Burned by the high cost of heat

As the price of crude oil skyrockets this fall, the United States Department of Energy (DOE) has some bad news for the managers of heating budgets in northeast Pennsylvania.

According to the Energy Information Administration (EIA) of the DOE, heating expenditures are projected to increase by

Moreover, cost increases will be realized by users of all heating fuel types. The EIA projects natural gas prices to rise 11 percent and propane by 17 percent.

Two factors drive the cost of using heating oil, consumption and the price of crude, according to Drew Malcolm, DOE spokesperson.

In October, crude oil rose to over $50 per barrel for the first time in history and EIA projects the pricing of home heating oil to rise by 28.8 percent this year. The average price for a gallon of heating oil is expected to top $1.75 compared to $1.36 from last year and $1.12 in 2000.

Plus, DOE expects the upcoming winter to be colder than last year, driving consumption up 3.7 percent in the Northeast United States.

There is some good news.

The inventory of all heating fuels is adequate to meet the needs of consumers, the EIA said.

It estimates 126.4 million barrels are ready for the market. These inventory quantities exclude the 2 million barrels being held in the Northeast Heating Oil reserve established by President Clinton and DOE in 2000. The reserve is set aside as a buffer against shortages

Even if there is a severe winter there should be no shortages. However, a severe winter may spike consumption as much as 10 percent and raise prices over 5 percent for heating oil.

Demand surges combined with the tightness of the global markets will raise prices but not to a level that would happen if the inventories were low.

There may be some price relief in a few weeks if the Gulf of Mexico goes back to pre-Hurricane Ivan production levels. EIA points out that the U.S. is very dependent on oil from the gulf. When Ivan wreaked its havoc it resulted in 14.8 million barrels of lost crude oil production - essentially increasing the U.S. dependence on oil from the Middle East. Ivan destroyed seven oil platforms and heavily damaged four mobile rigs. EIA claim off industry officials don't expect the supply from the gulf to resume to normal levels until December - but if it does, it may put some downward pressure on pricing.

Pete Horrigan, president of the MidAtlantic Petroleum Distributors Association (MAPDA), a Maryland-based group representing heating oil distributors on the East Coast says that the pricing fluctuations in the volatile crude oil market make this coming season a big question mark.

To say the current situation with crude oil is abnormal is a "gross understatement," he says. "We've never been here before," Horrigan adds.

Horrigan does not agree pricing will increase by the 28 percent claimed by the DOE, but increases will happen. He does not fear losing a lot of customers to alternate heating because the increases will be felt "across the whole energy complex," affecting all heating fuels.

The higher prices are a definite threat to the profits of local fuel vendors, Horrigan says. No one wants to pass price increases to their customers.

In a competitive market like northeast Pennsylvania, some distributors may be swallowing some costs because customers will shop around a lot more.

A study done in upstate New York showed heating off price differentials of over $.20 per gallon.

There are things consumers can do to reduce their total heating costs by controlling their consumption, he said.

For example, in the last four years, the oil heat industry made "dramatic improvements" in heating efficiency. Consumers that upgraded to new heating systems have reduced consumption by up to 50 percent in some cases.

Although the MAPDA avoids getting involved in politics, Horrigan says that the federal government needs to develop a "practical" national energy plan that supports conservation, promotes alternate heating sources, and stimulates production levels.

There are recommendations that save energy costs posted on the Commonwealth of Pennsylvania Web site, www.paenergystate.pa.us. The Web site summarizes energy programs available through various state agencies such as the Department of Environmental Protection (DEP). Recommendations include setting your thermostat to lower temperatures whenever possible, especially when a building is empty; avoiding blocking heating vents with furniture of cabinets; and utilizing fluorescent lighting whenever possible.

The DEP provides grants to assist businesses in finding ways to improve heating efficiency, reduce the use of fuels, and reduce pollution.

The best measure to fighting pricing increases in the short run is to secure contracts during the warm months that lock in pricing for the season, according to Malcolm.

He points out that during the summer months, prices are relatively low. Although, DOE notes, most homeowners don't have enough storage space to buy in bulk, making them more susceptible to pricing fluctuations.