Maine oil crisis looming State faces chilly winter, uncertain of fuel stocks Source: Bangor Daily News Bangor, ME Publication date: 2000-08-03

BANGOR - The volatile heating oil industry is being affected by so many factors that some federal analysts and local suppliers are saying that this winter Maine and New England could experience a "mini crisis" similar to the one that hit the region earlier this year. Whether the area will have an adequate supply of heating oil is a guess for industry watchers. They cite that the price people will pay to heat their homes will depend on several things - the weather, OPEC's crude oil imports, oil refineries and their production and stockpile levels.

For homeowners wondering whether to buy their fuel in advance, that decision is becoming a gamble - lock in a price now or take a chance on the price going down in a few months.

The federal analysts and local suppliers cannot agree on the severity of the expected "mini crisis." Most say there's no reason to panic.

"We're not saying there's going to be a crisis," said Jonathan Cogan, an energy information specialist at Energy Information Administration, an independent agency within the U.S. Department of Energy. "We are very concerned."

The American Petroleum Institute, in its weekly report on crude oil inventories,said Tuesday that U.S. supplies have plummeted by 9 million barrels in the last week, to 284 million from 293 million the previous week. Crude oil is used to make heating oil and gasoline.

That report follows U.S. Energy Secretary Bill Richardson's statement Monday that heating oil supplies in New England are lower now than a year ago. Along the East Coast, New England inventories are 45 percent lower - at about 35 million barrels - and U.S. inventories are 19 percent lower that they were last year.

Why New England has more of a shortfall than the rest of the country, especially when 50 percent of the homes use heating oil compared with 9 percent nationally, could not be answered.

"I don't know why New England, on a percentage basis, would be lower," Cogan said.

At API, the shortage of crude oil and heating oil is not that much of a concern, said spokesman Bill Bush.

"What we've been saying is that we're a really long way away from heating oil season," Bush said. "We don't think that number at this particular time is very significant."

API, which represents natural gas and heating oil companies, expects refineries to increase heating oil production after the peak driving season is over, which is Labor Day weekend. At that time, production will be based on what they expect will be needed this winter.

"The refineries will make as much heating oil as they can sell," Bush said.

EIA, too, is looking at the 9 million barrel crude oil shortfall as a ++positive development." Cogan said crude oil stockpiles may be down because refineries aren't buying crude now, opting instead to wait for Saudi Arabia to increase production by 500,000 barrels a day and prices to fall because of that.

"There's no incentive to buy now if they think prices will go down later," Cogan said. "You can't read too much into weekly supply numbers."

If New England experiences a cold winter, though, the lack of heating oil production now could hurt supplies in the season's early months.

"We'll be at fairly low levels going in to the heating season so it doesn't bode well if we have a cold winter," Cogan said. "If we have a colder winter, we'll have higher prices. If we have a warmer winter, we'll have lower prices. What we can't predict is things such as that.

"As we enter the heating season, we're seeing higher prices and inventories are low," he added. "It's still not too late but it's not looking good."

U.S. Sen. Susan Collins last month predicted there will be an energy crisis this winter, and the day after Labor Day she'll will be asking for the setup of a commission to examine natural gas and heating oil prices and supplies, said legislative analyst Michael Bopp on Wednesday.

"There's just a series of bad omens that mean this coming winter is going to be as bad as last," Bopp said.

In Maine, Michael Shea, president of Webber Oil, said he is concerned about the shortages and the prices so close to the start of heating oil season.

"These are very high levels price-wise to be starting out the heating season," Shea said. "It's a concern. It definitely affects peoples' lives." Cogan agreed.

"I think most people would feel more comfortable if adequate stocks were built up." Heating oil prices in the eastern and central Maine region varied from $1.20 to $1.30 a gallon Wednesday.

"We're crossing our fingers that it stays there and doesn't go any higher," Shea said.

At Webber and at Hamel Fuels, customers are calling to ask about price protection plans, but the number of people who have signed long- term contracts now is about the same as this time last year, Shea said.

"Those who have committed to us, they want their product at a fixed price," he said. "Once they commit to a price and a volume they want, we lock in that price."

In Washington, D.C., the energy department is aware that people aren't buying heating oil yet.

"People really aren't filling up because it's way too early," said David Hinton, an EIA energy specialist.

API's Bush said, "Each person should do what they feel comfortable with."

Webber allows customers to lock in a price and set a volume they want to buy for the season. They can either pre-pay or spread out their payments over a year, Shea said.

At Hamel, customers can set up a contract that states they will pay up no more than $1.29 per gallon this winter, said co-owner Dick Hawkins. Last year's contract was 99.9 cents per gallon, and customers paid that price even when Hamel was purchasing heating oil at $1.64 per gallon, he said.

Most people don't choose the price protection options, Shea said. They don't want to get locked into a price and in coming months watch it drop.

This year, though, it's hard to tell if that's the way to go, he said.

"If you're trying to outsmart the market, it usually doesn't work, Shea said.

Shea said he believes "the possibility is certainly there" for a spike in heating oil prices this year. But, he added, "I don't want to say we expect one."

He didn't expect one last year either, but it happened. "We were within a couple of weeks of having a severe shortage," Shea said. "There were many more buyers every day than sellers of products."

Not many people expected the warmer-than-normal start of winter last year and the substantial decrease in temperatures in January and February. This year's forecast is near normal temperatures through December with slightly cooler-than-normal temperatures in January and February, said Rich Norton, a hydrometerological technician at the National Weather Service in Caribou.

Norton looks at the official forecasts daily, but like most people, makes up his own forecasts.

"Personally, it's going to be a rather long and cold one," he said. "It may start a little later but it's going to be a little harsh."

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-- Martin Thompson (mthom1927@aol.com), August 03, 2000