Thar's Oil Here. Black gold is big business in New York area
<a href=www.newsday.com>By Randi F. Marshall Staff Writer March 31, 2003
When Margaret Gallagher pulls up to a Sunoco station in Huntington village, she's not thinking about the expansive oil fields of Venezuela or the Middle East -- or the huge transportation network that carries her gasoline up the Hudson River and eventually into the tank of her Chevrolet Suburban.
Instead, Gallagher, a 41-year-old mother of two from Commack, is thinking about just one thing: the price.
"It's painful," said Gallagher, as she spent $10 to fill up a small portion of her 42-gallon gas tank, at $1.85 per gallon. "I do $10 or $20 at a time, because I can't afford to fill it up."
Like Gallagher, most New Yorkers have become keenly aware of the recent spikes in oil prices, but few are aware of the behind-the-scenes world of the metropolitan region's huge oil industry that works to quench their daily thirst for oil. It comprises an extensive web of Long Island and New York City companies that run the barges, ports, pipelines and distribution outlets.
All told, oil is an $8-billion industry regionwide, according to some estimates, with as many as 45,000 employees directly or indirectly associated with it.
"It's a very sizable industry that has a very low profile from a business standpoint," said Kevin Rooney, Oil Heat Institute of Long Island chief executive.
It's also an industry recently hit with what one expert called a "perfect energy storm" -- the confluence of a cold Northeastwinter, a strike in Venezuela, a heating oil spill into Long Island Sound, a dramatic barge explosion on Staten Island and, finally, the war with Iraq.
The impact of that storm pushed prices up by as much as $10 for a barrel of crude oil, resulting in gas prices that approach $2 a gallon in some locations. The price of a barrel of crude oil closed at $30.16 on Friday.
The average U.S. family spends $1,300 a year on energy costs, but experts say that number is even larger on Long Island, where taxes are higher, people drive more and 70 percent of them use heating oil.
But gasoline and heating oil retailers say that while they understand consumers' sticker shock, they are not benefiting from the increases.
"Financially, it's becoming a tremendous hardship. ... My dealers are in jeopardy," says Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops.
"We should be making more, and we're not," said Kevin Beyer, who owns three gas stations in Port Jefferson, Huntington and Smithtown and says his profit margins have shrunk.
The difference between average wholesale and retail gasoline prices this year now hovers near 60 cents, while last year it stood at 53 cents, -- seemingly leaving retailers with a greater profit.
But Beyer, a Huntington resident, can tick off his increased costs from memory, saying the wholesale price doesn't include any of them.
Customers now buy less gas at a lower grade for a cheaper price, and more of them use credit cards. Beyer said he typically makes 10 cents on the gallon. But when a credit card is used on a $2 per gallon purchase, fees eat about 6 cents of that profit. After taxes, rent, and employee salaries and health insurance, very little is left, Beyer said.
"Truthfully, they [the prices] should be a lot higher," Beyer said. "We just raised the price. I hate doing it, but I own a house and I have a mortgage like everybody else. I have kids in school and I have expenses, too."
But some consumer advocates doubt the claims of low profits and high costs. Now, wholesale prices are on a fairly rapid decline, but retail prices are not, according to Joe Roy, the Long Island coordinator for New York Public Interest Research Group's Fuel Buyers Group. "If dealers felt squeezed in any way before, they can make up for it slightly now," he said.
Beyond gasoline and heating, oil plays a pervasive role in almost every aspect of the regional economy, from airlines to manufacturing, paved roads to shoe soles, plastics to carpeting. Its importance also has made security a greater concern to terminal operators, oil executives and barge captains, as everyone worries about potential terrorism.
The vulnerability of the region's distribution system garnered wide attention last month, after a barge exploded at a loading dock on Staten Island, killing two workers. The barge, owned by Hicksville-based Bouchard Transportation Co., was unloading 4 million gallons of gasoline into a storage facility maintained by Exxon Mobil Corp. The case remains under investigation by the U.S. Coast Guard.
