High heating costs baffle even suppliers
CAPITAL REGION As the heating season draws near, up-and-down oil and natural gas prices have created uncertainty for many homeowners.
The estimated average price per gallon for home heating oil in the Capital Region is $4.27, up 63 cents from this time last year, according to the New York State Energy Research and Development Authority. That price is a little less than the state average of $4.36 per gallon but still very high by historical standards. Crude oil prices have been falling rapidly from all-time highs earlier this summer, but it’s impossible to know if they will continue to fall or whether heating oil prices will follow the curve exactly or immediately.
Natural gas futures pricing has shown a steep drop-off in price from last year, following its unstable price structure of the past few years. Natural gas for October delivery on the New York Mercantile Exchange has been trading at about $8 per 1,000 cubic feet. That’s down from the sale price of $18.29 per thousand cubic feet in October 2007, which was up from $13.37 in October 2006, which was way down from $22.24 per thousand cubic feet in October 2005. Rising natural gas inventories have led to the recent crash in natural gas prices, but those losses could be reversed.
Wood and pellet stoves seem downright stable by comparison, though cord wood and pellets are more expensive this year, too.
Laura Borst, the co-owner of Borst Oil Co. on South Thompson Street in Schenectady, said she watches the cable news networks all day, every day, to see which news event will be the next to affect the price of her company’s product.
“[Earlier this year] Iran tested missiles, or something, and the price [of crude oil] went up like $11.50 in one day. It’s extremely political,” she said. “One day all of the forecasters will say the price is coming down and two days later they’ll say it’s going to go back up. The same forecasters will say the complete opposite thing.”
Borst said her company has already sold the 270,000 gallons of home heating oil allocated for its prepay plan, which offered the fuel for $4.29 per gallon and its budget plan, which sold it for $4.39 per gallon. Whether those prices prove to be a bargain for customers or a loss for Borst Oil remains to be seen.
“It’s a crapshoot. You don’t know when it’s going to go up or when it’s going to come down,” Borst said.
Like gasoline, the price of home heating oil has risen with the dramatic increase in crude oil prices over the past year. According to the U.S. Energy Information Agency, the price of crude oil accounts for about 42 percent of the final cost of home heating oil, while the cost of refining it accounts for 12 percent and marketing and distribution make up 46 percent.
And like gasoline, the price of home heating oil has declined recently after a drop in global demand began chipping away at crude oil prices over the last month. But whether the price will continue to drop or if it will rise again remains unknown.
NYSERDA Director of External Affairs Tom Lynch said if the average residential user of home heating oil uses about 800 gallons during the winter season, at current prices, it will cost about $3,400 to stay warm during the months from November to April.
“We’re seeing prices come down, from highs of almost $4.80 at one point ... it’s still [way up] from year-over-year prices and those were elevated prices last year. It’s going to wallop consumers,” he said. The EIA won’t release a national average price for home heating oil until Oct. 10. New York generally has higher retail prices than most of the nation for all petroleum products because of higher state taxes.
Of the estimated 8.1 million households in the United States that use oil to heat their homes, 6.3 million — or roughly 78 percent — are in the Northeast, according to the EIA.
For those that use natural gas, National Grid has long used the benchmark of 867 “therms” to calculate the amount the typical residential natural gas user will consume in its territory during the winter season from November to April, said National Grid spokesman Patrick Stella. One thousand cubic feet translates into about 10 therms.
If the currently low futures market price for natural gas holds steady for the entire heating season, customers might be in for a cheap winter at $693; if prices spike back up to 2007 levels the bill could top $1,500 for the season.
Things have recently become easier for natural gas customers who fall behind on their bills. In June, the Public Service Commission approved National Grid’s proposal to change its AffordAbility Program for low-income customers. Attempting to make it easier for debtors to receive arrears forgiveness credits, National Grid altered the program’s payment criteria to a monthly from an annual basis.
During the first quarter, 260,000 consumers owed arrears totaling $188.1 million in National Grid’s service territory, compared with 250,000 consumers owing $151.2 million in first quarter of 2007.
Under the old AffordAbility requirements, customers needed to make 12 consecutive monthly payments to receive a $250 credit at the end of that period. Given that many customers already burdened with debt failed to make those payments, they often dropped out of the program.
National Grid will now issue $20 arrears forgiveness credits to program participants each month they make a payment for up to 24 months.
Customers looking for more price stability, and possibly lower costs, might try a wood pellet home heating system. NYSERDA officials said the authority does not track wood pellet prices, but recognizes the fuel as a rising niche area. Internet wood pellet retailer pelletsales.com estimates that a typical home may burn 3 tons of wood pellets for less than $750 per year to meet 80-90 percent of their heating needs. According to pelletsales.com, the current pellet prices equate to $2-a-gallon home heating oil.
The New York State Consumer Protection Board warned of a shortage of wood pellets in 2005, but officials with the board say they’ve not received any indications of a shortage so far this year.