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Colder winter, OPEC moves might boost LI heating costs

Rod Roetheli, a driver for the Swezey Oil

Rod Roetheli, a driver for the Swezey Oil Co., delivers heating oil to a home in Port Jefferson Station on Thursday, Dec. 1, 2016. Photo Credit: Newsday / John Paraskevas

Break out the sweaters — and the checkbook.

Long Island homeowners are likely to pay more for their heat this winter than last because of forecast lower temperatures and higher energy prices.

How much more they will pay, especially for the 55 percent of Long Island homes heated by fuel oil, depends on volatile crude oil prices. Nationally, the U.S. Department of Energy expects homeowners to spend $354 more on fuel oil this winter. Other experts are less pessimistic about the cost of fuel oil, and expect Long Islanders’ rise in heating costs to be half that amount or less.

Natural gas provided heat for about 46 percent of Long Islanders in 2014, the latest period for which a figure is available, according to the New York State Energy Research and Development Authority (NYSERDA). National Grid, Long Island’s main supplier of natural gas, forecasts an increase of 4.6 percent, or $35 in higher spending.

Nationally, the Department of Energy expects higher fuel costs and a bigger increase of 21.7 percent for the season, an increase of about $150.

The Organization of Petroleum Exporting Countries added more uncertainty to the picture on Wednesday when its members agreed to reduce crude oil production by 4.5 percent, or 1.2 million barrels a day, by January. The deal pushed the price of U.S. crude up by more than 9 percent to $49.44 a barrel on Wednesday. By Friday, the price had risen to $51.65. A year ago, the cost was about $40 a barrel.

Whatever direction prices move, however, most analysts expect costs to go up because of the weather alone. “Last year was so warm it’s not going to take a whole lot for it to be colder this winter,” David Samuhel, a senior meteorologist for private forecasting service AccuWeather, based in State College, Pennsylvania, said in an interview.

The Energy Department forecast in November that — nationally — heating oil could cost 42 cents a gallon more than last winter, rising 20.5 percent to $2.48.

With anticipated higher fuel use from colder temperatures, homeowners’ bills could rise by almost 36 percent, the department said.

Long Island’s prices tend to be higher than the national average. Heating oil averaged $2.647 a gallon on Monday, the latest date the average is available, at full-service dealers on Long Island, up 1.3 cents from a year earlier, according to the NYSERDA.

Heating costs on Long Island can have a spillover effect on the economy. Consumers here, as in the nation, drive about 70 percent of the economy, economists say.

Cheaper heating costs boosted the economy a year ago, as fuel oil prices fell about a dollar from the prior winter.

Last winter, temperatures at Long Island MacArthur Airport in Ronkonkoma averaged 6.1 degrees above the normal of 33 degrees. The main reason: the weather phenomenon known as El Niño — a warming of Pacific Ocean waters that influences weather in much of the United States.

AccuWeather predicts temperatures in the Northeast will average 3 to 5 degrees lower this winter than last but will still be above normal. One reason is another weather phenomenon, known as La Niña — a cooling of the water in the equatorial Pacific Ocean. Another factor is the expectation that warm arctic air will push cold arctic air southward.

Federal weather forecasters also say that “a colder winter relative to last year is heavily favored, including more frequent periods of below normal temperatures,” Stephen Baxter, a meteorologist in the National Oceanographic and Atmospheric Administration’s Climate Prediction Center, said in an email.

The Energy Department forecasts a 12.6 percent increase in consumption of heating oil this winter from last because of the expected colder weather.

An average Long Island home heated with oil uses about 800 gallons a year, according to the Oil Heat Institute of Long Island, a Hauppauge trade group: 600 for heat and 200 for hot water.

Until the OPEC deal was reached Wednesday, the U.S. benchmark grade of crude had lately been trading at around the mid-$40s per barrel, roughly $5 more than a year ago.

