Friday, March 23, 2012

Northeast enegy vulnerability

The most densely populated region in the U.S. is also the most vulnerable when it comes to energy. (GW)

Why Next Winter’s Heat Could Be Costly in New York

By David Bird
Wall Street Journal
March 23, 2012

State energy officials in New York aren’t planning to delay the July 1 switch to ultra-low sulfur diesel fuel for use as heating oil, but they are monitoring the fallout from refinery shutdowns that have triggered warnings of price spikes.

New York’s switch to ultra-low sulfur diesel, now used to power trucks and trains, would boost demand by 70,000 barrels a day, according to an estimate from the Energy Information Administration, with the demand spiking in the winter.

States throughout the Northeast are requiring the move from higher-sulfur heating oil in order to reduce pollution, and New York has the earliest implementation date.

Kate Muller, spokeswoman for the New York State Energy Research and Development Authority, said the agency picked July 1 to allow a build up of heating oil supplies during the summer-time off-season for heating demand. ”NYSERDA will monitor fuel supplies prior to the heating season to determine [ultra-low sulfur diesel] availability,” she said in an email.

According to the state law requiring the switch to ultra-low sulfur diesel fuel, suspension of the requirement would need an executive order from the governor, Muller said.

Prices of ultra-low sulfur diesel fuel — already at record highs for this time of year — could spike higher if Sunoco goes ahead with plans to shut its 335,000-barrels-a-day Philadelphia refinery in July if no buyer is found, federal forecasters warned this week.

The plant made up 24% of the refining capacity on the densely populated East Coast as of August, the EIA said. Its closure, combined with other changes at plants elsewhere, would reduce refining capacity in the Northeast by 50%.

The EIA also warned that logistical problems caused by refinery closures will present difficulties in getting petroleum-product supplies to markets in western New York and could potentially push prices up sharply.

The Northeast can’t add much more volume. Potential for tanker shipments from the Gulf Coast to the New York Harbor region are limited, due to a law allowing only vessels that are U.S.-built and U.S.-crewed to ply the coast. Just 1% of global tankers meet that requirement, and costs to charter such ships are two to three times more than foreign-flag vessels.

New York state’s switch to ultra-low sulfur diesel for heating oil, beginning in July, is leading a change that will take place in the coming years throughout the region. Other states such as New Jersey, Massachusetts and Vermont are making the switch beginning in 2014.

Heating oil use in New York has averaged around 70,000 barrels a day, but seasonal winter spikes lift demand to as much as 170,000 barrels a day. The EIA said last month the number of homes in the Northeast using heating oil is expected to drop 3% this winter, amid a switch to natural-gas fired heating.


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