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High Oil Prices Fuel Winter Heat Fears

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JERRY HARKAVY | November 11, 2007 08:26 PM EST | AP

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PORTLAND, Maine — Nowhere in America, it seems, are people more apprehensive about the prospect of a $3-a-gallon winter than in Maine.

Motorists nationwide may grumble about gasoline prices now hovering around $3 for a gallon of regular, but home heating oil that soared this month to $3.09 a gallon _ breaking the $3 barrier for the first time _ is the focus of concern in Maine.

The reasons for Maine's vulnerability are clear:

It tops the list of states most dependent on oil heat, with 80 percent of homes relying on No. 2 oil or kerosene. It's one of the nation's coldest states, with the northern city of Caribou often singled out by the National Weather Service as having the lowest temperature among the Lower 48. In terms of per capita incomes, Maine is generally ranked as the poorest state in the Northeast. And lots of older homes lack adequate insulation, making them harder to heat.

So as heating oil prices hit record levels and the sound of oil furnaces kicking in becomes more frequent, plenty of people are worrying about whether they'll be able to scrape up enough money to keep warm.

"It's not just low-income people who are fearful. It's the working couple or families who are now going to have to choose between heating, literally eating, and of course driving," said John Kerry, director of the state Office of Energy Independence and Security.

For families struggling from paycheck to paycheck, the cost of filling a 275-gallon tank can easily blow a hole in the budget.

In Bath, Stacy Crowell, a 29-year-old mother of two whose husband works at the Bath Iron Works shipyard, turns down the thermostat, puts plastic sheeting on windows to keep out the cold and compares prices at local oil dealers before filling the tank.

The family, which burns 800 to 1,000 gallons of fuel a year, does not qualify for government assistance.

"Our incomes are just over the limit, so we can't get help for anything. Every program we try for, we're just over it," she said.

With the recent spike in prices, Crowell is wondering how long the family can afford to remain in the drafty old farmhouse that they bought five years ago when heating oil was much cheaper.

"We're thinking about selling in the spring because it takes so much to heat this place," she said. "We can't afford it."

The state, meanwhile, is planning for a worst-case scenario.

Gov. John Baldacci is prepared to convene an emergency task force in the event that fuel supplies are disrupted and shelters are needed to accommodate those who have run out of fuel. In the meantime, officials are pressing Congress for additional money for needy households and are looking to respond to any signs of price-gouging.

"There's a lot of fear out there," said Judy Frost, who directs the Low Income Home Energy Assistance program for needy residents in Franklin County. "Everyone's afraid to speculate about what the prices will be in January and February when the really cold temperatures set in."

While many recipients of federal LIHEAP money are elderly and on fixed incomes, Frost and others who administer the program are seeing an increasing number of applications from the younger working poor who may not quality for benefits under eligibility guidelines.

"We're finding more and more people applying who are over income because they're so afraid that they're not going to be able to make ends meet and pay for oil this winter," said Eleanor West, the LIHEAP director for Hancock and Washington counties.

The surge in prices has been dramatic.

The state energy office, which conducts a weekly price survey during the heating season, said its latest average price of $3.09 was up 24 cents in just one week and was 89 cents a gallon higher than a year ago.

Nationally, the average price was $3.11, according to the Energy Information Administration. Some 8.1 million of the nation's 107 million households use heating oil, most of them in the Northeast.

On average, Maine homes burn roughly 850 gallons a year, a cost of more than $2,600 at current prices.

The higher prices for kerosene, which averages $3.40 a gallon, hit hardest at many of Maine's poorest households. People in mobile homes, many in economically depressed rural areas, are forced to burn kerosene because the less expensive No. 2 oil is subject to gelling in outdoor tanks when the weather turns cold.

In recent years, many Mainers have insulated themselves against price hikes by either pre-buying their fuel supply before the start of winter or signing up for a plan that sets a cap on the per-gallon price.

Last season, however, prices dropped as the winter wore on, leaving those who opted for a price-protection plan paying more than the cash price. Even though the plans have been a good bet in most years, last season's experience prompted many customers to forgo them this time when they might have been able to lock in their costs at around $2.50.

"What we hear from dealers is that they're down 50 percent. Half the people probably didn't participate compared to last year," said Jamie Py, president of the Maine Oil Dealers Association.

Which is the better deal remains to be seen, Py said. Though prices are high now, they could drop like last winter if the weather is mild.

Despite the sharp rise in prices, Py is confident that everyone will make it through the winter, even though the state's economy is sure to take a hit as higher expenditures on heating fuel leave consumers with less to spend on everything else.

"You have a whole network of social services, churches, state entities that are out there to help folks get through," he said. "Nobody's going cold. Everybody gets through the winter somehow in Maine. It's always been that way."

The dealers association blames excessive speculation and manipulation in the oil futures market for artificially inflating prices, and Py suggests that prices could now be at their peak. But like everyone else, he can't say for sure which direction prices will move this winter and at what point the system might crack.

"If we start seeing prices reaching $4 or $5 a gallon, which I don't anticipate, that would require some sort of government intervention to make sure that people don't go cold," he said.