Rising Home Heating Costs Have Homeowners Worried

December 5, 2012
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If last year’s mild winter was a gift from God for those who pay close attention to their heating bills, one can certainly not expect another such generous gift this year.

Projections for a much colder winter this year, along with high heating oil prices that aren’t budging, have homeowners a bit anxious about the coming cold season. At the same time, much lower prices for natural gas have many finding themselves considering the pros and cons of switching fuels for their homes, making it a very difficult time for the oil heat industry.

According to U.S. Census data from 2010, around 40 percent of the owner-occupied homes in Revere heat with oil, while 52 percent heat with gas.

For those with oil, this is predicted to be a tough winter as a tank fill-up is approaching nearly $700.

“I think it’s just going to be everyone trying to hang on,” said Jon Hartman of Northeast Oil. “I don’t see any promise of relief. Everyone is just going to have to try and do the best they can do – oil companies like me included…People are mostly just ordering 100 gallons at a time because they’re waiting for the price to come down. They hold off on filling it up, but the price just isn’t going down.”

Roger Litman of North Shore Fuel said the price is not likely to go down in any big way this year.

“I have already gotten all the numbers for this winter and it isn’t going to be fun for a lot of people,” he said. “We are expecting more snow than last year because we had none. Last year was 20 to 25 percent warmer than normal and that’s not going to happen again. It’s going to be a real battle. It’s going to be a challenging winter and a lot of people are still hurting [financially].”

The best answer he said he can give is that customers need to conserve as much as possible, and he suggested people look into the state’s MassSave program. MassSave is run by the public utilities and any customer can get a free energy audit of their home, and could potentially qualify for weatherizing service discounts.

“The best chance people have is to tighten up their houses and conserve as much as possible,” he said. “It costs a lot to re-side your house, but it costs a lot more to lose heat every day in the winter. You have to insulate. You have to stop drafts. If you have old equipment, we recommend people look into getting new, high-efficiency boilers. In some cases, we’ve seen people save as much as 40 percent just by buttoning things up and getting new equipment.”

Added Hartman, “I’ve given up trying to figure out why the prices are so high. I’ve thought about it over and over and I don’t know. It’s not the cold giving us demand because it’s been mild last year and this year. So, it’s not supply and demand and because we have no heavy demand.”

The federal government’s Energy Information Administration (EIA) has already jumped into studying the heating oil problem, publishing a detailed short-term look at the industry in late October.

The report indicated that heating oil users could expect to use 17 percent more oil than last year and to pay 19 percent more. The kicker is that if it ends up being 10 percent colder than expected, oil users will spend 32 percent more than last year.

For natural gas users, they are expected to use 14 percent more fuel and pay 15 percent more than last year. If it is 10 percent colder than expected, they could end up paying 28 percent more.

The EIA analyzed the price of heating oil versus gas over the last eight years and found that the price differential really took off in 2008, as natural gas went down in price and fuel oil rose dramatically.

While the two fuels have remained neck and neck for more than a decade, oil has become, by far, more expensive than natural gas for the past four years. This year is projected to carry the largest gap. The EIA estimates that natural gas will run at $10 per million BTUs and heating oil will run at $28 per million BTUs this year.

One of the problems identified is that inventories are down below the five-year range this year for heating oil.

“That has been the case since mid-summer,” read the report. “The incentive is to sell out of inventories, increasing tightness in the market.”

Conversely, new technologies such as fracking have been able to access huge new reserves of natural gas that were previously unavailable. For the northeast, one of the major sources of newly cheap and readily available natural gas is from shale gas production in western Pennsylvania’s Marcellus Shale deposits.

National Grid said this year’s gas supply rate will be the lowest since the winter of 2002 – as the new, lower rate went into effect on Nov. 1st. A residential customer in the Boston area using 130 therms is expected to pay about $182 per month. For the purpose of comparison to oil, natural gas prices are equivalent to about $2 per gallon right now.

“We are glad we can pass these price along to customers,” said Deborah Drew of National Grid New England. “Record numbers of customers are converting to clean, efficient natural gas. Almost 7,000 customers will convert this year, compared with 6,400 two years ago, and will be taking advantage of lower gas commodity costs.”

She indicated that bills would most likely remain flat for natural gas customers.

But oil heat companies indicate that natural gas has not always been cheap and may not continue to be so cheap.

“The international price of natural gas is five to 10 times as much as the local price here,” said Litman. “It’s going to eventually effect the market. If you can sell something in the U.S. for $3 or sell it overseas for $15, where will you sell it? I’ve heard that they are already getting liquification plants online to transport their product from the U.S. to Europe. What will that do to all of the abundant supply and the price?”

Said Hartman, “They give you a free boiler, or at least they used to. Once they give you that, you can no longer shop around for the best price. If you don’t like your oil company, you can shop around and find the better price and service. When the gas company has you, they have you. You’re stuck with them.”

Michael Ferrante of the Massachusetts Oil Heat Council said a recent survey showed them that consumers are worried about the safety of natural gas.

“There are concerns about safety among consumers,” he said. “They said in the survey that is an issue even though it’s less expensive. They see these explosions like in Springfield and then the other night in Saugus. It’s a concern.”

However, he conceded that – despite those safety concerns for natural gas – times are different and more difficult for the heating oil industry.

“It’s a tough environment for the homeowner and the oil dealer now,” he said. “I think homeowners will continue to use oil. There will just be fewer houses using it. We have to change out older equipment and save people money though efficiency. We have to find new ways to incentivize these kinds of efficiency changes.”

What happens when low-income families run out of Fuel Assistance and can’t marshal up about $800 to fill their oil tank?

They live in the cold.

CAPIC Executive Director Bob Repucci said his agency – which serves Winthrop, Chelsea and Revere for Fuel Assistance – has seen time and again where people have gone several days in the dead of winter with no heat.

“People are just going cold,” he said. “When they exhaust their benefits in the program, there aren’t many other resources available. They keep the temperatures down. It’s not unusual for us to find people with no oil and who have had no oil for days and days. They will take the money for oil out of their rent or out of their food budget. Sometimes we have to negotiate with landlords to keep people in their homes because they spent their rent money on oil.”

Last year, by the end of the heating season, Repucci said the state and federal government had been very generous – dishing out a benefit of about $1,200 per household. This year, the preliminary benefit is at $740, which is above the early numbers from last year.

And Repucci is quick to add that the state or federal government could increase the assistance to give a greater benefit later in the winter.

However, at current prices, even last year’s generous benefits don’t go very far.

“The president has to make a move to flood the market with affordable oil,” said Repucci. “We ask our clients to call members of Congress. That’s really who needs to pick up the lion’s share of this. We can’t let them forget about people who are cold.”

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