By Stephen Bennett
The Southern New England Energy Conference, sponsored by the Connecticut, Massachusetts and Rhode Island associations, was first held two years ago, noted David Chu, CEMA’s member services director. (The Sept. 22-23 event doubled as the 64th Annual Meeting of CEMA.) Conference attendance from Massachusetts and Rhode Island has grown, Chu said in an email. Holding this year’s conference in Rhode Island, “we expected to see some attendance from Connecticut fall off, but it was minimal,” Chu said. With more than 250 registered attendees and vendors, attendance was 97% that of last year when the event was held at Mohegan Sun in Connecticut. The conference emphasizes education, and extends beyond fuel oil to cover motor-fuels and convenience-store subjects as well. A conference partner this year was the National Biodiesel Board.
A variety of honors were awarded at the event. Six fuel oil marketers and a fuel wholesaler were recognized by their respective state associations for contributions to the industry at the Southern New England Energy Conference in Newport, R.I. The Connecticut Energy Marketers Association honored Kate Childs of Tuxis-Ohr’s Fuel in Meriden, and Julie Roman and Dan Roman of Roman Oil in Meriden as Marketers of the Year. The Connecticut association also honored Joyce Porto, president of Inland Fuel Terminals, headquartered in Bridgeport.
The Massachusetts Energy Marketers Association recognized two of its retail marketers—Howard Peterson, Peterson Oil, Worcester; and Scott MacFarlane, MacFarlane Energy, Dedham.
The Oil Heat Institute of Rhode Island honored Louise Giguere LeBlanc of Giguere & Marchand Oil Service in Blackstone, Mass., near the Rhode Island state line.
The Connecticut association noted that when Ace Oil in Meriden went out of business last year, taking customer pre-buy deposits with them, some legislators supported a bill that would have created a “guarantee fund” to which each oil marketer in the state would have been required to pay more than $4,000, regardless of whether or not they offered pre-buys. The three marketers “stood up and took the bull by the horns,” and were instrumental in persuading the legislators to drop the proposed legislation in favor of a different bill, the association said.
Porto of Inland Fuel, with terminals throughout Connecticut and in Rhode Island, was honored for her “material assistance to the industry during times of supply constraints and on key regulatory matters such as the transition to low-sulfur heating oil.” Porto was also recognized for donating heating oil to families in financial need.
In presenting MEMA’s 2014 Industry Leadership awards to Peterson and MacFarlane, Board Chairman Ted Noonan of Noonan Energy, in Springfield, said, “Both Howard and Scott have shown true dedication to our industry with their outstanding work on our board of directors, and on many fronts on behalf of the entire heating oil and Bioheat industry in Massachusetts. They deserve our recognition and our sincere thanks for their expertise, leadership and financial support.”
MEMA President Michael Ferrante said, “Howard has been instrumental in helping to reshape, refocus and strengthen the abilities of not only our association but our regional trade association—the New England Fuel Institute. His work came at a crucial time as all of us attempt to set new and expanded priorities to help the industry survive and prosper.” Ferrante added, “And Scott has consistently demonstrated that he is willing to do anything and everything in his power to help the industry. He is so giving of his time, his resources and his expertise, and he is truly one of our association’s most loyal supporters and leaders.”
The OHIRI Hall of Fame Award recipient, Louise Giguere LeBlanc, began attending institute meetings in the 1980s, the first woman to do so, observed Julie A. Gill, head of the organization. LeBlanc has served on the board of directors, held every office, made trips to Washington, D.C., serves on the institute’s charitable foundation, and helps organize events.
Working together for success
A coordinated effort is required if the fuel oil industry is to continue adapting and overcoming the challenges it faces— that was the message from the conference’s keynote speaker.
“We can be a powerful force that changes our industry for the better,” said the speaker, Eric Slifka, president and CEO of Global Partners, Waltham, Mass. Acting cohesively is to the benefit of dealers, suppliers and consumers, Slifka said. “There is an image that oil is imported and controlled by somebody else, and that needs to be changed,” Slifka added in a follow up interview with Fuel Oil News, in which he expanded on some of the points he made in his Sept. 22 speech. Fuel oil businesses tend to be owned by local enterprises, often family concerns, “not some big corporation,” Slifka said. “That’s a great story that we’ve forgotten. We need to play that up.”
