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Oil refining, gas hubs still under intense pressure

Monday, September 26, 2005

NEW YORK -- The thermometer read 66 degrees in Colchester, Vt., Friday afternoon, but the town's weather-worn heating oil customers are used to thinking about winter well before the leaves turn.

"We aren't even selling oil any more," said John Quinney, general manager of the Energy Co-op of Vermont, who was nonetheless keeping track of heating oil prices on the New York Mercantile Exchange. "Most of our customers sign up for some kind of early price protection, and our last deadline was Aug. 31."

With gasoline prices stuck at the $3-per-gallon level and dominating the headlines, many consumers have yet to give their winter heating bills as much thought as Quinney's customers. But the sticker shock is coming. With Texas suffering at least minor damage from Hurricane Rita and Louisiana still recovering from Hurricane Katrina, the nation's oil refining and natural gas hubs remained under intense pressure.

That will translate to much higher prices this winter. The Energy Department's Energy Information Agency projects the retail price of a gallon of heating oil to top $2.44 next month, up 35.7 percent from last year and 79.3 percent from 2000.

And the EIA is expecting a tougher winter, both in weather as well as energy consumption. From October through March, spending for petroleum products is expected to rise 34 percent, coal by 16 percent and natural gas by 52 percent.

For all of 2005, Americans are expected to spend $1.08 trillion on the fuel and energy needed to run their cars, power their offices and heat their homes. That represents 8.7 percent of the nation's total annual gross domestic product, the highest GDP percentage spent on energy in 20 years.

Those figures, it should be noted, were published after Hurricane Katrina, but before Hurricane Rita.

"Obviously, there may be additional impacts on our customers due to Rita, but it's impossible right now to know what they will be," said Mark Stultz, director of public affairs for the Natural Gas Supply Association. The association estimated, pre-Rita, that heating costs for midwest homes could rise as much as 77 percent from last winter. Some of that increase is due to the fact that last winter was particularly mild, but soaring prices are the biggest culprit.

Other regions may fare better or worse, depending on how far they're located from major fuel facilities and ports, and on the weather as well.

Although oil and natural gas will be expensive, it's unlikely there will be shortages of either. In fact, retail heating oil dealers are carrying higher-than-average inventories for this time of year. But even that could be a cause for worry.

"My concern is that consumers have putting off filling their heating oil tanks because of the high costs," said Sara Banaszak, senior economist at the American Petroleum Institute. "But prices, obviously, haven't gone down. So while the supplies will be there, they will be more expensive."

Natural gas customers will also see higher bills this winter, as will people who heat their homes with electricity, as utilities are increasingly using natural gas to generate power.

Consumers hoping to reduce their heating bills this winter have a few options. Weatherizing one's home -- using storm windows, sealing cracks in windows and doorways, and getting a programmable thermostat for example -- can help keep heat inside and reduce costs. And turning thermostats down a degree or two can provide long-term conservation savings.

"If most people were able to turn their thermostats down two degrees, that could offset the disruptions from at least the first hurricane," Stultz said.

Faced with higher bills, some people are actively seeking heating alternatives. Sales of wood stoves at Cricket on the Hearth in Rochester, N.Y., have climbed sharply through the summer, according to general manager Charlie Turner.

"People are very wary about what their heating bills are going to be, so they're turning to wood stoves," Turner said. "Most manufacturers of stoves can't make enough of them right now. They're far cheaper in the long run for heating your home.

"I like to tell people: Burn wood. It grows on trees," he added.


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