An article in the Sunday, January 22, 2012 edition of the New York Times comparing heating oil and natural gas prices betrayed a bias and naiveté that could cost homeowners thousands of dollars chasing savings which may never materialize.
In their article “As price of oil soars, users can only shiver and cross their fingers,” authors Diane Cardwell and Clifford Krauss essentially take as a given that today’s lower gas prices will stay low, higher oil prices will stay high. Where have we heard that before?
The electric industry, which once promised electric prices so low they would be too cheap for homeowners to meter, encouraging “all electric” homes. That was a serious mistake. And of course, to natural gas, which has in the past made the same claims, only to see their prices become more expensive.
The fact of the matter is that energy prices are notoriously difficult to predict, even in the short term. A few cases in point:
- In 2008, customers heating with oil were told prices could rise to record levels, only to see those prices drop by more than $2 per gallon.
- In 2002 natural gas prices were about where they are today, only to see them rise to more than $14 a million BTUs by 2008 – a nearly 600% increase! Low prices in 2002 were not a guarantee of low prices a few years later.
Now to some of the omissions from the article:
- In 17 out of the last 20 years heating oil has been less expensive than natural gas. A heating system is a 20 year investment, not something changed for a temporary advantage of one fuel over another.
- The EIA comparison of costs to heat a home with gas, oil and electric, overstates the real differences and misleads consumers. Costs to heat with electricity in Connecticut are twice as high as the cost of heating with oil. Citing an annual cost of $957 to heat with electricity in the Northeast is simply wrong – and actually exceeds more than $5,000 annually based on 19c per kilowatt hour for electricity here in CT.
- When you compare apples and oranges, don’t expect to like the taste. The authors cited the savings of homeowners who converted to another fuel. What they’re leaving out is that they replaced an outdated system with a brand new heating system. Switch out an old oil unit for a brand new one, and you could also cut your heating bills by 30-40%.
- Natural Gas is going to be increasingly liquefied so it can be exported. Natural gas sells for more than $12 mmbtus in Europe and upwards of $16 mmbtus in Asia, while currently less than $3 mmbtus in the US – driving the gas export market. That can’t help but drive up the cost to homeowners. Further, the boom in drilling for natural gas is starting to drop off as gas companies cannot earn an economic return for the current commodity cost of gas. As the CEO of Anadarko Petroleum said on January 18th “The price of natural gas, which this week hit its lowest level in more than a decade, won’t continue to be depressed for much longer as companies will have to stop drilling due to economic reasons.”
- The authors missed another recent EIA statement concerning future natural gas prices. Just last week, EIA came out with a projection that Natural Gas prices here could rise 54% within 6 years due to increased exports.
- Heating oil continues to get more efficient and environmentally friendly. The principle reason for the drop in heating oil use is due to improved efficiency. The average Oilheat consumer used more than 1,100 gallons per year 30 years ago and today that same consumer uses about 700 gallons. Today’s modern oil heat systems are up to 40% more efficient than older units. A cleaner fuel, mandated for use in New York State beginning this July, will allow the use of even higher efficiency heating systems and which can reduce oil bills by 25% or more. And with renewable BioFuel, also mandated for use in New York City this year, you get fuel emissions with less global warming impact than natural gas, whose principle component is the powerful greenhouse gas – methane.
Energy markets are highly dynamic and the circumstances we see today were not in evidence three years ago and no one can predict that is where they will be three years from now.
This prompts us to remember the most important message of all. When it comes to predicting the future of energy costs and placing a $6,000-$8,000 dollar bet on conversion, buyers beware. The US Government has consistently failed to accurately predict the future of energy and the New York Times will not have any better record.