Friday, August 26, 2005

 

Even in Summer, Americans Dread Winter Heating Bills

The New York Times

August 26, 2005

Even in Summer, Americans Dread Winter Heating Bills

It might still be 80 degrees outside, but, four months before the first days of winter, many Americans are already facing the prospect of keeping warm while having to stay within their budgets. Instead of the short spike in energy prices that most expected, it now appears that a variety of high energy bills - for heating oil, propane, natural gas and electricity, as well as gasoline - will be around for a long while.

Near Chicago, a health care administrator expects her natural gas bill to double and has cut back on her cable TV subscription. A school district in Maine will lower the thermostats in classrooms. And the treasurer of the Union Church of Proctor, a small community near Rutland, Vt., faces a $10,000 shortage this winter because of soaring fuel oil costs.

"You can turn the heat down a little and wear an extra sweater," said Gary Fay, the church treasurer, "but in the end you really need to heat yourself."

With energy costs rising substantially for a second year, and reaching another record on oil markets yesterday, how consumers and businesses respond this winter - whether they curb their energy consumption or not, whether they keep spending on other goods or not - will be critical as higher energy prices slowly ripple through the $11.7 trillion American economy.

"This is going to hit on every side," said Davis Bookhart, a researcher at the Consumer Energy Council of America. "On just about everything that is energy-intensive, you're going to feel higher costs. People are more concerned about their bills, and realize that this winter will be more expensive."

Economists generally seem convinced that the higher energy prices will not derail the economy. But they may cause it to wobble a bit: Americans will spend $600 billion this year on oil purchases - everything from gasoline and diesel to jet fuel and heating oil. In two years, the national oil bill has jumped by $210 billion, or 54 percent, according to Larry Goldstein, the president of the Petroleum Industry Research Foundation. In addition, the nation spent $120 billion on natural gas in 2004, according to the American Gas Association. That is expected to increase to about $167 billion this year.

"High energy prices act like a consumption tax and consumption taxes eventually hurt the economy," Mr. Goldstein said.

That extra burden has already shaved three-quarters of a percentage point off American growth, he estimated, but has not put much of a dent in the expanding economy.

The cost of oil is stirring larger waves in the economy now.

As a direct share of the gross domestic product, oil accounted for 8.5 percent of the economy in 1980. As energy conservation measures took hold, and as Americans grew wealthier, that fell to a low of 3.1 percent in the mid-1990's.

Last year, it was up to 4.2 percent. This year, oil is expected to account for 4.8 percent of the economy, according to Mr. Goldstein.

"We've insulated ourselves from higher oil prices, but we're not immune to them," Mr. Goldstein said.

Americans are not completely helpless, Mr. Bookhart said. "Most homes are very energy-inefficient. There are many small things that can be done that will lead to pretty significant cost savings."

Sheryl Andersen, who lives in Crete, Ill., has followed that advice. She has been weatherproofing her new house in expectation of paying higher heating bills: fixing leaks, putting weather stripping around doors, tuck-pointing the chimney and fixing cracks in the fireplace. Last year, she paid $150 a month on her heating bill. This year, she expects to spend twice that.

Ms. Andersen, 57, a senior administrative assistant for a health care provider, said she and her husband had cut back on television channels and now subscribe only to basic cable service. They have not taken out their 18-foot fishing boat this summer because of the higher fuel costs. She does not know yet what other expenses may have to be eliminated or reduced.

"We don't know how bad it's going to be this winter," Ms. Andersen said.

The most visible signs of higher energy costs have been gasoline prices, which have touched $3 a gallon in some parts of the country - and have led to a spate of fuel thefts at service stations.

On Wednesday, Hawaii, with the highest prices in the nation, said it would limit wholesale prices of gasoline in an effort to restrict further increases. Critics say the measure may backfire because it fails to address a cause of higher prices: higher demand.

Crude oil prices, lifted by strong growth in the United States and in China, have risen 54 percent on the New York Mercantile Exchange over the last year. Yesterday, the next-month futures contract settled at $67.49 a barrel, up 17 cents, after touching $67.70 midway in the trading session.

These highs are causing concern around the world. The International Monetary Fund said that Asia's rapid economic growth was at risk from the energy prices.

Still, according to the I.M.F.'s managing director, Rodrigo Rato: "There is very strong demand, and we don't see that demand receding. Prices are not going back to the levels seen at the beginning of 2004."

This may be little comfort for people like Stan Sawyer, a school district superintendent in Westbrook, Me.

