WAR... economic... OIL... EPA.....
At one time heating was build and stored all summer long for winter demand then for a few season the oil companies lost a fortune due to oil price declines , hence loss of stored heating oil value in inventory., Then came futures market and prices were more competitive at ny harbor price rather than store heating oil all summer. Next Arab pricing makes planning difficult for industry, next EPA comes out with demands for small business to provide , dikes and how they will be built, etc etc so small guy goes out of business or takes his tanks down. Next utilities convert from coal to gas due to epa regulations. Cheaper to burn natural gas or #2 fuel oil than comply with epa for strippers in smoke stacks etc. More demand moves to heating oil and gas. Coal which we have in excess lays in the ground.
BUSH , help... Give us an energy policy...
wsj this morning. one example
December 29, 2000
For Heating-Oil Firm in Vermont,
Now Is the Winter of Discontent
By JOHN J. FIALKA
Staff Reporter of THE WALL STREET JOURNAL
BELLOWS FALLS, Vt. -- The recent cold snap has sent a chilling
message to the owners of the Cota & Cota heating-oil company.
Two weeks into an unusually frigid winter, they are scrambling to fill orders
for fuel and furnaces even as area oil supplies falter. "We get calls like,
'You know that new furnace you wanted to install? Can you put it in
tomorrow?' " says Chris Cota, 52, a vice president of the family-owned
firm.
Companies such as Cota & Cota -- one of the
hundreds of mom-and-pop dealers that
dominate the $7.5 billion heating-oil business
-- are on the front lines of an energy crunch
squeezing some of the country's coldest regions. Demand for fuel is nearing
record highs in New England, but the amount of heating oil in area storage
tanks is hovering near an all-time low at 4.5 million barrels.
That's just 44% of what was on hand at this time last year, when prices
doubled within a few days and supplies nearly ran out. While only 9% of
U.S. homes use oil heat, many parts of New England lack gas pipelines,
and running out of oil is a real possibility.
Just since Christmas Eve, Cota & Cota has responded to calls from seven
heatless houses, some of them vacation homes that are unoccupied in
winter. So far, at least, the problems have been furnace malfunctions, not a
fuel shortage. One restored Victorian froze last week because the absentee
owner, a California professor, had switched off a sensor on the furnace
that's supposed to sound an alarm at Cota & Cota headquarters when the
temperature drops. The professor was lucky; a neighbor called the
company before the damage got too bad. Another vacation home turned
into a virtual ice sculpture when the pipes froze and cracked, causing
$15,000 in damage.
The challenge for Cota & Cota, a family business
that started when Mr. Cota's grandparents bought
a used kerosene truck in 1941, is to keep oil
flowing to its 6,000 customers at prices both they
and the company can afford. For now, Cota &
Cota charges $1.59 for a gallon of heating oil.
That's up from $1.14 last year at this time. Prices
could go even higher, as demand for oil is already
up 15% this winter compared with last year,
according to 37-year-old Sean Cota, company
president and Chris's nephew.
Adding to the pressure, the company's supply
system has gotten tighter. Along with many other industries, the heating-oil
business has increasingly moved to a "just in time" delivery system that is
intended to save storage costs by transporting oil to dealers like Cota &
Cota precisely when it is needed. The new system worked fine during the
three unseasonably warm winters before last year, but it fell apart during a
cold spell in January.
"Just not in time," snorts Sean Cota, describing what amounted to seven
desperate weeks last year, during which Cota & Cota's three tanker trucks
searched for suppliers of fuel throughout the Northeast and into Canada.
During last year's crunch, some of Cota & Cota's suppliers failed to honor
long-term contracts, explaining that they were out of oil. The price of home
heating oil, which in prior years had generally remained flat for the whole
season, gyrated wildly. Sean Cota and the company's 52 other employees
worked around the clock. At one point, they were down to a one-day
supply.
Already, Sean Cota says, there are signs that last winter's unhappy tale
could begin again: The two-week weather forecast for the area is 15% to
30% colder than normal. A major wholesaler recently told Cota & Cota
that oil shipments guaranteed for Jan. 1 will be delayed by 15 days, with
no explanation. Meanwhile, the electricity grid that serves Northern
Vermont is running short -- due to high demand and lack of generating
capacity -- forcing the use of oil-driven backup generators in Burlington
and other big cities. Spot shortages have begun to appear in regional
markets for diesel oil and kerosene.
Complicating matters even further is the growing demand for oil by several
new electricity plants in the area. They operate on gas power for much of
the year, but to qualify for the lowest-priced gas contracts, they agree to
have their gas cut off -- and switch to oil -- when demand for gas spikes in
winter. That, in turn, puts more pressure on oil suppliers. The American
Petroleum Institute estimates that so-called fuel switchers increased the
demand for heating oil last winter by as much as 10%.
"We became the shock-absorber for the entire energy system," complains
Sean Cota. "They come into our market like an elephant jumping into a
bathtub."
A former college cross-country runner who favors bow ties, Sean Cota
talks wistfully about the "old days" -- before he was born. In the 1950s,
dealers like Cota & Cota affiliated with major oil companies, which
guaranteed supplies. The rhythm of the business was humdrum but reliable:
You bought oil in the spring and summer, when prices were low, and you
stored it for the winter.
After the Arab oil embargo in the 1970s, the major oil companies pulled
out of the retail home-heating-oil business. Cota & Cota painted over the
name of its former supplier, Shell, now a unit of Royal Dutch Shell
Petroleum, on its trucks and storage tanks. Though the trucks' distinctive
yellow color remains, the oil itself comes from midsize regional
wholesalers. These suppliers carry much smaller inventories, figuring that it
is cheaper to buy oil from major companies rather than store it.
To hedge some of its risks, Cota & Cota has kept its storage tanks, unlike
some competitors that tore theirs down when tough environmental rules
were imposed in the 1970s. It tries to keep at least a two-week supply on
hand. The company insists that all of its suppliers have more than one
delivery terminal in case ports freeze, as they did last winter. Like other
dealers, Cota & Cota also typically buys bulk contracts for future delivery,
which enables it to offer customers price-insurance programs that "cap" the
price of heating oil.
Even so, the Cotas can't help everyone. Like doctors in a combat zone,
they've developed a triage system. At the top of the list: "No Heat" --
people whose furnaces have quit. At the other end: "No Go" -- customers
with a history of not paying their bills. When a "No Heat" call comes in
from a "No Go," a negotiation ensues. If there is no promise of collecting
prior bills, the company may not respond.
But if the call comes from a poor family facing a severe crisis, Cota &
Cota will deliver. There have been 25 such cases this year, says Sean
Cota. He recalls standing in the freezing, flooded basement of one "No
Go" last winter, asking for a hair dryer to fix a soggy furnace part. "You
have to swallow hard to deliver to people you've written off," he says.
"You never feel warm and fuzzy about that, but I said I'd do it, so I do it."
Write to John J. Fialka at john.fialka@wsj.com |
