Study warns against converting heating oil users to gas

A Charles River Associates study said that converting northeastern US heating oil consumers to natural gas could raise their energy costs. W. David Montgomery of Charles River Associates said, 'Our study finds that the cost of such conversions would far exceed any potential benefit the Department of Energy is trying to achieve.'


A Charles River Associates study said that converting northeastern US heating oil consumers to natural gas could raise their energy costs.

The Independent Fuel Terminal Operators Association commissioned the economic study. The paper said the Clinton administration, responding to higher heating oil prices last winter, ordered the Department of Energy to study methods to facilitate conversions from distillate to natural gas.

W. David Montgomery of Charles River Associates said, �Our study finds that the cost of such conversions would far exceed any potential benefit the Department of Energy is trying to achieve. Of prime importance is the fact that, for the past 10 years, households on heating oil have paid an average of $108/year less than if they had used natural gas. This trend is expected to continue.�

The study said conversions would require costly distribution lines to neighborhoods, hook-ups, and the purchase and installation of furnaces. The study said those capital investments could require homeowners to pay $2,000-3,000 for conversions, and then higher heating bills for the life of their new equipment.

The study said gas prices have been more volatile than home heating oil prices, so conversions would provide little price protection, if any.

Montgomery said, �Heating oil prices rose this winter and created some temporary dislocations in the market; however, the system worked well. Heating oil was available to all consumers, and no homes went cold.�

The study said home heating oil price spikes may occur for a few days or weeks every 4 or 5 years. It concluded that a government policy encouraging the Northeast to convert to natural gas would be unnecessary, unproductive, and costly.

This seems particuarly true in light of recent predictions of severe tightening in US natural gas markets due to growing demand (OGJ Online, May 21, 2000).

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