Interruptibles - another worry for U.S. heating oil?

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Interruptibles - another worry for U.S. heating oil?

New York | Reuters | 28-11-00 | Print This Inadequate U.S. natural gas supplies threaten to place an extra demand burden on the strained northeast heating oil market, industry analysts said yesterday.

Constrained by a lack of pipeline capacity, high demand from sustained cold weather forces gas suppliers in the Northeast to cut back certain large industrial and commercial customers that can switch to heating oil.

These customers receive discounted natural gas in exchange for agreeing to have their supplies interrupted when the gas is needed to meet the demand for home- heating. "One should expect to observe large increments of demand imposed on oil markets by frugal natural gas users," said industry consultant Phillip Verleger. "They hit the cash market, bidding up spot prices."

Draws from these so-called "interruptible" customers can add around 100,000 barrels a day (bpd) to heating oil demand just when household use is hitting a peak, according to the U.S. Energy Information Administration (EIA).

It threatens to be worse than last winter when interruptible gas customers were cut off during a January cold snap, and had to scramble for heating oil, boosting demand from 13 million gallons a day to 17 million gallons per day (310,000 bpd to 405,000 bpd).

By February heating oil prices in New England - the world's largest heating oil market - shot up 66 per cent to $1.96 a gallon. Retail heating oil prices, already $1.55 a gallon, are at their highest level so far for the October to March heating season, with heating oil stocks in the Northeast about 40 per cent lower than this time last year.

"The problem is that it is a tight market for both fuels. If natural gas prices shoot up, demand for heating oil will rise too," said Bill Veno of Cambridge Energy Research Associates (CERA). "There are enough supplies to go round so people won't go short. It is just going to be a very expensive winter," he said. Interruptions traditionally occur only in the first quarter, when the long winter demand has taken its toll.

Yet with U.S. natural gas supplies are nearly 12 per cent lower than last year, strain across the U.S. energy system is already showing. A brief early cold snap last week pushed wholesale gas prices on the New York Mercantile Exchange (NYMEX) price to new all-time highs above $6.50 per million British thermal units.

Suddenly heating oil isn't all that expensive an alternative, with its NYMEX price only about $1.20 per mmBTu higher than gas, compared to $2.50 a month ago. "Demand is not going to outstrip supply, but you've got other fundamental factors taking place with natural gas that will keep these prices propped up," said Peter Ingraham of Energy Security Analysis, Inc. (ESAI) in Boston.

Concern in Washington has been running high enough to force the Clinton Administration to create a two million barrel emergency heating oil reserve for the Northeast as well as releasing 30 million barrels of crude from strategic reserves.

In New York, the state's utility agency took steps in August to deflect the switch-over heating oil buying sprees, by ruling that all "interruptible" natural gas users must top up their heating oil reserves by October 1.

Interruptible natural gas users must keep seven to 10 days of alternative fuel supply, mainly heating oil, New York State's Public Service Commission ordered.

http://www.gulf-news.com/Articles/news.asp?ArticleID=3696

-- Martin Thompson (mthom1927@aol.com), November 28, 2000


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