Fuel oil industry feeling the heat
As more Massachusetts households convert to cheaper natural gas, many dealers expand services or merge businesses to survive
After 64 years in the heating oil business, Brown's Oil and Air Conditioning of Needham faced a choice as it lost customers to cheaper natural gas: close or sell. Vin Brown, the second-generation owner, chose to sell, merging his company with the larger MacFarlane Energy in Dedham.
"Financially, it just became a necessity, " Brown said. "Right now natural gas is really doing a number on the oil business."
Brown's story is the story of the Massachusetts heating oil industry, which has been shrinking in recent years as fuel prices jumped and natural gas prices plunged. Today, less than one-third of Massachusetts homes — 31.8 percent — heat with fuel oil, down from about 40 percent a decade ago, according to the census.
Natural gas heats more than half the state's homes, up from about 44 percent in 2000, and that number is only expected to grow. In 2012, several thousand households converted to natural gas, continuing a trend from the past few years, according to the state's major gas utility companies NStar, National Grid, and Unitil. The cost of switching can vary, but often runs a few thousand dollars or more.
Meanwhile, membership at the Massachusetts Oilheat Council, a trade group, has declined by nearly half over the last two decades, to about 300 retail businesses today. Council president Michael Ferrante blamed the decline on the widening cost gap between natural gas and heating oil, which has seen prices more than double to $3.90 a gallon from $1.50 in 2000 even as a production boom pushed natural gas prices to near decade lows.
Oil dealers that have survived said they have had to get bigger and diversify their services to stay in business.
Cubby Oil Co. in Somerville, for example, recently added 500 to 600 customers when it merged with a Stoneham oil dealer. Owner Charlie Uglietto said he now considers his firm an "indoor comfort" provider, able to offer its 3,500 to 4,000 customers not just heating oil, but also air conditioning and energy conservation services.
"As much as the dialogue is [about] the death of the industry, I don't see it going that way — as long as we continue to embrace energy conservation, the new fuels, and the new equipment," Uglietto said.
Scott MacFarlane, owner of MacFarlane Energy, said his company has also diversified while expanding its market through mergers, such as the acquisition of Brown's Oil and Air Conditioning. MacFarlane now services more than 6,000 active oil customers and 3,000 gas and air conditioning customers.
MacFarlane said he expects his oil business, which has lost about 6 percent of its customers to natural gas conversions in the last two years, to continue to shrink by about 3 percent annually over the next three to five years. It should then level off as natural gas prices begin to rise again and the same technology that has unlocked natural gas in shale formations increases domestic oil production.
"I predict that in the next three years you're going to see the price of oil and gas [get] fairly close," he said. "Everybody is not changing to natural gas."
Heating oil prices have surged in recent years because of the run-up in crude oil prices in the same time frame. Crude prices have roughly doubled since 2004, when a barrel sold for about $40 on global commodity markets. On Monday, crude closed at $91.79 a barrel in New York, up nearly $1.
Tancred Lidderdale, a senior economist with the Energy Information Administration, said energy prices are too volatile to write off any sector of the energy industry. Before the recent production boom, he noted, natural gas prices were also prone to wild swings.
"We see natural gas prices in 2012 having hit bottom, and they will start rising, albeit slowly," Lidderdale said. "On the other hand, in our forecast [on oil prices], we're looking for modest declines going forward, in part because crude oil product is starting to boom in the United States, as it did for natural gas a few years ago."