Industry groups see adequate winter oil, gas supplies

US oil and gas associations have told the Senate Energy Committee they are more confident about supplies than prices as the winter heating season nears. Meanwhile, Energy Sec. Bill Richardson said he would meet with the staff of the National Petroleum Council (NPC), his oil industry advisory group, regarding winter fuel supplies. The meeting was scheduled for Oct. 2.


WASHINGTON, DC�Representatives of US oil and gas associations are more confident about supplies than prices as the winter heating season nears, they testified Tuesday at a Senate Energy and Natural Resources Committee hearing.

Meanwhile, Energy Sec. Bill Richardson said he would meet with the staff of the National Petroleum Council (NPC), his oil industry advisory group, regarding winter fuel supplies.

NPC said the meeting has been scheduled for Oct. 2 at the Energy Department headquarters in Washington.

Industry's view
John Felmy, the American Petroleum Institute's director of policy analysis and statistics, said although distillate stocks were below the historical average at 116.3 million bbl for the week ended Sept. 15, they were still 31.3 million bbl greater than NPC's estimate of 85 million bbl for minimum operational inventories.

"Time remains 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."

Felmy said the industry is producing record or near-record levels of distillate fuel in preparation for winter demands.

"Inventory builds have been substantial, but because they started at lower levels, the current level of primary inventories is low by historical standards."

Larry Downes, New Jersey Resources Corp.'s chairman and CEO, testified for the American Gas Association. He said gas utilities will meet their supply contracts this winter.

"Utilities traditionally plan to have enough supply available to meet the demand on the coldest winter day and for the duration of the most severe winter season. This winter will be no different."

He said utilities do not appear to be having any difficulty in obtaining gas, although prices are higher because supplies are tighter.

"National storage figures indicate that although aggregate levels of working gas in storage are about 10% behind the 5-year average, volumes in storage are currently ahead of the pace of the 1996-97 winter heating season.

"In that year, the pre-winter storage level peaked at 2.725 tcf of working gas relative to a potential 'full' level of 3.294 tcf. AGA believes that storage levels will be adequate again this year."

EIA outlook
Mark Mazur, acting Energy Information Administration head, said prices for all heating fuels are higher than last year, and inventories are lower.

"Although increased world crude production should begin to help markets build inventories back toward normal levels, the process likely will be slow, and petroleum inventories worldwide are likely to remain low into 2001. With low inventories for crude oil and refined products, unexpected supply disruptions or demand changes can cause disproportionate product price movements," said Mazur.

For the first 2 weeks in September, Mazur said, spot No. 2 heating fuel oil prices at New York Harbor were averaging more than $1/gal, about 40�/gal higher than last year. Henry Hub spot gas prices averaged $4.87/MMbtu, about $2.20 higher than last year. And propane spot prices at Conway, Kan., averaged 73�/gal, about 33� higher than a year ago.

Mazur said US distillate inventories were 112 million bbl at the end of August, 14% below their 10-year average for that time of year.

EIA expects higher gas prices for consumers, but, he said: "Because residential rates include capital costs, transmission, storage, and other overhead costs, a doubling of prices at the wellhead will not mean a doubling of residential bills. For a typical household in the Midwest, prices are forecast to average about $8.40/Mcf, which is about 27% higher than last winter."

Mazur said EIA is concerned about propane stocks. He said prices are higher than last year, and Midwest inventories were 14% below their 10-year average at the end of August. "While stock levels in this region may yet recover, strong demand for crop drying could increase demand for propane, preventing stocks from completely rebuilding."

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