Sen. Murkowski warns of winter fuel problems

Washington, DC�Frank Murkowski (R-Alas.), the Senate Energy Committee chairman, last week warned the Clinton administration it needs to remedy US energy supply problems.

Murkowski said, "The recent price spikes and dislocations we have seen, and the others we know we will see soon, are like 'canaries in a coal mine'�they are the early warning signs of a system that is reaching its breaking point. I think the Midwest [gasoline price problem] is just part of an overall energy delivery system in the US that has deteriorated to an unhealthy level."

Murkowski spoke during a Senate Energy and Natural Resources Committee hearing on US gasoline supply problems Thursday. Government and industry officials testified.

The Alaska senator said, "I think we are heading for serious problems after years of neglect. Last winter, Northeast heating oil prices hit the roof when cold weather caused supply problems which couldn't be offset by imported heating oil with a higher sulfur content.

"There is a coming price shock for consumers this winter when they start using natural gas. Even though demand has skyrocketed for this fuel, supply has remained constant. Prices for natural gas are reaching historic highs and storage, which is usually high during the summer months, is extremely low this summer.

"Since 50% of Americans heat their home with natural gas, the Northeast's heating oil problems last year may look like a picnic compared to the howling we will hear this winter."

EIA concerned
John Cook, director of the Energy Information Administration's petroleum division, echoed those concerns. He said distillate stocks remain well below normal.

"Even with a typical inventory build this summer, we likely will enter the winter heating season with lower-than-normal stocks. Strong gasoline and diesel demand this summer will effectively limit heating oil stock building as refinery production is used to meet consumption."

Cook said, "Partly for the same reasons, natural gas has yet to show signs of building adequate inventories ahead of next winter.

"Not only does this mean industrial and utility consumption of more distillate this winter," said Cook, "it suggests utilities may use more distillate this summer to meet peak cooling needs, if natural gas prices remain high through the summer months. This could further reduce distillate stock building, resulting in very low distillate inventories before winter begins."

Cook said the gasoline problems may not be over yet either.

"Midwest stocks are recovering, but East Coast gasoline stocks at the end of June were 8% below their 5-year average, with reformulated gasoline 13% below average. California gasoline stocks were 6% below average.

�Consumers are not expected to reduce consumption much in the short term. As we enter the peak gasoline season, refiners will be pushed to just meet demand. With low stocks and refineries operating at very high levels, supply disruptions could trigger another price run-up."

Industry confident
Red Cavaney, American Petroleum Institute president, said there is no cause for alarm yet about winter fuel supplies.

He said diesel fuel and home heating oil inventories are 8% below average nationally because refiners have been meting summer demand for gasoline rather than building distillate inventories.

He said, "Five months remain for these inventories to build before the beginning of the heating season, and more than 90% of the home heating oil is shipped directly from refineries to consumers�it does not come from inventories.

"In addition, the industry has shown it is able to produce substantial amounts of distillate when the need arises. Accordingly, summertime distillate inventories are not necessarily a significant indicator of fuel availability once the season begins."

Cavaney noted that severe weather, not low inventories, was the principal reason for last winter's home heating oil supply problems in the Northeast.

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