Boston Sunday Globe
By Sam Allis
Now that the Sox have won and Kerry has lost, it’s time to face the music. That would be winter. If you thought your heating bills were bad last winter, brace yourself. The Observer predicts mass hysteria when folks open those scary envelopes with the little windows next month.
Don’t be fooled by last week’s temporary dip. The shock of oil is here to stay. World-wide demand has changed the calculus forever, and anyone over room-temperature IQ knows that prices over time will continue to spike -- thank you China -- until they eventually dampen demand. Natural gas isn’t much better.
This situation is irritating for the rich, crippling for the middle class, and lethal for the poor. John Drew, who was with the non-profit Action for Boston Community Development before OPEC first jerked our chain in the ‘70s, is appalled by the prospects.
“This is the worst possible scenario I’ve been through,” says Drew, whose outfit is one of 22 nonprofits around the state that buy heating fuel for low-income households that qualify for help under the federal Low Income Home Energy Assistance Program. “Last year at this time, we were paying dealers $1.09 a gallon. This year, it’s $1.94 and the benefits are less.”
Indeed. The maximum fuel assistance benefit in the state was $745 a household in 2002-03. This year, it’s $527. The state got $90.2 million, including a $16.5 million emergency bailout, from the feds in 2002-03. This year, it’s $74.2 million. “These benefits are going to run out for many before Christmas,” predicts Drew.
So who’s to blame for this mess? Look in the mirror, says Joe Kennedy, founder in 1979 of the nonprofit Citizens Energy Corp.: “We’ve got to start getting control of ourselves.” Adds Martin Power, a Houston transplant from Southbridge and a 25-year veteran refiner and trader, “We use 20 million barrels of oil a day and produce 5.5 million. You figure it out.”
I went to talk energy with Kennedy last week -- no political palaver this time -- then bounced what he told me off to Power and another Texas smarty, Bo Howard, who traded and refined with the best of them for two decades, to see if Kennedy knows what he’s talking about. He does. They agree with Kennedy on most of the big stuff despite their Red State DNA.
What did they all scream for? A national energy policy. They obviously would write different legislation but agree the chaos that now exists is insane. “We need one for a hundred good reasons,” says Bo.
But again, who’s the bad guy? The majors? OPEC? China? There is not single piñata to whack anymore. World oil is beyond everyone’s control. No one player dictates its price now.
“When I started Citizens Energy in the late ‘70s it was easy. You threw snowballs at the majors,” says Kennedy. “I wish it were simple today.” That said, there’s a killing going on at the refineries: “They used to get $5.50 for profit and processing. Now it’s $14 in profits alone.” (Bo notes that refiners made bupkis for 20 years.)
What’s happening is that there is less than 1 percent excess capacity above the world demand of 82 million barrels a day. China’s oil consumption grew more than 10 percent lat year. “How do you manage a wildfire?” Power asks.
Closer to home, how do you manage the home-heating panic that surfaces here every year with poinsettias? The definition of crazy is watching the same thing happen and expecting a different result. We live in a cold climate. There are poor people who can’t afford heat. We new that. If we’re so mart, why didn’t we solve this thing ages ago?
Bo puts it in trading language: “Your market risk is that the poor might die. So how do you mange that risk effectively?”
What about, for the dollar risk, a state rainy-day fund for low-income fuel assistance? As Kennedy points out, there is no state program. We rely on the vagaries of federal dough from the Department of Health and Human Services through the Massachusetts Office of Housing and Community Development, which passes it on to the nonprofits.
This is nuts. Yet Governor Romney opposes such a fund for now. And this guy bills himself as a strategic thinker?
For availability risk, what about, as Kennedy suggests, minimum state oil-inventory standards to avoid falling prey to horrific midwinter spikes in the spot market?
“If I were governor of Massachusetts, I’d be interested in storing enough heating oil to get through the winter,” he says. Kennedy is talking 10 million barrels on tap. The increased storage costs, he says, would be pennies per gallon, passed on to the consumer -- a pittance against the huge costs of the spikes. (Logistics would be complicated.)
And, he adds, the federal government has made a fortune in increased royalties from drilling on federal land as the price per barrel shot form $30 to more than $55. Most new drilling in this country, after all, occurs on its turf. Where did the money go? And why can’t the feds send a sliver of its windfall to low-income fuel assistance where needed -- be it in South Dakota, New England, or the Sun Belt states during the hot months for air conditioning?
Cheap oil is over, period. Our pain will only increase, as well the risk that our poor may freeze to death. Yet we steadfastly refuse to end this ugly annual version on “Groundhog day.” Shame on us.