Heating oil in short supply

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11/19/00- Updated 08:40 PM ET

Heating oil in short supply Cold snap could push season to one of homeowners' most pricey

By Fred Bayles, USA TODAY

BOSTON — The numbers are troubling for David O'Connor and other state energy officials across the nation. Record lows in stocks of heating oil, natural gas and propane. High demand triggered by a hot economy and an anticipated cold winter.

Plugged into the unforgiving equation of supply and demand, the result is likely to equal one of the most expensive winters for the nation's homeowners and the possibility of temporary heating oil shortages.

"It's going to be a tough winter," says O'Connor, the Massachusetts commissioner of energy resources. "We barely have enough reserves, and the season is early."

And the problem is not confined to those using heating oil. Homeowners everywhere who use electric heat won't escape the price surge. Most states allow utilities to pass a portion of increased fuel costs on to the consumer. In states with deregulated utilities, the pass-through of costs can be even higher. And natural gas prices, which have remained stable over the decade, are expected to rise by 50% this year.

Mild weather in most of the country has staved off rising demand and prices of home heating stocks. But industry watchers and public officials say any prolonged cold snap would send oil prices beyond last year's $2 a gallon mark that drained consumers' pocketbooks and strained federal and state programs to supplement energy costs.

"We're concerned," says Mark Mazur, acting administrator of the Department of Energy's Energy Information Agency. "We think the system will be stretched."

Industry figures released last week confirm a trend that has been a growing problem since the home heating oil crunch of last winter and the escalating gas prices of the summer.

American Petroleum Institute statistics released last week show that despite an increase in refinery output stocks of heating oil and propane remain at record lows. East Coast stocks of heating oil stand at 39.5 million barrels, compared with 62.5 million barrels last year and 72.2 million barrels for the same week in 1998. Nationwide there are 115.2 million barrels, compared with 134.5 million barrels last year.

"Stocks are incredibly low," says Tom Kloza, publisher of Oil Price Information Service.

"We saw as much production as the United States can muster toward the winter. If we can't put away supplies this market is going to go like a runaway train," he says. The effect of prices, already at a seasonal high of $1.50 a gallon, are being felt around the country:

The number of Maine residents seeking help with their heating costs has already overwhelmed state agencies. Applicants must now wait until late December for appointments to apply for subsidies. "They're concerned," says Vicky Doughty, a director of the People's Regional Opportunity Program that helps residents apply for federal energy assistance subsidies. "They're thinking, 'How am I going to make it? I have to buy medicine and I have to buy food. If I have to buy heat, how do I let go of those things?'"

New Jersey has opened five state parks and forests to residents worried about rising fuel costs, allowing each of them to take five cords of wood at a premium price of $15 per cord -- a bargain compared with the $135 per cord of commercial firewood.

Wisconsin officials have warned that the state's farmers could lose $68 million because of 40% increases in fuel costs. Farmers are expected to spend $238 million this year for petroleum fuels and oils, up from $170 million in 1999. "It's going to be a pretty stressful season," says Ben Brancel, state Agriculture secretary.

In Nebraska, officials fret that any prolonged cold weather would quickly drain the $14 million budgeted to help pay fuel costs for low-income residents. If the funds run dry, the state would be hard pressed to extend further help. "Everybody here is hoping for a mild winter," says Mike Kelly, program specialist for the state's Department of Health and Human Services System.

In South Dakota, natural gas users are also looking for help. With prices expected to climb 50%, the state's Low Income Energy Assistance Program has approved aid for more than 6,400 households -- about 1,000 more than at this time last year.

Federal officials downplay the possibility of shortages. Energy Secretary Bill Richardson points to the creation this year of the 2-million-barrel Northeast Home Heating Oil Reserve to provide a cushion against a sudden drop in commercial supplies.

Richardson also plans to attend a meeting of oil-producing and oil-consuming nations in Saudi Arabia to lobby for greater crude oil production to take pressure off the price.

"Prices will regrettably go up, but we hope to keep it at a manageable level," he said. "The most important step we can take right now is to get more oil on the open market."

But experts also blame the crisis on years of rising oil and natural gas consumption that outpaced production capacity. While the last new refinery was added to this country in 1974, Kloza of the Oil Price Information Service said older facilities were able to increase production over the past years through plant upgrades and new technologies. But this "refinery creep" has reached its limits as demand for both gasoline and heating products continues to grow.

Kloza said the situation is likely to worsen over the next five years, as new environmental regulations require additional refinery steps to eliminate sulfur and other pollutants from gasoline and fuel oil.

"It's pure economics," he says. "People want clean air and to drive SUVs, but they don't want more refineries. There's been a tremendous amount of excess and not a lot of sacrifice."

Contributing: The Associated Press

http://www.usatoday.com/news/ndssun04.htm

-- Martin Thompson (mthom1927@aol.com), November 20, 2000


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