Winter Heating Costs May Double

September 22, 2005
/ Print / Reprints /
ShareMore
/ Text Size+
Consumers are in for a shock when they open their first heating bill this winter. Some people will believe their gas meter is broken, others will think the bill was sent to the wrong address. Everyone will be asking the same question, "What happened?"

On Monday, Aug. 29, Hurricane Katrina slammed into the energy heart of America. Twenty-nine percent of the nation's oil and 20 percent of its natural gas is produced in the Gulf of Mexico. Fifty-foot waves and winds of up to 175 miles per hour sank or severely damaged at least 58 production platforms and drilling rigs.

It is feared that sea anchors attached to free-floating platforms are dragging across the bottom of the sea, causing extensive damage to undersea pipelines. As oil and gas is produced, it is pumped on shore for processing and refining. Last summer Ivan, a less intense Category 3 hurricane, caused undersea landslides that severely damaged collection and distribution pipelines. The damage took almost a year to repair. At this point, the extent of the destruction wrought by Katrina and the time needed to repair it remains unknown.

Natural Gas

Thirty-four percent of the Gulf's natural gas production is currently "shut in." This lost production significantly reduces the amount of natural gas that can be stored to meet peak winter demand. Storage is a natural gas prices shock absorber. When storage is high, prices tend to stay moderate, even during cold winters. When storage is low, prices could spike during the first cold snap of the year.

Unlike natural gas produced on-shore, gas from the Gulf must be cleaned before it reaches consumers. The U.S. Energy Information Administration (EIA) revealed that two major natural gas processing plants will be off-line for repairs for up to six months. The inability to properly process gas limits the amount added to storage.

Unlike oil, we have no strategic natural gas reserves to tap during a crisis to keep supply and demand in check. The EIA projects the wellhead price of natural gas will reach $11.05 per 1,000 cubic feet sometime in the fourth quarter of 2005, up from $5.92 (59 cents/therm) during the same time last year. The EIA also warned that an extremely cold winter could drive prices much higher.

Even before Katrina, natural gas production from existing wells was declining 30 percent per year. In 2001 production peaked and demand out-paced supply. Today the average new gas well is reported to only produce one-third as much gas as in 1973. From here on, no matter how many wells are drilled, production will not likely keep up with demand.

Heating Oil Pressure

Forty-seven percent of the nation's oil is refined in the states surrounding the Gulf. Four refineries with the capacity of producing 880,000 barrels of oil per day are so severely damaged it will take months before they are back on line. Most refineries shut down for weeks to do much needed annual maintenance each fall. However with 5 percent of the industry's re-fining capacity down, some refiners may decide to defer maintenance. Refineries that go off-line for maintenance or fail, due to the lack of it, could cause immediate heating oil and gasoline price increases.

Even before Katrina, U.S. refiners could only meet 88 percent of this country's refined oil demand. Since the last oil refinery was built in 1976, an additional 50 million cars have started rolling on U.S. highways. Even if crude oil supply was not a problem, limited refining capacity creates a bottleneck that magnifies any increase in demand or reduction in supply.

The EIA projects the price of retail home heating oil to reach $2.46 this heating season, up from $1.80 last winter. Last year's price was 34 percent higher than some consumers paid in the winter of 2003-2004.

Hedging Woes

Many companies that supply natural gas and heating oil to residential consumers use price hedges. Hedging allows the supplier to buy a quantity of natural gas or oil for a fixed price for future delivery. Because of unstable fuel prices this year, some firms wanted to wait until demand subsided this fall before they locked in prices.

Katrina couldn't have come at a worse time for consumers whose energy supplier didn't already have hedges in place. This winter prices could vary widely in the same region depending on percentage and price of the energy hedged.

Katrina: A Wake-Up Call

If one thing positive could come from this terrible disaster it is: Energy now has this country's full attention. HVAC contractors are not only in the ultimate position to help consumers lower their home heating-cooling bills, they also have the privilege and obligation to help America conserve its remaining energy resources.

Steve Howard is the founder of The ACT Group. He can be reached at either 800-515-0034 or steve@nopressureselling.com.

Publication date: 09/26/2005

Did you enjoy this article? Click here to subscribe to The NEWS Magazine

You must login or register in order to post a comment.

Multimedia

Videos

Image Galleries

2014 Energy Efficiency Forum

Highlights from the 25th annual Energy Efficiency Forum in Washington, D.C.

Podcasts

NEWSMakers: Joseph Groh

Joseph Groh, an industry veteran boasting 35 years of HVAC experience, discusses the 2008 bicycle accident that cut his career tragically short, and how the Joseph S. Groh Foundation is his way of giving back to the construction trade. Posted on Aug. 22.

More Podcasts

ACHRNEWS

NEWS 08-18-14 cover

2014 August 18

Check out the weekly edition of The NEWS today!

Table Of Contents Subscribe

Prohibiting HFCs

EPA is proposing a rule that would prohibit some HFCs in select refrigeration applications. Do you agree with this move?
View Results Poll Archive

HVACR INDUSTRY STORE

plumbing-hvac.gif
2014 National Plumbing & HVAC Estimator

Every plumbing and HVAC estimator can use the cost estimates in this practical manual!

More Products

Clear Seas Research

 

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications, Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.

DON'T MISS A THING

Magazine image
 
Register today for complete access to ACHRNews.com. Get full access to the latest features, Extra Edition, and more.

STAY CONNECTED

facebook icontwitter iconyoutube iconLinkedIn i con