Behind the Energy Department’s higher forecast for prices is the decline since 2014 in oil production from the relatively expensive hydraulic fracturing method in the United States. Total U.S. production is slipping, the energy department said Nov. 8, from an average of 9.4 million barrels per day last year to a forecast of 8.8 million this year and 8.7 million in 2017.

So the department forecasts higher crude oil prices next year, averaging $51 a barrel for the European benchmark grade known as Brent, which is used in the refining of much of the Northeast’s heating oil and therefore is the biggest determinant of the heating fuel’s price here.

Brent settled at $54.39 a barrel in London trading on Friday compared with $43.84 a year earlier.

Some local and national analysts agree with the DOE that it will be a colder winter, but they don’t think fuel oil prices will rise as much.

Kevin Rooney, chief executive of the Oil Heat Institute, forecast Long Island heating oil prices this winter will be about the same as last, generally around $2.60 a gallon.

He said he doubted the OPEC agreement will hold over the long term.

“This one-million-barrel-per-day cut is virtually meaningless, given the enormous surplus of crude oil we currently have in the U.S. and the world,” he said.

Carl Larry, the Houston-based director of oil and gas for the global consulting company Frost and Sullivan, thinks the energy department forecast for an increase in heating oil’s price is about double what homeowners can expect. “We’re seeing a lot of supply out there,” he said. He thinks a 20-cents-a-gallon increase might result from higher demand due to colder weather and demand for chemically similar diesel and jet fuels.

He doubted that OPEC’s action would affect that forecast materially.

The Energy Department also is forecasting higher natural gas prices nationally, from growing domestic consumption and higher pipeline exports to Mexico. It forecasts that, nationally, homeowners heating with natural gas will pay 9 percent more than last year for the fuel and will use 11.7 percent more gas due to colder weather so that total bills will be 21.7 percent, or $150, higher than last winter.

National Grid said its residential heating customers’ total natural gas bills are projected to be about 4.6 percent higher from Nov. 1 through March 31 than last winter, rising to $778. That assumes a “normal” winter, colder than the last.

Grid’s forecast price reflects a pending increase in gas delivery charges that would take effect Jan. 1 with Public Service Commission approval.

The Energy Department said that, nationwide, homeowners who heat with electricity will spend only 1 percent more per kilowatt hour this winter but probably will pay an extra $49, or 5 percent more, to keep warm because of the anticipated colder temperatures.

PSEG Long Island, provider of most of the Island’s electricity, estimated the average heating customer’s bill for all electrical uses in December, January and February will rise about 2.6 percent this winter over last, to $747. About 42,000 of its Long Island customers have electric heat, the utility said. The forecast makes no assumptions about temperatures this winter versus last.

Growing numbers of PSEG’s customers produce their own electricity via solar electric panels on their roofs, with equipment costs aided by federal and state tax credits of 30 percent and 25 percent, respectively, of the cost of the system. Homeowners augment their supply with power purchased from the utility but, in effect, sell back any excess power they produce to PSEG.

In addition to providing electric heat, electricity can power certain components of both oil and gas heating systems. A relatively small number of homeowners have solar systems that heat water but produce no electricity.

Equipment prices have been falling for years — by half since 2008, said Joe Milillo, chairman of the Long Island Solar Industry Association.

This year, though, the growth of solar slowed when a popular state rebate program for the equipment ran out of money and ended in April, said Milillo, who is executive vice president of solar installer Long Island Power Solutions of Islandia.

Still, PSEG said this year through October, there were 10,900 residential installations of solar electric systems, about 1.6 percent more than in the year-earlier period.

Another heating source, used by less than 2 percent of Long Islanders as their primary fuel, is propane. The Energy Department forecasts that, nationally, propane customers will spend 21 percent or $346 more for heat this winter than last in the Northeast because of prices that are about 7 percent higher and an expected 13 percent increase in consumption because of colder weather.

Propane cost about $2.893 a gallon on Long Island on Monday, up 6.2 cents from a year earlier, according to the state energy authority. It says about 35 percent of Long Island homeowners use propane for auxiliary heating, indoor and outdoor cooking and heating water.

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