Calgary Rising Energy Prices Could Mean a Long, Cold Winter

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Canoe

Friday, September 8, 2000

Rising energy prices could mean long, cold winter

A long winter coming at the pumps Prices jump across Atlantic Canada Venezuela, Iran call for stable oil market OPEC expected to keep lid on production Fuel protest grows in France

By JUDY MONCHUK-- The Canadian Press

CALGARY (CP) -- Canadians being hit hard by gas price hikes could also be taking it in the pocketbook every time their furnaces fire up this winter.

Tight supplies of crude oil and strong demand for natural gas and electricity are expected to push soaring energy prices even higher.

Just the fear of a cold winter may be enough to drive crude oil prices through the $40 US a barrel mark and spike the cost of home heating fuel, said Judith Dwarkin, vice-president of global energy at the Canadian Energy Research Institute in Calgary.

"If we have a cold winter, i.e., something more normal than we've had in the last couple of years, we could see spikes in the heating oil price," Dwarkin said.

That could be catastrophic, said Dennis O'Keefe, a consumer advocate based in St. John's, Nfld., where gasoline prices hit 87 cents a litre Friday.

"When it comes to heating homes, there's no room to manoeuvre," said O'Keefe.

"I shudder to think that prices may go to the extreme. I think elderly people or those on fixed incomes may have to choose between food, medicine or heat."

The prediction is of particular concern to residents of Atlantic Canada and parts of Quebec who rely on oil to heat their homes.

The worries come as ministers for the 11-member Organization of Petroleum Producing Countries gather Sunday in Vienna to discuss high world oil prices.

Gasoline prices shot up across Canada in recent days as retailers blamed high costs of crude oil, which has topped $35 US a barrel for benchmark West Texas Intermediate.

The surge prompted calls from the Canadian Automobile Association on Friday for the federal and provincial governments to cut fuel taxes, which account for half the pump price of gasoline.

"Something has to be done about gas prices, and it has to be done now," CAA president Brian Hunt said in a release, calling on Prime Minister Jean Chretien and the provincial premiers to tackle the issue when they meet next week.

"Canadians need to see a significant reduction in fuel taxation and the first ministers have the ability and the opportunity to do something, even if the relief they offer is only temporary until crude prices are stabilized. Some action is better than no action at all."

Dwarkin said she believes OPEC ministers will approve a production increase between 500,000 and one million barrels, but doubts it will provide any relief to consumers.

"The kind of crude that's best for heating oil and other products is the sweeter, lighter crude," she said, noting that the capacity to refine sour crude oil is full.

While much of the recent attention has focused on the dizzying price of crude, consumer prices for other energy sources are also surging. Natural gas prices have more than doubled since 1997, while electricity costs have shot up across North America.

"If you're talking from a consumer's perspective, it's not rosy," said petroleum industry consultant Michael Ervin.

Still, Ervin believes prices at the pump could drop as much as six cents a litre over the next six to eight weeks.

"I'm going on a best-case scenario," he said, adding that the OPEC cartel is facing global pressure to bring down the price of crude.

"I'm sure they are going to meet not just to drink tea."

Greg Stringham of the Canadian Association of Petroleum Producers says OPEC producers would prefer to stabilize oil prices.

"If they leave the prices too high for too long, people will try to look at other fuel types," he said.

Analysts say it's unlikely that the world is facing anything like the global crisis of the 1970s, since Middle Eastern producers such as Saudi Arabia are trying to moderate the situation by increasing production.

"We know there's lots of oil out there," said Stringham, adding that it's easier on the economies of producing nations to keep oil in a more sustainable range of $24 to $28 US a barrel.

"It's not easy to ramp up and down on the producing stage."

Stringham says it's hard to say how much production is needed to make a difference.

"They've been producing slightly more than their quotas for the last month or so and we've seen oil prices go from $30 to $33 even though they're targeted at $28," he said.

"However, in October 1997 prices were $23-24 and they increased production by about one million to 1.5 million barrels a day and prices subsequently dropped to $10-12 for an extended period of time."

Even in Alberta, where the provincial government has announced it is giving energy rebates of about $840 a family, price hikes to natural gas and electricity could outstrip the giveaway, predicts Jim Wachowich of the Consumers' Coalition.

"You can take all the efforts you want to try to conserve and make your house more efficient, and all those efforts may not keep your bill where it was last winter because the increases we're expecting are forecast to be so great," said Wachowich.

Any consumer outcry when winter power bills arrive may be too late.

"Consumers getting mad in November is not going to change what OPEC does this weekend," he said.

(end of article)

Fuel taxes have been the same for the past five years.

-- Rachel Gibson (rgibson@hotmail.com), September 08, 2000


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