Tuesday, December 20, 2011

Energy Issue on PEI

There were several interesting energy stories out of PEI this week, starting with a report that Island regulatory folks are concerned about the high cost of heating oil. Islanders are paying almost $1 per litre this season but the regulators were expecting it to drop back to about $.80 per litre, like last year. They suggested that there were several reasons for the high price, including a tighter supply because several refineries in eastern North America were offline for maintenance reasons. They also suggested that increased demand for furnace oil in South American countries was keeping supplies tight. It seems that many folks down there are burning furnace oil in autos and trucks in place of diesel fuel.
Furnace oil is basically kerosene, as is diesel fuel (used in diesel engines, obviously), stove oil and aviation fuel. All of these products are very similar grades of fuel oil, refined or treated in slightly different ways for different purposes. Aviation fuel needs to be able to pour at very low temperatures; P50 grade will still flow at -50°. Stove oil was used in pot burning appliances. Furnace oil is a better grade, used in appliances with a forced air burner. Kerosene sold for lamps is much cleaner, and fuel for diesel engines must meet strict specifications for contaminants, pinging, etc. Folks with some skills in maintaining diesel engines have long illegally used furnace oil in road vehicles to avoid the road tax, which is likely what is happening in the South American example described above.
This higher cost of furnace oil is likely one of the side effects of peak oil, which is the recognition that the greatest worldwide extraction of crude oil per year happened in the year 2005, and we have been pumping the same amount or less than that each year. At the same time, demand in the developing economies has been increasing. Here in Canada the refineries buy their crude oil (and sometimes refined products) on the open market, and we are thus in direct competition with the South Americans (and all other consumers worldwide) for a piece of a shrinking supply of oil.
Most homes in North America are heated with natural gas, with the exception of large parts of New England and large parts of Eastern Canada. Because our heating oil is very similar (in refinery terms) to all of the other kerosene grades listed just above, we are competing for furnace oil with all of the airplanes, all of the trucks and diesel cars, all of the construction equipment, many electrical generating plants, and even all of the small household stoves in India where kerosene is the fuel of choice.
There are several theories about how this will all play out. One theory says that oil will be rationed by price, meaning that those who can afford to pay for it will buy oil, and those who can’t pay will be shut out. In terms of home heating fuel, some people will be able to heat their homes and others won’t.
Another theory says that whole regions or countries will be shut out of the oil market because they do not have the foreign exchange to pay for it. Malawi, for example, does not sell enough goods abroad to secure enough US dollars to pay for all of their oil needs, so that while the local driver in Malawi may have his local currency to pay for gasoline, his country did not have the US dollars needed to buy the gasoline internationally, and so the pumps are dry.
Another worry is that oil-producing nations are increasingly using more of their production domestically, and so less is available for sale on world markets. Saudi Arabia, for example, burns increasing amounts of its crude oil to fire electrical plants so that air conditioners, desalination plants and other industries can continue to run. Venezuela is said to retail gasoline for pennies per gallon, which encourages domestic use.
Yet another worry is that some of the developing economies (China is particular) are investing in foreign oil infrastructure in return for future contracts for the sale of oil. They are active in Nigeria and Venezuela (and Canada) and other oil-producing countries, investing all of those US Dollars they earned manufacturing goods for western countries. Oil so contracted will not be available on the open market for us to buy.
For all of these reasons and others, the worry about furnace oil prices on PEI should include worry about whether oil will even be available all through the heating season in future winters. A few years ago there was a great shortage of heating oil in parts of Cape Breton caused by severe weather conditions that prevented regular deliveries of oil to the region. What if there was a shortage of oil available to the entire province some future February?
A second recent story detailed the problems a local lady had finding a supply of firewood for the winter. It seems that there is not a lot of hardwood available on the Island for a couple of reasons: high snows and bad weather last winter limited the amount of harvesting in many woodlots, and lower demand for softwood meant less harvesting overall, and hardwood is generally brought out with softwood harvests.
The good old days of cheap and reliable heat for the winter may soon be a thing of the past.
CBC News Posted: Oct 11, 2011 4:19 PM AT
P.E.I. homes that are heated with furnace oil will have some big bills this winter, mainly because of demand from South America.
The price of furnace oil now sits at almost a dollar a litre – an increase of almost 30 per cent over the past year.
This is mainly because of a huge increase in demand from South America where heating oil can be used to run diesel vehicles, said Allison MacEwen, a director with the Island Regulatory and Appeals Commission.
“Countries like Brazil and Argentina and Bolivia and these countries don’t have the same restrictions that we have,” said MacEwen.
“So they have been importing a lot of furnace oil, which can be used as a substitute in commercial vehicles and such, and in diesel producing vehicles and that has taken a lot of our supply off. As well, they’ve had a colder winter over the last two years than normal too, so that has caused them to import more product. So what the impact of that has been for you and I is that it has taken more supply off of New York Harbor and, therefore, caused a bit of an inflation in pricing.”
He said another contributing factor in the price hike is that a number of plants were out of operation in the last year for maintenance.
Oil companies on P.E.I. are concerned about the impact on customers, and are introducing and promoting budget plans, said MacEwen.
A nasty winter in 2011 and a low demand for softwood lumber has led to a shortage of firewood on P.E.I. this fall.
Last month, Ebenezer resident Anneke Kaffa made over a dozen phone calls and sent Facebook and email messages in search of firewood,
“I just expected there would be wood all the time. I didn’t expect there to be a shortage,” said Kaffa told CBC News Thursday.
She was eventually able to find 3.5 cords to heat her home this winter.
Woodlot owners are citing two causes for the shortage this year. Martinus Rose of Pooles Corner said hardwood is harvested at the same time as softwood, and demand for softwood lumber is low in the U.S. and Atlantic Canada.
“A lot of the contractors that typically were in business are either lower volumes or not harvesting at all,” said Rose.
Woodlot owner John Rowe said another reason for the hardwood shortage was the weather last winter.
“It was very difficult to get in the woods,” said Rowe.
“A lot of the wood cut is in December, January, February.”
Rose believes the only way to bring up the hardwood supply is to encourage harvesters to get into the woods, by ordering early and paying more.
“If the price increased, chances are somebody would go to the woods and basically harvest just hardwood to meet the demand,” he said.
That won’t solve the shortage this winter, and people shopping for firewood are likely to find it increasingly difficult to find a supply for the cold weather as the autumn progresses.

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