An ongoing boom in U.S. oil production is to the fuel oil industry’s advantage as well, Slifka observed. “Oil is just as domestic as natural gas,” he said. Fuel oil’s position has been strengthened by the performance of natural gas, Slifka added, pointing out that the expectation that an abundance of local, cheap gas would mean lower prices “is not playing out that way. Natural gas is going to be priced high until there are material changes in how it’s transported.”
In the his speech, Slifka credited Chris Herb, president of the Connecticut Energy Marketers Association, with battling for fuel oil’s place in the Nutmeg State’s energy market. “You have cast a bright light on the state government’s misguided efforts to create energy policy in Connecticut,” Slifka said. “This policy, instead of being inclusive of all energy sources, picks winners and losers. It is this shortsightedness that creates risk for government and consumers alike. A policy of diversification of sources is a balanced approach to an ever-changing energy landscape.” The “politics first” approach demonstrated by Connecticut Governor Dannel Malloy’s Comprehensive Energy Strategy “is an example of the way in which our industry is often perceived as dirty and easily expendable—a pair of brown shoes in a world of tuxedos,” Slifka said.
He noted it was “heartening” to read a Forbes column by contributor William Pentland with the headline: “Winter 2014: How Fuel Oil Saved the Day in New England.” The article reported on a technical conference put on in April by the U.S. Federal Energy Regulatory Commission. The purpose of the conference was to examine the effects of 2014’s historical cold weather on the regional transmission organizations and independent system operators, which operate and manage the nation’s electric grid. In January the polar vortex ushered in several harsh cold- weather events that strained the natural gas and electric power markets, creating unprecedented market volatility, Slifka noted.
Spot natural gas prices throughout the Northeast surged to new records, as the severe weather and already existing pipeline constraints created bottlenecks that further snarled gas delivery. Spot prices at the Algonquin Citygate in Boston hit $34 per million Btu in early January and crested to $73 per million Btu toward the end of that month, Slifka said.
By comparison, this was about 12 times the average spot price at the majority of other hubs during the same period. The winter cold spells spared few parts of the U.S. But as the Federal Energy Regulatory Commission pointed out in its post-winter analysis, New England did not experience as many weather-related energy problems as other areas of the country, Slifka noted.
Slifka stated, “Our diversification was a key reason [for the relative lack of problems], as fuel oil was available as an alternative source to, primarily, natural gas.” While natural gas was in short supply primarily due to weather delays and a lack of pipeline capacity, distillate fuel again proved its value for both commercial and residential customers. The majority of the region’s oil infrastructure operated at full capacity for much of the season, while natural-gas-fired plants produced far less than their capacity, Slifka said, citing ISO New England, which oversees day-to-day operation of the region’s power grid and administers the wholesale electricity market. Last winter, according to ISO, natural gas prices exceeded oil prices on 57% of winter days, and during cold periods, the oil units accounted for almost one-quarter of the region’s electricity. This compares with an average of just 1% at other times. Through its Winter Reliability Program, ISO-New England procured some three million barrels of oil, “and the vast majority of it—88%—was burned,” Slifka said.
Pentland pointed out in his Forbes column, “If anything, oil seems likely to become more—not less—critical for maintaining reliability in the near-term future.” “Unfortunately, in Connecticut and across New England, that message seems to be falling on deaf ears, as state governors and their representatives engage in private discussions with the natural gas industry and push for homeowners to convert their heating systems en masse,” Slifka said.
For policymakers, government officials and consumers, Slifka said, the message from winter 2014 should be clear: Diversification of all energy sources is the most effective policy for elected officials to pursue. “A policy in which the value of one energy source is placed over another puts the entire economy at risk,” Slifka said. “The answer is not to place all of the region’s chips on a single energy bet. Only by maintaining a strong, stable and diverse supply of products—heating oil, diesel, propane, electricity, natural gas and biofuels—can we be assured that prices will remain competitive, businesses will be able to compete on a level playing field and consumers will receive the most cost-effective energy possible.”
