It's mid January. Outdoor temperatures are down. Utility bills are up. For manufacturers heavily dependent on natural gas, upward moving prices add significantly to process costs, eating away profits. If you are looking for an understandable explanation of the inner-workings of the petroleum industry, look at the American Petroleum Institute's website www.api.org)- chalked full of useful and understandable petroleum facts. For example, look at the following sections:
Winter Fuels: Outlook For 2000-2001
Find out why heating oil prices nearly doubled last winter 1999-2000); if OPEC carries any blame for price increases; why increased demand for automotive gasoline has impacted heating oil inventory levels; why the government's proposal to establish a Northeast heating oil reserve may exacerbate rather than alleviate a heating oil shortage this winter. Find out why the Northeast is much more vulnerable to heating oil shortages than the rest of the country. Also, learn what an "interruptible natural gas" supply contract is and why these contracts can often cause spikes in the price of heating oil.
Access to Government Lands
55% of the crude oil used in the U.S. is imported. According to this section, that number could be substantially decreased if the government allows increased access to government lands currently placed off limits to exploration and development. There has been a 60% reduction in lands available for exploration and development since 1983. Due to legislative mandates and executive orders, most all off-shore drilling has been banned and most on-shore activity has been severely crippled. These restrictions have been imposed even though most of the environmental arguments prompting the restrictions have been substantially discredited due to advances in exploration and drilling technologies.
Heating Oil Reserve
100 million barrels of heating oil are consumed each year with 75% of that amount consumed in the Northeast. Two million barrels of heating oil have been set aside by the Department of Energy at the direction of the President for the Northeast. This is the first time in history a reserve of this type has been established on a regional basis. This section of APIns website explains why this oil reserve may actually increase the probability of a heating oil shortage and higher heating oil prices in the Northeast this winter.
There is an interrelationship between natural gas and heating oil. This section of the website explains the interplay. When natural gas demand reaches its peak, utilities and industrial users of natural gas with "interruptible contracts"are informed that their supply of natural gas will be cut. Heating oil is a typical replacement for natural gas. When utilities and industrial users turn to heating oil to replace their natural gas supply, demand spikes as do heating oil prices.
Price collapses in 1997 through 1999 are still affecting the natural gas market as much of the industry is still reinvesting in the necessary capital equipment to meet the ever-growing demand. Government restrictions on exploration and development have severely limited gas production and increased the cost of the available gas. There is enough gas to meet current and foreseeable demand - getting it out of the ground is the only obstacle at this point.
Lack of pipeline infrastructure is New England's primary weakness. A special section of the website is set aside to explain the unique problems associated with New England. Freezing rivers, stranded trucks, and virtually no pipelines makes New England especially vulnerable to price spikes when cold weather hits.
Running at 96% capacity, the refinery industry is exhausted. Many refineries are in sore need of maintenance but can't afford to shut-down due to demand pressures. Various unplanned refinery shut-downs due to regulatory issues or natural disasters) have taxed the remaining refineries to their physical limit. Government imposed regulations on the distribution "boutique islands") and production EPA ozone regulations) have severely damaged the industry's ability to meet demand.