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Warm Winter Fuels Energy Price Break

Posted on: Friday, 24 February 2006, 00:00 CST

By Bruce Mohl, The Boston Globe

Feb. 24--Whatever happened to the worst winter ever for energy prices?

Warmer than normal temperatures this winter are driving down demand for all heating fuels, with the cost of natural gas at some companies dropping faster than heating oil. Energy prices are still up compared to last year but nowhere near the levels feared after last year's hurricanes in the Gulf knocked out oil and natural gas production facilities.

Many natural gas utilities serving Massachusetts are seeking regulatory approval to cut their rates for the second time this season. Keyspan Energy Delivery New England, which services the Boston area, is seeking a rate cut that would push typical monthly bills down to about $266, or about 12 percent off from where they were earlier this winter. The new rates would take effect on March 1, if approved by state regulators.

Utilities that are buying all of their gas on the spot market are finding that they can pass along even greater savings to their customers. NStar Gas, whose service territory includes Cambridge, Somerville, Plymouth, New Bedford, Natick, and Needham, is seeking to reduce its typical customer's monthly bill by 27 percent to $196.24.

"It's the law of supply and demand," said NStar spokeswoman Caroline Allen. "Demand is down, supply is up, so the price is down."

But heating oil prices aren't responding the same way. Heating oil demand is off and inventories in the region are at high levels, but prices haven't budged much. State pricing surveys indicate the average price of a gallon of heating oil across Massachusetts has fallen 7.2 percent this season, dropping from $2.49 on Nov. 1 to $2.31 earlier this week. The average heating oil price last year at this time was $1.95.

The surveys found prices this week varied by 59 cents a gallon, ranging from a low of $1.99 a gallon to a high of $2.58. Heating oil industry officials say the price of oil, from which heating oil is produced, hasn't fallen nearly as much as the price of natural gas. They say geopolitical factors, including instability in the Middle East and Nigeria, have kept crude prices relatively high.

The price of natural gas, by contrast, began falling dramatically once demand slackened and supplies here in North America continued to build up. "It's much more of a world market with oil," said John Felmy, chief economist at the American Petroleum Institute.

Heating oil prices may also be holding relatively firm because many dealers, and consumers, locked in prices for this winter last fall after the Gulf hurricanes slowed production and sent prices for both oil and natural gas soaring.

Now that demand has slackened with the warmer weather, many heating oil dealers are stuck with high-priced oil. The dealers are selling the higher-priced oil along with lower-priced market-rate oil but at a blended price that keeps the retail price relatively high.

Many heating oil customers also guessed wrong this winter by locking in prices that are not attractive today. Len Bicknell of Alvin Hollis Co. in Weymouth said many of his customers locked in heating oil at $2.39 a gallon, which seemed an attractive price last fall but is now above the statewide average price of $2.31. Keyspan also misjudged the weather. Last year, when concerns mounted about natural gas shortages after the Gulf Coast hurricanes, Keyspan told consumers not to worry, saying it had locked in the price of a third of its winter gas supplies. But now that the bottom has fallen out of the market, Keyspan is stuck with gas bought at much higher prices and is unable to pass along as much cost savings to customers.

NStar, by contrast, didn't lock in the price of any of its natural gas for this winter. Its customers would have paid dearly if last fall's price projections for natural gas had come true, but now that the market has gone in the opposite direction its customers are benefiting.

Under state law, gas utilities have to seek new rates whenever the cost of gas as a commodity rises or falls more than 5 percent.

The statewide average price of heating oil is currently $2.31 a gallon. If their rate requests are approved by state regulators by March 1, Keyspan will be charging its customers the heating oil equivalent of $2.33 a gallon and NStar will be charging the heating oil equivalent of $1.85 a gallon.

Larry Chretien, executive director of the Massachusetts Energy Consumers Alliance, a heating oil cooperative in Jamaica Plain, said the retail price of heating oil is off about 30 cents a gallon from early September, which reflects a drop in wholesale prices of the same magnitude. He said it could have been a lot worse for consumers if this winter had been bitterly cold.

"Maybe we aren't seeing the percentage drop that natural gas is seeing, but I still think we should be counting our blessings," he said.

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NST,

Source: The Boston Globe

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