Restricting the supply of crude oil affects a lot more than just the price of gasoline.
Restricting the supply of crude oil affects a lot more than just the price of gasoline.
W hen most Americans think of kerosene, they think of lamps from the 19th century. But in Maine, kerosene still occupies a crucial role in heating homes, especially mobile homes. Thanks to the ongoing energy crisis, Mainers who can least afford a price spike are having to pay more than $6 a gallon to heat their homes.
At the Irving gas station in rural Madison, Maine, locals come to fill up and purchase kerosene alongside other fuels. Mainers know that winter is a season you just have to endure, but this year the curmudgeonly tone that most Mainers use when laughing about the impending freeze is tinged with anxiety. Kerosene may cost $32.40 for five gallons now compared with $15.80 for five gallons a year ago.
Niche fuels such as kerosene highlight just how dependent low-income people are on fossil fuels. When temperatures drop, traditional heating oil becomes more viscous, which can clog furnace fuel tanks. Kerosene has a much lower freezing point than heating oil, which makes it an essential fuel for mobile homes and other buildings that have exterior fuel tanks. Furnaces that burn kerosene are also more fuel-efficient than those that use heating oil, as kerosene has fewer impurities.
Jet fuel is essentially a more intensely refined version of kerosene. (Some refineries identify jet fuel with the acronym “SKF,” which stands for “superior kerosene fuel.”) Thus, as the demand for travel increases, kerosene supply diminishes, and prices increase. With refinery capacity having shrunk 4.5 percent due to the pandemic, refiners have struggled to respond to spiking demand for different types of refined products all at once. Even putting the pandemic or any short-term policies aside, no new refineries have been built in the U.S. since 1976, and the regulatory environment makes it just about impossible to build any new ones in the future.
The collapse in demand due to the Covid-19 pandemic and long-term forecasts that show a decline in demand for fuel have caused the U.S. to lose 1.1 million barrels per day (BPD) in less than two years. Refiners are still trying to play catch-up now, while trying to plan for an uncertain future. Half a million barrels of refining capacity in the Northeast have been lost since the Covid-19 pandemic. The drilling moratorium was placed in the summer, traditionally when wholesalers get their deliveries of fuel for the winter. With prices being very high and the government meddling in their industry’s future, many wholesalers decided to wait and see whether prices would decrease to mitigate any losses from further supply-chain disruption. This delay, combined with the gap in refining capacity, resulted in kerosene production having no way to keep up with demand, even if existing refineries were running at 90–95 percent capacity.
Prices of kerosene in Maine, New York, Vermont, and New Hampshire hover near or well over $6 a gallon — a rate indicative of increasingly desperate shortage. It’s starting to become uneconomical for retailers to offer kerosene for sale. Most oil dealers require a minimum purchase of 100 gallons or more for delivery. Most low-income Americans who rely on kerosene to heat their homes cannot afford the minimum payment, leaving retailers to cut back on the amount of kerosene they purchase. Nationally, 14 percent of Americans use kerosene or heating oil to heat their homes, with the largest share of them concentrated in the Northeast.
Elderly Americans, Americans living on Social Security, and those who live in mobile homes or trailers will be most at risk of going without heat. Alternatives to kerosene heating include firewood, wood pellets, and electric heaters. In Maine, elderly residents have shifted toward firewood as their primary source of heat. Next door in New Hampshire, one in 14 homes uses firewood as the primary source of heat, and demand has spiked. New England states have also seen an increase in households applying for federal assistance through the Low Income Home Energy Assistance Program, with enrollment in western Massachusetts having already doubled. Massachusetts received more than $307.5 million for heating assistance last fiscal year, with other New England states having received additional funding through the omnibus bill that recently was passed by Congress.
Massive amounts of federal money might allow low-income New Englanders to limp through this winter, but policy-makers should learn a lesson from this crisis: Restricting the supply of crude oil affects a lot more than just the price of gasoline. It also causes ripple effects down the supply chain as local wholesalers and distributors take measures to keep from going under.