US tries to keep Northeast homes toasty

Clinton created an emergency reserve for region July 10. But supplies are still down.

Air conditioners might be turned up now in the Northeast, but there's concern about whether the region will have enough home heating oil to get through a rough winter.

One of the early manifestations of that concern came July 10, when President Clinton established a 2 million barrel home-heating-oil reserve for the region. Over the past several weeks, local heating associations have been writing letters to Congress warning that there could be a replay of this past February, when home-heating-oil supplies dipped to less than a week's supply and prices spiked.

"If we don't do something now, we could be facing a price crisis this winter," says Kevin Rooney, executive vice president of the Oil Heat Institute of Long Island.

Supplies running low

What has the president and the oil deliverers worried is that normally at this time of year, oil refiners are beginning to build up inventories of home heating oil. Because of strong demand, however, oil companies are concentrating on producing gasoline and diesel. As of the end of June, home heating oil and diesel were 26 percent below average.

The Clinton move is mainly symbolic. The US uses 11 billion gallons of home heating oil a year - about 90 percent of it in the Northeast. The new reserve would amount to about one winter day's supply.

"We're on a tightrope, and the president is trying to put in a safety net," says John Huber of the Petroleum Marketers Association in Washington.

If the reserve were used at the right time, it could make a difference, says Kevin Lindemer of Cambridge Energy Resources. For example, if the entire reserve were released over the course of a week, it would amount to 20 percent of demand on a given day. "The psychological impact on the markets might even be greater," says Mr. Lindemer. "It would give the market time to catch up and the cold wave to pass."

The president's plan is to swap oil from the Strategic Petroleum Reserve for home heating oil to be stored somewhere in the Northeast. Clinton acted by executive order because the Senate has yet to pass legislation authorizing the swap. The House passed legislation recently.

The oil industry is opposed to the move, maintaining it is a case of the government intervening in the marketplace.

"Everyone knows there is a problem," says a spokesman for the American Petroleum Institute. "But once you set up something like this, it changes the incentives to meet the demand."

The industry also believes it's far too early to be concerned. "If this was happening in October, I'd be nervous," says Mr. Huber. "People are waiting for the winter to begin storing."

One of the reasons the industry is less concerned is because it's relatively easy to ramp up supplies of heating oil. Tankers can be loaded in Venezuela and be unloading their cargoes at Pennsylvania refineries in 20 days.

Tight winter ahead?

Energy analysts point out that natural gas reserves are also low - about 36 percent below average. This could prove a more pressing problem. Because of pipeline constraints, it's not possible to increase natural-gas supplies once winter begins. "It looks like it could be a tight winter for energy supplies," says Lindemer. But, he cautions, "Predicting a crisis is premature."

However, the regional oil reserve at a cost of only $8 million is a relatively inexpensive way to meet political criticism. By this fall - the middle of the election season - Democrats don't want to see the president blamed for making senior citizens cold.

(c) Copyright 2000. The Christian Science Publishing Society

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