While Governor Malloy and other state leaders talk of wanting clean, cheaper and more reliable fuel, Slifka noted, “The irony is that heating oil already meets those specifications, just like gas. It is made here by American workers and American refiners—with U.S. crude in a manner that makes it as clean, if not cleaner than gas. We need to educate the consumer of these facts.” Slifka told the conference attendees, “As business owners, you have shown courage and leadership in embracing new products and technologies with the power to enhance the lives of residents across the region. The low-sulfur requirements that went into effect this summer in Connecticut, Rhode Island, Massachusetts, Vermont and New Jersey are a significant step toward changing the customer perception of oil heat as a dirty dinosaur. To the contrary, from an environmental standpoint, the new sulfur specifications put us on a far more competitive and environmental plane as the region moves toward a target 15ppm sulfur standard in 2018.” Although home heating oil demand in the Northeast has fallen over the past decade, the region remains far and away the largest user of heating oil nationwide, Slifka pointed out. Four out of every five U.S. homes heated with oil are located in the Northeast, he said. An estimated 25% of homes in the Northeast—about 5.3 million—use oil as a primary source of heat, and 4% use propane, he said. “In other words, there not only is still a significant share of the energy business worth fighting for, but, in my view, ground to be gained as well.”
He said the industry is sufficiently prepared for the transition to the new 500ppm standard. “Though price spreads continually expand and contract based on a variety of market factors, I expect supply will be sufficient to meet this winter’s demand,” Slifka said. New York reduced its maximum sulfur content for heating oil to 15ppm two years ago, and as a result, sufficient volumes of ULSD are available in New York Harbor, Slifka noted. That was followed by the NYMEX’s move to switch its standard futures contract for heating oil to 15ppm beginning in May 2013. “What’s significant about the new contract is that it changes the physical makeup of the products stored in New York Harbor, which is the delivery point for NYMEX futures contracts. Using a lower-sulfur product is not the only way to change the consumer’s perception of oil heat and improve margins.
“We need to change the conversation with those customers, which will serve to educate the consumer, eliminate misperceptions about our industry and help restore competitive balance,” Slifka said. “It is important to promote the use of additives to treat the deposits that have been collecting for years in the bottoms of customers’ tanks. The cost of these additives is measured in tenths of points per gallon, not cents per gallon.”
He noted that there is a national additive requirement for gasoline to address issues in gas engines and tanks. “We believe that the heating oil industry would benefit from having this same requirement,” he said.
Today, the United States is the largest producer of oil and liquid natural gas products in the world, Slifka stated. He cited an International Energy Agency projection that by the end of the decade North America will have the capacity to become a net exporter of oil liquids. “Such claims would have been hard to imagine only a short time ago,” Slifka said. But new technology and equipment have generated significant production opportunities across regions including the Bakken in North Dakota, Montana and Western Canada as well as the Permian and Eagle Ford Basins and many others.
The tremendous increase in shale oil and gas production in the mid-continent and the eastern U.S. has prompted a number of companies to propose costly natural gas pipeline expansions to New England. “The problem is that these projects may end up being subsidized by the ratepayers themselves,” he said. For its part, Global has focused its efforts on using “one of America’s safest, most reliable and most cost-effective transportation resources”—the 140,000-mile freight rail system—to transport crude oil, ethanol and other products to the East and West Coasts. “During the past several years, we have built an origin-to-destination network of storage and distribution assets extending from the U.S. mid-continent to New York and Oregon,” Slifka said. “We have forged agreements with infrastructure companies to deliver crude oil by pipeline from the wellhead to our terminals in North Dakota. Global’s wholesale marketing of liquid petroleum products in the Northeast is supported by 9.2 million gallons of bulk terminal capacity, much of it in Massachusetts and New York. In addition, we are expanding our business opportunities through investments in fuels such as propane, ethanol and biodiesel, which we believe will become increasingly important products for our industry. “One of the important lessons I have learned as a CEO is that it is critical to communicate a value proposition to your customers. You are not simply selling distillates or gasoline. You are providing a solution to address your customers’ energy needs, whatever those may be.”