Just a week before that, a Hornbeck Offshore Transportation barge leaked 2,500 gallons of heating oil into Long Island Sound after striking bottom.
These events not only highlighted the intricate network of oil distribution in the region, but raised questions about its impact on the environment.
Such accidents actually have become relatively rare since the passage of the Oil Pollution Act of 1990. Among other things, the act enforced the use of double-hulled barges, phasing out barges with only one hull, and making a hole in the hull less likely to turn into a spill. According to the Coast Guard, which handles oil-spill prevention and response, the number of spills reported in the Activities New York port, which includes Queens and part of Long Island, was cut in half from 1992 and 2002.
"The regulations came out, and I think industry responded," said Lt. Rebecca Ore, with the Coast Guard's environmental protection branch.
Whether the oil industry was a willing participant or not is up for debate. "They've been dragged into it kicking and screaming," said Tom Kloza, chief oil analyst for the Oil Price Information Service.
And advocates are quick to point out that some companies are more reputable than others. The American Waterways Organization has 375 members who follow "responsible carrier" guidelines. But spokeswoman Anne Davis Burns said roughly 30 percent of the nation's cargo is carried by non members, who may not follow those rules.
"Certainly there are always companies that don't make the commitment that AWO members have made to safety," Burns said. "I think there are a lot of little guys in this business."
Foreign vessels, in particular, may be more likely to spill oil, and less likely to obey U.S. regulations, according to Alan McKim, president of Clean Harbors Inc., an oil-spill clean-up firm in Braintree, Mass.
While Bouchard is considered a relatively good player in the industry, an incident like the explosion at Port Mobil left members of the Coast Guard, which inspects all barges and terminals, in shock. "Nobody had seen anything like this ever," said Lt. j.g. William Grossman, chief of port safety and security.
And experts note that the industry still has a way to go before it fully cleans up its act.
"I think there are things that are going to take time before they are fully implemented," said McKim, referring to double-hulled barges and on-shore storage spill protection.
The complex, high-tech process that brings oil from the fields to the furnace begins with exploration and drilling, in fields from Texas and Alaska to Iraq and Nigeria. The United States relies on imports for 55 percent of its oil, mostly from Canada, Mexico, Venezuela and Saudi Arabia. Some large-scale oil companies, such as ConocoPhillips, ChevronTexaco and ExxonMobil, are involved in every step, while in some cases, it is more fragmented.
That crude oil is brought out of the wells, and taken to terminals, where it is sent by tanker or pipeline to refineries across the globe.
There, the huge tanks and eerie lights that rise up near the New Jersey Turnpike in Linden, N.J., and those that spread across acres of land in the South and West, make up refineries that convert crude oil into products including gasoline, heating oil and asphalt.
Pipelines and large barges then travel the nation's rivers to bring heating oil, gasoline and other products to storage terminals, including those in New Jersey. Smaller barges then bring the oil up the Hudson River to terminals peppered throughout New York State, including several in the city and on Long Island. The terminals may handle oil from multiple companies, or from a single giant. Port Mobil on Staten Island, for instance, sees 700 barges a year, Exxon Mobil Corp. spokesman Barry Wood said.
"We are an invisible industry unless you live on the river or something," American Waterways Organization spokeswoman Burns said.
Take Staten Island's K-Sea Transportation Corp. With 31 barges, 17 tugs and three small tankers, the company moves roughly 86 million barrels of oil a year in the Northeast, but its resources, too, have been stretched by the busy winter.
"No one thinks about the millions and millions of gallons [of oil] transported without a problem," K-Sea president Tim Casey said, noting his company's efforts to shift from single-hulled barges to safer, double-hulled ones.
