With the retail prices for No. 2 heating oil reportedly hittingwell over $2.00/gal. in some parts of New England, natural gas —which has always been considered the ugly stepsister in the region— is starting to look pretty good to residential customers there.

Although this winter’s higher heating oil prices aren’t expectedto immediately translate into greater gas demand in the region, NewEngland gas utilities said more and more heating oil customers arechoosing to be converted to natural gas service for next winterbecause of the stability of the commodity’s price anddeliverability.

“We are seeing on the residential side many more peopleinquiring about converting to natural gas. A lot are thinking moreabout their heating fuel, and they’re realizing that there is abenefit to regulated prices…..and you don’t have to worry aboutdelivery with gas,” said Carol Churchill, a spokesman for Bay StateGas, which serves slightly more than 300,000 gas customers in partsof Massachusetts, New Hampshire and Maine.

Boston Gas told a similar story. “The benefits [of high heatingoil prices] to the gas companies, ours in particular, is that overthe last three years, even when oil had a price advantage, we hadabout 3,500 residents come on line — about half of which wereconversion from oil,” said Michael Connors, a spokesman for BostonGas, which has about 740,000 gas customers in central and easternMassachusetts.

“It certainly appears that oil heating customers are taking aserious look at going to gas.” So far this year, the requests toBoston Gas for conversion to gas have doubled over that of lastyear, Connors told NGI.

“I would think the gas utilities will have a lot more inquires[for conversions] during the off-season,” said Tim Evans, seniorenergy analyst for Pegasus Econometric Group. He believes therun-up in New England heating oil prices “will be a rude enoughshock that people will at least research what the alternativesare.” This could affect the region’s gas supply in the long term,but not the near term, he noted.

New Englanders have depended on heating oil to heat their homesover the years, even though natural gas has had a price advantage,Evans noted. For instance, the New York Harbor price for No. 2heating oil was an equivalent of $5.56/MMcf yesterday, while theNew York citygate for gas averaged about $3.91/MMcf, he said. Manyin the region still rely on heating oil because there isn’t a largeenough pipeline infrastructure to deliver gas to all the areas.

Evans believes the worst is over with heating oil prices. Hesaid the wholesale price for No. 2 heating oil peaked at $1.80 pergallon, which equates to $13/MMcf, on Jan. 21. Since then, priceshave fallen by more than a $1 to rest at 77 cents yesterday. Theprice drop is partly due to the fact that “there is talk aboutimport shipments [of heating oil] due to arrive soon and theweather has turned milder.”

Still, the retail prices for heating oil seem to be all over theplace, varying from state to state. New Jersey has seen prices ofabout $2.50/gal., while Cape Cod, MA, reported prices around $2.25this week. Oil Energy Magazine said average retail oil prices inNew England hit the $2 mark last week, but have since moderated toabout $1.59/gal. It expects prices to fall even further to about$1.30/gal., which would be normal for New England.

States are dealing with the higher prices in their own ways. InNew Jersey, for example, natural gas utilities have joined in atemporary voluntary agreement with the Board of Public Utilities tonot force industrial gas customers to switch to fuel oil duringthis period. The state’s utilities generally require industrials toswitch to fuel oil when temperatures fall below certain levels.

Even if the market does return to normal soon, some believe thelatest price run-up may have been the last straw for heating oilcustomers. “Some will become mad enough to investigate alternatefuel supplies,” Evans said.

While the price for heating oil was unpredictable this winter,”the price for gas [at the burner-tip] was almost exactly the sameas it was last year” for Bay State gas customers, according toChurchill. During the January cold snap, the utility broke lastyear’srecord sendout four times within a nine-day period, shesaid, adding that sales in February still are strong because of the”customer growth” it has had from conversions.

At a summit in Boston, MA, yesterday addressing the heating oilsituation, Energy Secretary Bill Richardson announced the Clintonadministration would undertake three new initiatives to deal withwhat it termed as a crisis:

1) the Department of Energy’s (DOE) Energy InformationAdministration and policy office will jointly conduct a study tofind ways to reduce regional reliance on heating oil;

2) the Department of Transportation will conduct a study intogranting waivers that would enable drivers to deliver more heatingoil than currently is allowed under existing regulations; and

3) the DOE will set up a home heating oil hotline to provideinformation on federal heating and weatherization assistance, aswell as on the department’s current activities on the issue. Thenumber is (800) 735-8004.

These measures are like “locking the barn door after the horsehas been stolen. The time to do this was three or four months ago,”Pegasus’ Evans said.

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