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Higher Heating Costs Could Make For An Expensive Winter

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Photo courtesy of Efficiency Vermont
Prices for heating oil, propane, and cord wood are all up substantially from last winter — especially heating oil — which could mean higher bills this winter, a challenging prospect for Vermonters already feeling the effects of inflation in other areas of their lives.

The 2022 energy crunch, the first in this country since two major supply challenges in the 1970s, comes despite the fact that,in part because of the controversial fracking boom, America is now the world’s top oil producer and is a net exporter of petroleum and gas. 

A series of events has led to the current situation, experts say: the COVID-19 pandemic, an economic rebound, reduced investment in oil and gas production after some fracking companies went bankrupt, and Russia’s February invasion of Ukraine, which pushed global oil and gas prices up sharply. The price for a barrel of oil reached $120 per barrel on June 6, although it has been coming down recently and stood at $90.50 on August 8, up from $68 a year earlier.

Pre-Buy Programs

The high price of heating oil and propane have caused some local buyers to seek out pre-buy oil and propane contracts, which are also priced higher than last year, and caused others to look to alternative heating sources such as wood stoves, pellet stoves, and heat pumps (see article on page 5 about heat pumps).

According to Steve “Freff” Hedges, a long-time employee of Stove and Flag Works now working in the Montpelier store, the demand for wood stoves this year has been “manic” due to higher oil prices. “We’ve probably seen a twofold increase in wood stove and pellet stove sales in the past year,” he said.

Although the store has some stoves in stock, many wood stove deliveries are scheduled a month out, and some people will be waiting until January to get the wood stoves they want, he said. Supply chain issues over the past two years have been an issue for the industry, and labor shortages at stove manufacturers have also been a problem, Hedges said.

In addition to switching fuels, another way to compensate for high prices is to insulate and air seal one’s home. Efficiency Vermont is offering a timely rebate of up to 75% for weatherization work. For details, go to www.efficiencyvermont.com/rebates.

At today’s prices, insulating will pay for itself even faster than in recent years. In September a year ago, the average retail price for a gallon of heating oil in Vermont was $2.77, and this month it is $4.73, according to data presented on the Vermont Department of Public Service website August 8. That’s a 71% increase.

Average retail propane prices rose a more modest 17% to $3.20 per gallon over the same time period, according to the same website. Piped natural gas is a cheaper way to heat, but in Vermont it is only available in certain parts of Addison, Franklin, and Chittenden counties, with the gas pumped there from Canada.

Some fossil fuel customers like to pre-buy their oil or propane, locking in a known price, although this requires paying a season’s energy bill in advance. However, a number of local energy firms have been slow to offer a pre-buy price this year because of the volatility of the market. 

For example, East Montpelier-based Alco Energy Products typically offers its customers pre-buy prices in the early summer, but this year it held off. But Brian Phillips, owner of the company, said in early August that he expected to have a pre-buy price by mid-August. 

Some fuel companies were charging cash customers $6 per gallon in May, Phillips said, “but prices have come down in the last month or so.” His firm’s cash prices in early August were $4.399 per gallon for heating oil and $2.999 for propane customers who heat their homes with propane (propane prices vary according to annual usage).

“Propane prices are a bit steadier than oil,” he said. Compared with last year’s Alco pre-buy prices, propane is up about 50 cents per gallon, while heating oil is up more than $1.50, he said.

Some other companies have offered pre-buy rates. Trono Fuels of Barre had an oil pre-buy price of $4.45 per gallon recently; the offer expired August 15, although they might allow latecomers to get in on the offer. The Energy Co-op of Vermont, based in Colchester, is offering a pre-buy deal through October; the price may vary, but it was recently $4.59 per gallon for heating oil.

Gillespie Fuels of Northfield had a pre-buy propane price of $3.52 per gallon that expired July 25, but they also said they might let some more customers buy at that price. Their pre-buy heating oil price was $4.96 per gallon. Gillespie noted that cash buyers can get 10 cents off per gallon if they pay within 10 days.

Wood Costs Rise

Oil and propane are not the only fuel prices on the rise. The price for a cord of wood has risen about 10% to 15% in the last year, to between $280 and $350 depending on dryness and other factors, according to Hedges of Stove and Flag Works. “Supply is tight because there are fewer people working in the woods and more people are buying wood stoves,” Hedges said. “It is getting late to buy wood for this winter.”

By contrast to other fuels, prices for wood pellets have been fairly steady, Hedges said. His store sells pellets for $295 per ton, and he estimated someone using pellets as a primary heat source would use four tons, or $1,200 a year. Stove sales at the store are split about evenly between pellet stoves and traditional wood stoves. Some high-quality cleaner-burning wood stoves qualify for a 26% federal tax credit, he noted.

Hedges had one word of caution for those returning to wood heat after a few years away: have your chimney checked. Chimney sweeps are backed up, too, so that can be challenging. But Hedges worries that if buyers are not careful, the boom in wood stove sales could lead to more chimney and house fires this winter.

While oil prices have been drifting down this summer, partly because of concerns over a possible recession, there is no telling what could happen by this winter. Europe is facing a much more severe energy crunch than the U.S., and new geopolitical shocks there or in Asia could potentially send prices higher. On the other hand, prices could continue to drift down, especially if a slower economy reduces energy demand.

High prices themselves can reduce demand for energy sources. For example, July gasoline consumption in the U.S. was the lowest since July 1997, except for the first pandemic year of 2020. This year’s peak gasoline price of about $5 a gallon apparently caused drivers to drive less in July, and the price for gas is now falling.

To date, the growing use of renewable energy sources such as solar and wind has not been large enough to offset the nation’s continuing thirst for oil, propane, and natural gas, although the Inflation Reduction Act just passed by Congress should spur further expansion of renewable energy and help reduce the amount of greenhouse gasses that most scientists say are warming the climate. 

The bill includes an expanded tax credit for energy-efficient home improvements, such as new insulation and new windows. The bill also expanded and extended a federal tax credit for heat pumps, biomass stoves, residential solar, and it includes a tax credit for battery-storage systems. Most of the tax credits appear to take effect for work done in 2023 and beyond.

Energy industry analysts still expect global demand for oil to remain strong in the medium term, however, as the U.S. population continues to grow and as developing countries around the globe push to adopt the kind of energy-intensive economy and lifestyle prevalent in first-world countries.


Need Help Paying Your Heating Bill This Winter?

The Vermont Agency of Human Services helps pay the seasonal home heating bills of Vermonters whose gross household income is equal to or less than 185% of the federal poverty level. The offer applies whether you own your home or rent and pay for heat directly or as part of rent.

If you received fuel assistance last season, you’ll receive an annual review form that you will need to complete and return. If you did not receive fuel assistance last winter, there are several ways to apply, including by phone at 800-479-6151 or online at dcf.vermont.gov/mybenefits.

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