $2.25 it was selling for a year ago.

Home heating oil inventories also are running well below normal for this time of year, said Jim Benton, a lobbyist for the New Jersey Petroleum Council. In part, that's because rising crude oil prices -- now at more than $30 a barrel -- have led many refiners to hold off on producing heating oil because they fear they will not be able to recoup their cost if the price of crude drops before the heating season.

The situation is especially precarious for the East Coast. While production of home heating oil increased by 1.3 million barrels last week, the inventory still stands at 37.7 million barrels, well below the 67.4 million barrels of a year ago, Benton said.

"It's not a good statistic; I'm not going to deny that," he said. "The potential for problems is there."

Some say the deregulation of the energy industry has contributed to the supply crunch.

"Deregulation increased the uncertainty, which reduced the incentive to invest," argued William Potter, a Princeton lawyer specializing in energy issues. "Supply has been bought out, conservation has all but been terminated, and the inevitable happened: prices are going through the roof."

That leaves fuel oil dealers left to explain to angry customers why prices are once again skyrocketing.

Eric DeGesero, executive vice president of the New Jersey Fuel Merchants Association, blames the major oil companies, saying they don't want to tie up money in storage so they keep much less product in inventory than they used to.

Some of his members, like Frank Olivo, owner of Blue Ribbon Fuel Corp. in Clifton, offer their customers a locked-in price if they buy early. Olivo, whose grandfather started the business selling wood and coal, is offering customers a locked-in price of $1.25 to $1.40 if they buy 1,000 gallons.

Those kind of deals could save customers money if prices soar like they did last winter, but some customers, like Andrea, say they cannot afford it because the dealers often want the money up front for a locked-in price.

It's left the truck driver very unhappy. "We got deregulation shoved down our throats and now you have prices going through the roof and California having rolling blackouts. I think the government ought to buy out the oil companies," he said.

http://www.nj.com/news/ledger/index.ssf?/page1/ledger/10ab118.html

-- Martin Thompson (mthom1927@aol.com), September 05, 2000

Answers

Home heating oil inventories at only 37 million barrels--agains 67 million a year ago?

That's frightening.

-- JackW (jpayne@webtv.net), September 06, 2000.


Home heating oil inventories at only 37 million barrels--against 67 million a year ago?

That's frightening.

-- JackW (jpayne@webtv.net), September 06, 2000.


Note, this guy says he doesn't know how the companies can let the supplies get so low.

I've got news for you, buddy, it's out of their hands.

-- Wellesley (wellesley@freeport.net), September 06, 2000.


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