Impact of hurricanes lingers as distributors and consumers cope
With oil refineries in the Gulf Coast still recovering from the effects of a horrific hurricane season, Rhode Island energy distributors find themselves facing shrinking supplies.
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Despite that, however, the consensus among local heating oil distributors is that customers will be g etting their fuel. It’s just that they will be paying more for the privilege than in past years.
Victor Allienello, president of East Providence Oil Co. and spokesman for the Oil and Heat Institute of Rhode Island in Johnston, said 30 percent of all domestic heating oil refineries were interrupted by hurricanes in the Gulf Coast. The disruption in supply was not significant at the time because of mild temperatures, said Allienello.
But decreasing temperatures and a recovering but still reduced supply are driving up costs as winter begins, he said, with the result that he is paying about 40 percent more for oil than he paid last year at this time, which in turn is being passed on to customers.
Right now, Allienello is able to supply all of his 1,500 to 2,000 customers – which include both commercial and residential accounts – but a cold stretch could strain the supply, he said.
In January 2000, a sustained cold period forced large institutions like Rhode Island Hospital and Brown University to switch from natural gas to heating oil to warm facilities. The result was an additional 7 million gallons of oil per day were drawn from the heating oil supply, he said, a switch that put added pressure on oil supplies.
Still, there is no guarantee that prices will remain high all winter. For example, heating oil has come down considerably in price since immediately after the hurricanes, although it is still higher than it was last year at this time and the last time customers filled their tanks in April and May, said Allienello.
Bill Andrews, owner of Glendale Oil Service in Burrillville, said he does not expect to have any problems getting oil this winter. The problem for oil companies could come in January, February and March when customers have a hard time paying higher bills, he said.
To help guarantee that customers receive their oil – and that he gets paid for the deliveries – Andrews offers forward contracts for oil. This winter, customers could lock in oil for $2.49 per gallon (last year the contract amount was $1.79). About half of his 1,200 customers took advantage of the program, he said.
The company also offers budget plans that allow customers to pay over a longer period, as well as a 10-cent per gallon discount if a bill is paid in cash within five days of delivery. Glendale also has a 100,000-gallon storage facility as a hedge against supply disruptions that may be caused by winter storms.
East Providence Oil – Allienello’s firm – also offers customers the option of a price lock or a price cap program. A price lock establishes one set price for the whole winter. A price cap will establish a ceiling that oil will be sold at and leaves open the option to pay less if the price goes down.
Price caps are generally about 15 cents more than price locks, said Allienello, because the dealer must buy options – insurance – in case the price of oil changes.
Christine Restor, office manager at Ferreira Oil in East Providence, said prices peaked at about $2.54 per gallon this summer and are currently at about $2.16 per gallon, up about 30 cents from last year. She expects the price to go up as demand rises without a corresponding increase in refining capacity. And since the company does not offer lock-in prices or contracts for its 2,500 customers, they are exposed to the market.
According to the Energy Information Administration (EIA), as of Jan. 1 there were 144 operating oil refineries with a total capacity of about 17.1 million barrels per day. Nearly 8 million barrels per day are processed in Louisiana, Mississippi and Texas.
Ron Planting, an economist at the American Petroleum Institute in Washington, D.C., said refineries are operating at nearly 90 percent of capacity, up from a low of about 68 percent following Hurricane Rita. Operating capacity was about 96 percent before the storms.
The EIA reported 53 percent and 47 percent, respectively, of normal daily oil and natural gas production in the Gulf Coast remained shut at the beginning of November. In Louisiana alone, 800,000 barrels per day of oil production remain off-line. The U.S. Department of Energy reported nine gas processing plants with capacities greater than 100 million cubic feet per day are not active.
It appears unlikely that a complete recovery in facility and infrastructure in the Gulf Coast will be completed before the middle of 2006, according to the EIA, especially considering that according to the U.S. Congressional Budget Office, Katrina and Rita damaged the energy sector in the region to the tune of $18 billion to $31 billion.
About 78 percent of the 8.1 million households in the United States that use heating oil to warm their home are in the Northeast, according to the National Energy Information Center based in Washington, D.C.
But many of those households are low-income and are eligible for the Low-Income Home Energy Assistance Program (LIHEAP). Unfortunately for them, funding for LIHEAP is at its lowest level since 1998, according to the Center on Budget and Policy Priorities (CBPP), a policy group based in Washington, D.C.
On average, households heating with natural gas will spend 41 percent more than last year, while those using oil will spend 27 percent more and propane 21 percent more, according to the EIA.