Indeed, Long Island has far more oil moving on its roads, in its waters and even through pipelines than most residents would suspect, according to the Oil Heat Institute's Rooney. Some oil heads through an underground pipeline from New Jersey to Inwood on the South Shore. Another pipeline brings heating oil from a water terminal at Port Jefferson to Setauket, and then to Holtsville, the Island's largest terminal, which handles a quarter of the area's petroleum. A pipeline also connects Holtsville to Plainview. Barges stop at water terminals in Oceanside, Glenwood Landing, Oyster Bay and Cold Spring Harbor.
About 12 terminals are spread across the five boroughs, in particular Queens and Brooklyn.
"You can't speak about Long Island in a vacuum," said Getty Realty Corp. chief executive Leo Liebowitz, who previously also owned Getty Petroleum Marketing Inc. "It's metropolitan New York, and New York Harbor is the center, really, of the East Coast marketing and distribution system."
That extensive network eventually ends when large trucks from companies such as Astoria-based Mystic Transportation Inc. take barrels of gasoline, heating oil or other products to individual gasoline stations or heating oil companies, which then transport it to their consumers. According to Mystic marketing vice president Jack McNamara, that piece of the pipeline was strained by recent events, too. "We had long lines, excessive delays [at the terminals and in traffic]," McNamara said, "and then productivity slows down and it costs more money."
The whole process can take anywhere from two weeks to two months, depending on where the oil starts from and the path it follows.And recent events abroad and harsh weather in the Northeast have slowed the supply chain, while also increasing demand for oil.
"When you've got a system that runs so efficiently and continuously, one little glitch can make a significant problem," said ExxonMobil's Wood. "It's very capital-intensive, as opposed to labor-intensive, and technology is critical to the business bottom line."
All parties involved in the process have had to work harder to keep the path in place this winter. "We've all about had it," said John Maniscalco, executive vice president with the New York Oil Heating Association in Manhattan. "And you never make it back. Whatever you lose, you lose."
Allison Heaney has watched the cost of the oil in her company's barges, double this year, to $200,000 for a 160,000-gallon barge. Heaney's College Point oil heating company, Skaggs-Walsh, hasn't passed every increase on to its 10,000 consumers, given the competition among both oil and gas players. So, profits are down 10 percent to 15 percent, according to the Locust Valley mother of two.
Heaney and her 85 employees worked long hours to make the process run smoothly through the rough patch, and she's had to pay out lots of overtime. "My credit-card bills are low because I'm never able to go out for dinner," she said. The ripple effect that stretches from Casey to McNamara to Beyer and Heaney to Gallagher takes its toll on the regional economy, as consumers have less money to spend elsewhere. A $10 increase in a barrel of oil's price can shave up to 2 percentage points off annualized gross domestic product, the broadest measure of economic growth, Georgia State University economic forecaster Rajeev Dhawan said.
Gasoline in the United States remains relatively inexpensive, thanks to lower taxes. Tom Peters, executive vice president with the Empire State Petroleum Association, points to how much more a gallon of milk costs, arguing that far less is involved to get the milk to store shelves.
And the oil industry also faces the constant conflict of increasing consumer demands and environmental constraints.
"We want to drive SUVs, we want air-conditioning, we want heating and we want lots of lights," said Charles Moore, vice president of petroleum business for Cambridge, Mass.-based Aspen Technology Inc., a software and consulting company. "But we don't want oil drilling, we don't want refineries and we don't want pipelines going across the country."
In the end, consumers still feel the impact. SUV driver Gallagher said her family is buying fewer luxuries. She and her husband, Kevin, and their two children are also forgoing the day trips to Sag Harbor or Orient Point they once enjoyed.
"As much as I don't like paying the gas prices, I'd rather have the safety [of a larger vehicle] than the economy [of a smaller one]," said Kevin Gallagher, 42. "But the prices limit you. It's out of hand."
Still, the Gallaghers may end up feeding the oil industry gullet even more, with the potential purchase of a third family car -- this time, for their 16-year-old daughter, Alicia. She's hoping for a yellow Mustang, using the higher gas prices to persuade her parents to buy one.