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Cost Concern

Natural gas gains, regulatory changes squeezing small heating oil firms

November 17, 2013
By JASON?SUBIK , The Leader Herald

When Vern O'Brien, the owner of Vern's Auto Body in Amsterdam, recently acquired ownership of the Egelston Oil Co., he knew he was in for a challenging business environment.

O'Brien said Egelston's has about 1,800 customers, many of them commercial farms. He said he's lost a few customers this season to natural gas.

"We had one right up in Tribes Hill where [natural gas suppliers] go into the trailer park area and they pump in the natural gas and put it into the park and they go to all of the customers and see if they want to change over. The only thing that's saved us a little bit is that people can't afford to do it because they have to buy a new furnace and run the line into the house," he said.

Article Photos

Josh Pagano, an oil-delivery person for Egelston Oil Co., delivers oil to a house in Amsterdam on Wednesday.
The Leader-Herald/Bill Trojan

An average home with oil heat will spend $2,046 this winter, compared with $679 for homes using natural gas, according to the Energy Department.

Natural gas prices have fallen in recent years thanks to a boom in natural gas production across the U.S. statewide. Natural gas customers are spending about $11.42 per thousand cubic feet of natural gas, down from $11.86 last year at this time and down considerably from a period from 2006-09, when the price was consistently higher than $15 per thousand cubic feet. Those figures come from the New York State Energy Research & Development Authority, which tracks energy prices on its website, www.nyserda.ny.gov.

NYSERDA also shows average home heating oil prices in the Capital Region are down slightly at $3.78 per gallon, from $4.02 per gallon last month at this time. That's still well above the average for the past 10 years when heating oil was usually priced at less than $3 per gallon and sometimes less than $2 per gallon.

Jim Buhrmaster, the owner of Buhrmaster Energy Group, which supplies heating oil locally and throughout the Capital Region, said oil commodity prices have remained stubbornly high in large part because of oil speculators. Buhrmaster, who once ran as a Republican for Congress against Democrat Paul Tonko, said he supports new regulations that would mandate higher margin requirements for oil futures speculators, which would require investors to put up more money in order to place bets on the future price of oil.

"There is plenty of supply of heating oil, and kerosene for that matter, but because it's traded as a commodity, all of the world fluctuations and talk of war and talk of problems, restrictions on drilling here and there all add up to investors raising the price.?It's separated the price of oil from natural gas and propane for that matter."

Dean Shepard, owner of Shephard Oil Co. in Johnstown, said he also supports oil futures reform as a way of bringing down the price of diesel fuel.

"I'm even more radical. I feel that heating oil and crude oil should be taken right off the mercantile exchange. It should go back to the way it used to be when the oil companies bought it. They marked up their profit and then they sold it with no speculation on any end of the pipeline. The problem is that oil has an effect on every single thing in this economy and this country, and to allow that to be controlled by speculators is unconscionable," Shepard said.

Heating oil's high price has been maintained, despite drops in demand.

The number of U.S. homes heated by oil declined from a peak of 17.2 million in 1973 to 8.1 million in 2011, a 53 percent drop, according to the U.S. Energy Information Administration. Between 1999 and 2011, the decline was 19 percent.

The threat to the industry dominated by family businesses is particularly keen in the Northeast, where about 30 percent of homes are heated by oil, according to the U.S. Department of Energy. That far outpaces the South, Midwest and West, where no more than 2 percent of homes use oil heat.

Kevin Rooney, chief executive officer of the Oil Heat Institute of Long Island, a trade association, said oil sales volume is down because furnaces are more efficient. Homeowners who have spent up to $4,000 to upgrade their burners are not likely to spend thousands to convert to natural gas, he said.

"They've already made the investment," Rooney said.

Buhrmaster said he's encouraged his customers to become more energy-efficient with new heating equipment, which he sells and replaces, but also with information he mails to customers on how to make their homes more energy-efficient with better windows and doors. He said helping to lower his customers' costs can help him keep his customers.

"This year, we've actually replaced a lot of boilers from people who've had the same system for 30 or 40 years with a new boiler that can last another 30 or 40 years, and we do that very competitively," he said. "The average customer 15 years ago used about 1,325 gallons of oil per year; now they probably use 700 to 750 gallons per year. That's cut almost in half, but the cost per gallon is higher."?

At a recent industry conference in Connecticut, Richard Rutigliano, president of Primedia, a New York marketing company, exhorted dealers to not be shy about contrasting themselves with natural gas utilities. He claimed they issue complicated bills, fail to disclose the true cost of converting oil furnaces to natural gas, and expose communities to the risks of natural gas explosions and environmental hazards of hydraulic fracturing, or fracking, to drill for natural gas.

"We have to get off the mat and fight," he said.

One of those contrasts is customer service. O'Brien said small family-run heating oil businesses are under increasing pressure from oil wholesalers, like Mirabito Energy Products and Superior?Plus, that have begun purchasing small delivery trucks to compete on the retail level, but he believes small firms like his still have an edge in customer service.

"We have two technicians and fortunately today, a lot of the people who trying to get into the retail oil business don't have service. They go straight to the port [of Albany] and get their wholesale price and just sell oil. But if you wake up on a Sunday morning and you don't have heat and you bought your oil from a company without 24-hour service, seven days a week, then you've got a problem," he said.

Buhrmaster said he's seen the trend in larger wholesale oil companies trying to break into the retail heating oil market and his answer is to stop doing business with them.

"Our policy has been that when our wholesaler goes into retail, then we can't really do business with them. We're not going to compete against our supplier," he said.

Shepard said larger heating oil suppliers are also benefitting from changes in state regulations regarding how municipal heating oil contracts are bid. He said the state now requires heating oil suppliers to bid groups of counties for a state contract instead of a single county.

"We've almost always had part of the Fulton and Montgomery county state contract, but this year we didn't get any of it. We didn't even bid it because in order to bid Fulton and Montgomery, we also had to accept and bid Saratoga County, Warren County and Washington County. That's ridiculous. The amount of receivables we would have to carry with the state and the cost of doing business and sending equipment over there, we just couldn't do it. That immediately cost three people their jobs," Shepard said. "The state thinks they are going to get better pricing, but what they've managed to do is [price out] small local companies that used to be able to offer really low bids to counties because that small contract would be enough for them to make their margin."

Buhrmaster said his company got out of the municipal oil market several years ago because he didn't find it to be very profitable. Buhrmaster Energy Group has since expanded into other areas of energy supply and service.

"We've been in business for 100 years, and we started with coal and wood, so we know how to adjust," he said. "In the early '40s, we got into heating oil, but we also do warm air conditioners and we service natural gas, and now in our hundredth year, we've gone into propane."

The Associated Press contributed to this article.

 
 

 

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