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Fuel prices turn up heat on customers

THE BALTIMORE SUN

As concern grows over forecasts of possible fuel shortages, Maryland residents are rushing to lock in natural gas contracts and stock up on heating oil, as fuel companies brace their customers for what will be inevitable price increases in home heating bills this winter. Prices on the wholesale market have fluctuated rapidly since early this year, with the cost of heating oil soaring 70 percent higher and natural gas 60 percent over a year ago.

The problem is expected to get worse, especially if Mother Nature wallops the Northeast with a harsh, cold season, according to industry experts and market analysts. That could mean at least $200 to $300 more that households will be paying to stay warm this winter.

"This is really going to put a whole lot of hurting on a lot of people who can't afford that," said Anthony Russo, who spent nearly $1,100 to have 850 gallons of heating oil delivered recently to his Bowleys Quarters home. "I usually wait until October to fill up, but I figured I might as well buy now before prices take another drastic jump.

"If I wait, I could pay $1,400 next month; that's a lot," said Russo, 57, who shopped around before settling on Dundalk-based Maryland Oil Co. for $1.29 per gallon.

January and February provided a taste of what might happen this winter. Crude oil prices rose above $30 a barrel - a nine-year high - sending heating oil bills through the roof. Also, icy weather made it difficult to deliver the fuel throughout the Northeast.

This time, consumers in the Northeast are in for a double whammy.

The U.S. Department of Energy announced in June that, along with potential shortages of heating oil and price surges that could top $2 a gallon, natural gas users will pay at least 50 percent more for the fuel this winter.

Jim Mason, co-owner of Pasadena Discount Heating Oil, said, "I tell people that it appears the prices will go up substantially, and they're not very happy to hear that. Right now, we're at $1.32 per gallon, and that's unusually high for this time of year. We just don't have the power to offer low prices at this time.

"Despite that, we've been getting a fair number of people filling up now, and that's really unusual for us," Mason said.

The outlook has set off a scramble in Maryland's deregulated natural gas market, as residents shop around.

In a deregulated gas market, consumers can sign up for a one- to three-year contract for gas, locking into one price to protect against price fluctuations.

Some companies, however, charge variable rates, which means prices can change throughout the month and customers pay an average price at month's end.

A Baltimore representative of Maryland Natural Gas Ltd. reported receiving "an awful lot of phone calls checking prices" as consumers attempted to lock in a rate for the coming year.

Maryland Oil Co. reported an average of 75 calls a day for price checks.

Butch Bollinger says the sooner residents buy, the better.

"It's going to be awful," said the owner of Bollinger Energy Corp. in Baltimore, who sells natural gas and heating oil to commercial and industrial businesses. "Every day, the prices are higher. I keep hoping it'll go down. It's difficult, because people are already complaining about prices."

The increase in heating oil prices is blamed partly on the Organization of the Petroleum Exporting Countries and its decision to cut production last year, sending crude prices to a 10-year high last week and raising fears of $40-a-barrel petroleum.

Also, refineries that normally shift from producing gasoline to distillate, which includes heating oil, have continued making more gasoline to meet demand.

The spiraling price of natural gas is blamed, ironically, on low natural gas prices during the past few years. That reduced well-drilling and the available supply, even as demand in the booming economy was increasing, especially as utilities increasingly use it to fuel electric generation plants, according to the American Gas Association.

Heating oil supplies are down 40 percent from this time a year ago, and natural gas reserves are 15 percent below last year's levels.

"You've already seen a build-up in prices in anticipation of the winter heating season," said Allan Brady, associate economist at Economy.com in West Chester, Pa. "The long-term impact on whether prices will go any higher depends on two things: One, how well refineries continue to produce to overcome the shortfall. Two, how soon we will see cold weather and how severe will it be.

"If it's severe, prices will get even higher, believe it or not."

By Aug. 1, spot prices for heating oil were 75.70 cents a gallon, while natural gas cost $3.78 per million British thermal units (Btu). On Sept. 1, prices for heating oil jumped to 96.48 cents a gallon, while natural gas shot up by almost a dollar to $4.74 per million Btu.

Industry experts caution that the public should be wary of scare rhetoric.

"Is there a crisis? No, but it's certainly something that deserves attention," said John C. Felmy, director of policy analysis and statistics at the American Petroleum Institute. "It's a situation where all energy products are tightly constrained. We might have price spikes, but you won't have shortages. The product will continue to be delivered, but it could cost a lot more."

Baltimore Gas and Electric Co. is predicting that its residential gas customers here will face more moderate increases - 25 percent vs. the 50 percent forecast for much of the Northeast.

"We believe this is a short-term phenomenon and that these higher prices will not continue into the following winter," said Rose Maria Kendig, a BGE spokeswoman.

But Robert Blake, manager of the natural gas division for Millersville-based United Energy Inc., said increases will be steeper.

"The fact of the matter is, the prices are up. They've been up," Blake said, referring to BGE's gas rate chart, which was 38.81 cents per therm in August 1999 and now stands at 52.73 cents per therm - about a 36 percent increase.

"Unlike with heating oil where you pay before you use, the only way to battle high gas prices is to conserve what you use," Blake said. "I think a lot of people will only see the impact when they see their January bills.

"We have a number of customers who have contracts expiring this fall. We're sending them renewal notices with our new price. I believe they'll see the difference pretty quickly."

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