December 26, 2013
Americans are “addicted
one’s told homeowners.
In 1973, the
year of peak consumption, U.S.
residences burned 942,254 barrels per day (bpd) of heating oil. Conservation,
recessions, and fuel-switching, spurred by two energy
“crises,” plunged the figure to 617,330 bpd -- a 34 percent decline -- in
1980. And the downward trend continued:
1985 513,789 bpd
1990 460,052 bpd
1995 425,542 bpd
2000 424,400 bpd
production abroad and the end of domestic price controls dropped the
inflation-adjusted January price per gallon, between 1980 and 1999, from $2.64
to $1.16. That kept some customers loyal. But competition from electricity, conventionally
produced natural gas, and the occasional wood stove remained fierce. The demand
slide couldn’t be reversed.
A decade ago,
heating oil again became the victim of hideously expensive petroleum, rising,
in real terms, from $1.45 per gallon in 2002 to $2.67 in 2007 to $3.78 in 2012.
(It’s currently a bit
under $4.00.) Consumption cratered -- from 401,756 bpd in 2005 to 237,616
bpd in 2012.
choice of a quarter of homes in the Northeast, but heating oil is nearly unused
in the West, Midwest, and South, and thus it
warms just 6.1 percent of the nation’s residences. And now it faces a foe that
will likely prove unbeatable: fracking.
York, Massachusetts, Pennsylvania,
Connecticut, and New Jersey consume the most heating oil. All
five states either contain or abut the Marcellus Formation, a section of rock
in the Appalachian Basin that is suffused with natural gas accessible by
horizontal drilling and hydraulic fracturing.
Pennsylvania’s natural-gas production grew by more than a
factor of 12 between 2007 and 2012.
In West Virginia,
production doubled between 2010 and 2012. The
bounty is so lush, federal
number-crunchers wrote, it has “driven the forward price of natural gas at
the Columbia Gas Transmission Appalachia hub below Louisiana’s Henry Hub price,
the benchmark for natural gas throughout North America.”
isn’t worth anything if it can’t get to customers. So in the Age of Fracking, a
plethora of pipeline projects are completed, underway, or in the planning
stages. Between 2013 and 2015, the Energy Information Administration (EIA)
estimates a capacity expansion of “at least 3.5 billion cubic feet per day” to
the “New York/New Jersey and Mid-Atlantic markets.” (On Halloween, Bloomberg Businessweek reported, “natural
gas prices in Manhattan were nearly 40¢ cheaper
than in Louisiana.
That hasn’t happened in eight years.”) Even New
England’s notorious NIMBYs are waking up to natural gas’s potential to cut
power-plant emissions and provide affordable warmth. Progress on the region’s
pipeline bottlenecks appears likely.
As natural gas
stays cheap and becomes more available, conversions are proliferating. Abandoning
oil is an individual decision, of course -- the math don’t make sense for
everyone, and bureaucrats and politicians shouldn’t “incentivize” or mandate
switching. But for millions of homeowners who are not planning to move anytime
soon, the economic case for changing over is strong. In October, the EIA predicted
that heating with natural gas this winter will cost the average domicile $679.
Stick with oil, and the bill will be $2,046. If maintained for ten years, that’s
a savings of $13,760, a figure significantly higher than the cost for most
Last winter, The Boston Globe reported that “membership
at the Massachusetts Oilheat Council … has declined by nearly half over the
last two decades.” Dealers, understandably desperate to stay in business, assert
that historically, oil’s been a better pick than natural gas. They hawk
state-of-the-art furnaces and technologies that boost
efficiency. They rail against “speculators” greedily driving up the cost of
their product. And several have embraced “green” silliness, selling conventional
oil blended with a portion of “biofuel.”
they’re not hijacking the coercive power of governments to impose rent-seeking
schemes, best of luck to the oilmen who are trying to maintain their
livelihoods. But history isn’t encouraging. Energy transitions take time, but
once they occur, they’re usually permanent. Coal isn’t returning to homes, and
it’s disappearing as a fuel for power plants. It’s looking more and more like natural
gas cannot be
stopped. It heats the majority of residences, will soon generate the plurality of
electricity, and might
one day capture a significant share of the transportation market.
capitalism. Disruptive, unpredictable, and shaped by consumers’ -- not central
planners’ -- desires. It defies “futurists,” exposes the cluelessness of
resource ignoramuses, and puts
the careers of “public servants” at risk. And it debunks “addictions,”
diagnosed by the right
that never existed.
D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.
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