February 17, 2010 / 7:36 PM / 8 years ago

U.S. heating oil demand hit by conservation

By Janet McGurty - Analysis

TORONTO (Reuters) - A fresh wave of conservation efforts spurred by a government incentive may help to spark another drop in U.S. heating oil consumption and counter a decline in the number of homes switching from the fuel to natural gas.

The U.S. homeowner trend away from heating oil got another prod after President Obama’s 2009 American Recovery and Reinvestment Act earmarked as much as $10 billion for energy audits, weatherization and natural gas heating retrofits for homeowners.

In 2008, it looked as if the steady erosion in U.S. demand for home heating oil, caused by consumers switching to natural gas over the last 35 years, may have tapered off.

“There have been a lot of conservation measures that wiped away gallons.” said Shane Sweet, chief executive officer for New England Fuel Institute which represents 1,100 members companies made up of distributors, retailers, and wholesalers.

“That is demand we will never get back” he said.

In 1973, U.S. residential household heating oil use averaged 942,000 barrels per day, primarily in the giant Northeast heating oil market.

By 2008, demand had come down to average 309,000 bpd, according to Energy Administration Information data, cut by conversions to natural gas, technological equipment advances, and homeowners winterizing their homes with insulation and new windows.

It has been difficult to quantify how much fresh conservation efforts have influenced demand this winter.

A combination of the new measures as well as already high inventories have helped keep oil prices relatively stable despite long stretches of snowy and colder-than-normal temperatures.

“Weather and winter type fundamentals are becoming less and less relevant,” said Stephen Schork, editor of the The Schork Report.

Diesel -- used for agriculture and shipping -- has always had the largest piece of the distillate demand pie. It grew larger when the EPA cut the amount of sulfur allowed in on-road fuel to be more in line with other parts of the world, heightening export interest.

Higher sulfur heating oil, only used by a shrinking number of U.S. households, is becoming less and less viable and some traders say that some refiners have stopped making it.

Schork said that the change afoot by the EPA to lower heating oil sulfur to the less than 15 parts per million specification for ultra-low sulfur on-road diesel would create one big pool of distillates, making diesel the driver of the distillate pool.

Conservation may also help explain why oil analysts have tended to overestimate the effect of cold weather on oil inventories.

Since the beginning of winter season in early October, analysts overestimated the amount of the expected decline in distillate inventories in 11 out of 18 weeks although in total their cumulative forecasts were a fractional 800 thousand barrels higher than Department of Energy data.

The overestimates may be partially explained by census data that showed ever fewer householders were converting away from oil, presumably because increasingly the easy-to-reach urban dwellers had already made the switch.

After peaking in 2005 when 320,000 of the nation’s 111 million households switched to natural gas, only 52,000 homes switched in 2008, according to the U.S. Census.

Eighty-two percent of the demand for the fuel is in the U.S. Northeast, where a large concentration of older, traditionally oil-heated homes dot the landscape, using 3.8 billion gallons in 2008.

In Massachusetts, where 35 percent of 7.9 million homeowners heat with oil, utilities aim to spend $63.7 million in 2010 to cut 10 to 35 percent off the near 15 million barrels used in 2008, said Geoff Chapin, head of Boston-based Next Step Living, Inc, home energy consultant and contractor.

“The utility programs are providing real value to Massachusetts and New Hampshire customers in particular and are aggressively growing the number of homes they are serving,” he said of the natural gas utilities.

“Residents are catching on that they can save real money in tough times with these steeply discounted services and that we can help them access these limited enrollment programs and incentives.”

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