THE WALL STREET JOURNAL: Heating Bills To Rise in Wake Of Hurricane: "Among the biggest casualties: Royal Dutch Shell PLC's Mars platform, which produces 220,000 barrels of oil and 220 million cubic feet of natural gas each day...: Thursday 1 September 2005
Drives Up Price of Electricity,
Heating Oil and Natural Gas
By THADDEUS HERRICK
Staff Reporters of THE WALL STREET JOURNAL
September 1, 2005; Page D1
Hurricane Katrina wreaked havoc amid 90-degree-plus temperatures, but come this winter, the catastrophic storm will make it more costly for many Americans to heat their homes.
Most homeowners in the U.S. use either natural gas, electricity or heating oil to keep warm in the winter. Katrina is pushing up prices for all three.
One of the most powerful hurricanes in U.S. history, the storm shut down more than a tenth of the country's oil-refining capacity, sending heating-oil prices soaring. Similarly, natural-gas prices are spiking, with the U.S. Minerals Management Agency reporting 83% of U.S. natural-gas output shut down. That's also pushing up the cost of electricity, much of which is generated by burning natural gas.
For most Americans, the most immediate reckoning will come the next time they fill up their automobile. Largely because of refinery shutdowns due to Katrina, the spot price of gasoline rose by an unusually large 78 cents a gallon between Friday and Tuesday. Retail prices have already reached $3 a gallon at a number of service stations across the country.
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Still, the powerful hurricane comes at a time when the nation's energy needs are about to shift from the summer driving season, which tapers off after Labor Day weekend, to home heating. Prices of heating oil and natural gas had already been rising for months because of robust demand and tight supplies. The Petroleum Industry Research Foundation now predicts that home-heating bills for this winter will average $700 more than last year.
While most Americans can usually come up with the money to fill their gas tanks, heating bills present a much more formidable chunk of change. Say you use 800 gallons of heating oil a year at $2.50 a gallon. That's $2,000, concentrated in a relatively short time span. In addition, many consumers who use heating oil, a common fuel in the Northeast, have to decide around now whether or not they want to lock in a per-gallon price for the winter with their dealer.
Even before the storm, the Department of Energy's Energy Information Agency predicted retail heating-oil prices would average $2.20 a gallon this winter, 17% higher than last year amid heavy global crude-oil demand. Natural gas, meanwhile, was expected to rise 16.5% to $12.97 per thousand cubic feet.
As global demand has pushed up crude-oil prices, it also has pulled up natural-gas prices, because natural gas competes with crude-derived heating oil. As heating-oil prices climb, natural-gas traders expect there will be more demand for natural gas and bid up prices. This summer's surge in natural-gas prices has also been driven by hotter-than-usual weather in many parts of the country, which boosted demand for gas-generated electricity to keep air conditioners running on high.
Yesterday, prices edged lower; heating oil for September delivery fell 2.29 cents to settle at $2.053 in Nymex trading. Natural gas for October delivery was down 18.7 cents at $11.472 per million British thermal units. But heating oil is up 12% over the last three days, and natural gas has risen 17% in the same period.
The recent runup in heating oil and natural gas -- like gasoline -- represents a direct hit on the wallets of millions of consumers. Some 55% of Americans heat their homes with natural gas, while about 30% do so with electricity and 7.5% with heating oil, according to the Department of Energy.
One option for saving is to lock in a price prior to winter, an opportunity that most suppliers offer. Crown Oil Corp., a family-owned business in Chatham, N.J., was offering its customers a guaranteed price of $2.30 a gallon until Aug. 15 if they paid up front, which they've since upped to $2.49. But that still beats the going price of $2.55. "It doesn't look like it's going to go down," says Dennis Tracy, the company's dispatcher.
If the market price falls below the customer's locked-in price then the customer gets the lower price. But a customer who uses more than the amount contracted for must pay the prevailing retail price for the additional amount.
Higher home-heating bills present a particular challenge to the poor. While some federal assistance is available through state-administered programs, Larry Chretien of the Massachusetts Energy Consumers Alliance says it is inadequate, leaving many to go without heat -- or pay their bills at the expense of food and prescription drugs. Another concern: Consumers will pay with their credit cards, sending them further into debt.
How high home-heating costs rise depends largely on the extent of the damage done by Hurricane Katrina. The storm dealt a blow to oil-production platforms in the Gulf of Mexico, import terminals, pipelines and refineries in Louisiana and Mississippi. Among the biggest casualties: Royal Dutch Shell PLC's Mars platform, which produces 220,000 barrels of oil and 220 million cubic feet of natural gas each day, and Chevron Corp.'s sizable refinery in Pascagoula, Miss., which processes 325,000 barrels a day of oil.
One positive note for consumers: Refiners built up ample supplies of heating oil before Katrina hit, unlike their supplies of gasoline, which are low. "We're better prepared for this than we were in previous years," said Mr. Chretien of the consumers' alliance. "The question is how much was affected and for how long."
Another factor is weather. An early cold snap would increase demand for heating oil, putting pressure on prices with refiners struggling to build more supplies. A mild start to winter, on the other hand, could put downward pressure on prices.
Write to Thaddeus Herrick at thaddeus.herrick@wsj.com