Mr. Sawyer said that the district had rerouted its buses over the last months, condensed runs, and is now considering curbing field trips for the year and extending the walking distance to and from school.

In addition to trying to curb gasoline consumption, Mr. Sawyer faces another problem: His district budgeted heating oil purchases at only $1.60 a gallon - well below even the current commodity market price for delivery next month, which is above $1.80 and climbing.

"There isn't any wiggle room," Mr. Sawyer said. "Something like this, we're going to try to do cost estimates about how much it will cost and make it up somewhere else in the budget. It's not only a hardship in Westbrook. It's a hardship in schools throughout the country."

One thing the school will probably do is turn the thermostat down a couple of degrees. "We were around 67 or 68 last year," he said, "and we'll probably turn it down two more degrees and encourage students to wear sweatshirts and sweaters."

The Energy Information Administration, a branch of the Energy Department, projected that retail heating oil prices would be, on average, 17 percent higher this winter than last year, at about $2.20 a gallon.

Natural gas, used by more than half of all households for heating, is expected to rise 16.5 percent, to $12.97 for each thousand cubic feet, while the price of propane, a liquid gas, is forecast to jump by 16 percent, according to Dave Costello, an analyst at the energy administration.

And these estimates may prove low. Last year, heating oil and natural gas prices increased by about a third over the winter. This year, heating oil contracts are up 51 percent while natural gas has risen 55 percent.

"We are going to have to look into more creative solutions," said H. E. Broadbent, vice president for institutional advancement at Dowling College, in Oakdale, N.Y., which mainly uses natural gas for its heating. "We might be looking at alternative energies, or solar energy. But this year is going to be very hard on our budget. We might have to postpone renovations, or buying new equipment. The whole process of deciding what to give up is going to be very, very difficult."

Many analysts predict more increases in prices through the end of the year, as well as into 2006.

"Heating is a visceral necessity; you've got to heat your home," said John Felmy, senior economist at the American Petroleum Institute, the industry's main trade group. "This is when we might expect more of a sticker-shock reaction than with gasoline prices. I'm holding my breath for when I have to fill up my own propane tank."

So far, American consumers have proved surprisingly resilient to the higher energy prices. Despite the rise in gasoline costs, in recent weeks they have still been buying Detroit's gas-guzzling sport utility vehicles, in large part because of deep discounts offered by American automakers. Consumers have not visibly reduced spending, the housing boom has slowed only somewhat and interest rates, while rising, are still relatively low.

According to Goldman Sachs commodity analysts, there is little chance that crude oil prices will drop quickly. The firm now expects oil to average $68 a barrel and does not see it dropping below $60 a barrel for years. Many others on Wall Street are looking for oil around $50 a barrel in 2006.

There is also little relief to expect on natural gas markets. While the use of fuel oil is mostly concentrated in the Northeast, natural gas is the heating source of choice for some 61 million households across the country.

While much of the attention has been focused on crude oil and gasoline, natural gas markets have boomed as well in recent years. Through the 1990's, prices remained fairly stable, averaging about $2 a thousand cubic feet for the benchmark spot price in the United States.

But in early 2000, prices began to rise, averaging $5 a thousand cubic feet from 2000 to 2005. Yesterday, natural gas futures settled at $9.77 in New York after briefly trading above $10 on Wednesday.

"A lot will depend on consumer behavior and whether they will be overwhelmed by the higher prices and cut on their consumption," said David N. Parker, president of the American Gas Association. "We don't see any reduction in the heating costs in the next two to three years. Beyond that, there will be a flow of additional supplies. But we will never go back to $2 gas. We might settle between $5 and $5.50."

Higher costs have also translated into higher electricity prices. In Miami, Juan Pablo Constain, a 26-year-old business administration major at Florida International University, said his last electric bill was $216, up 45 percent from the previous month. He rides his bike to school more often to save on gasoline, has stopped attending soccer games, and has cut back on social activities.

"I don't get together with my friends for happy hour at the bar," Mr. Constain said. "I'm trying to save as much as I can on everything."

Katie Zezima, in Boston; Gretchen Ruethling, in Chicago; and Vivian Medina, in Miami, contributed reporting for this article.

http://www.nytimes.com/2005/08/26/business/26energy.html?pagewanted=all


Comments:
Oh well not everyone needs to agree. But I do!.Need to finish my report on adjustable rate mortgage san diego.Thank you very much,adjustable rate mortgage san diego.
 
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?