There are still a few places in the U.S. where milk is delivered in glass bottles, Slifka observed. “The connection between that business owner and consumers is special,” Slifka said. “The product is special. And while I’m not suggesting that you get into the dairy business, my point is that as New England heating oil dealers, you have a unique advantage that does not exist within any other segment of the home energy market: regular, face-to-face communication with your customers. You know your customers by name. You have created a relationship that’s 24/7, whether it’s 70° and sunny or the ground is blanketed with three feet of snow.”
It’s an incredible upside to being in an old-fashioned business, Slifka noted. “Try contacting the natural gas or electric company for a service call. You never know who’s going to show up at your door, or how many days it’s going to take them to get there. But our industry is different. The one-to-one relationship between the dealer and the heating oil consumer is perhaps the most valuable tool you have to grow your customer base and increase your level of business.” He added, “By all means, invest in marketing your business, whether it’s through making your website more customer-friendly or adding products and services that your customers have been asking for. And if you don’t know, ask. Doing so can pay big dividends in long-term loyalty.”
Slifka also lauded the renewal of the National Oilheat Research Alliance, a federally funded organization reauthorized by Congress earlier this year, which provides education to industry professionals and consumers. NORA is required to spend at least 30% of its budget on research and development of new oil heat products, systems and solutions, Slifka pointed out, “and that research benefits all of us.” NORA’s research agenda includes understanding how oil heat compares with other products, improving the consumer’s understanding of Bioheat and developing more energy efficient equipment and practices. “I encourage you to take advantage of NORA’s resources and participate in the organization’s professional events,” Slifka said.
He also stressed the importance of supporting the American Energy Coalition, a grassroots organization that advocates for oil heat and oil heat dealers. The AEC’s mission is to help consumers understand the benefits and advantages of heating oil, while correcting “the misperceptions and misleading information disseminated by utilities,” Slifka said.
The Internet as Business Tool
Moving on from Slifka, several sessions of interest at the Southern New England Energy Conference had an Internet business focus.
Hedging and marketing are two key pursuits that can be honed through effective use of the Internet. Fuel oil dealers can make a consistent, predictable profit margin “and never put their company in harm’s way,” said Gary Sippin of Destwin Fuel Solution, a software program for fuel marketers. “The tools to do that largely exist on the Internet.”
In his talk at the conference, Sippin focused on price protection as a sequence of events that “begins with consumer demand and ends up somewhere at a risk desk or a supply manager’s desk, for hedging. We’ve connected those dots, created a continuity that binds that entire system together in one linear fashion,” Sippin said. “One vital component to maintaining a risk -free environment is indexed pricing. Any type of program has to be taken from an index. In the case of heating oil it’s going to be the NYMEX or the CME, which means as prices move up or move down, consumer prices will float with those prices.”
That accomplishes two things: it protects the dealer the moment prices go up; and it benefits the consumer if prices go down, Sippin noted.
The software enables “incremental hedging,” Sippin said. “As you sell, you continue to buy on a daily or semi-weekly basis to maintain sales and hedging in lockstep. Without the tools of the Internet that’s very difficult to do. Combined with the Internet, the software allows those tasks to be performed in automated fashion,”Sippin said.
“For those dealers who have decided that they need to do price protection programs, the capped price programs are much better for the dealer and the consumer,” Sippin said. “The most profound benefit of a cap is that once you’ve overcome the hurdle of explaining the cap and justifying the fact that there’s a fee—from that day forward you cannot deliver anything to your customer other than good news.”
Another speaker, Megan Smith-Gill of Gill Marketing Group, talked about the Internet’s value to marketing one’s business, especially in micro-focusing down to the individual consumer. “There’s a shift in marketing from pushing content out to consumers, and hoping they react to it, toward engaging with individual customers with meaningful information or guidance at the right moment,” Smith-Gill said. Marketing automation software—a software application that is laid over a website—captures email addresses and markets to individuals based on what that person has done on the website, Smith-Gill stated. Customer service personnel can also be trained to market on a website’s live chat site, she noted.