www.forbes.com Reuters, 03.09.03, 5:22 PM ET NEW YORK (Reuters) - U.S. average retail gasoline prices rose over the last two weeks, as crude prices climbed to 12-year highs on fears that war in Iraq could upset Middle East oil supplies, according to a nationwide survey released Sunday. The national average for self-serve regular unleaded gas rose 5.31 cents to $1.72 a gallon in the two weeks ended March 7, according to the Lundberg survey of 8,000 gas stations. Oil prices have already jumped 20 percent this year on fear that war in Iraq will hit exports from the Middle East, which pumps a third of the world's oil. Prices hit $39.99, the highest since the Gulf War on Feb 27. The United States and Britain have since set a March 17 ultimatum for Iraq to disarm or face war. Concern is growing that rising energy costs will further strain a weak economy. "When uncertainty about Middle East oil supply eases ... crude oil prices will fall," said Trilby Lundberg, editor of the survey. "If that fall is substantial and sustained, gasoline prices will come tumbling down as well," she said. An oil workers' strike in nearby Venezuela, and strong heating demand in a bitter northern winter has already drained U.S. fuel stocks. The government warned on Thursday that gasoline prices would hit record levels this summer. California consumers can expect to pay even more as the wholesale price for the state's new gasoline blend -- made with corn-based ethanol -- have shot up in recent trading on the spot market.

www.zwire.com BY STEPHEN DAILY THE SUNDAY TIMES 03/09/2003 Financially drained homeowners aren't the only ones who think this will stand out as an exceptional year in terms of heating prices. Industry analysts agree. "Next year, I think we will look back and say we're a lot better now than we were last year," said Sarah Emerson, director of petroleum at Energy Security Analysis Inc., Wakefield, Mass. The winter heating season, which is nearing its end, has seen a steady and swift increase in the price of home-heating oil, which jumped nearly 50 percent. On Dec. 9, the Pennsylvania average for a gallon of home-heating oil was about $1.26. By Jan. 6, the price jumped to $1.39 and, on March 3, the state average neared $1.84, according to the EIA Weekly Petroleum Status Report. And it's not just heating oil. Compared to last winter, natural gas costs are up 30 percent, propane up 25 percent and electricity up 11 percent. At the same time, from October through February in the Northeast, heating degree days -- the cumulative number of degrees during the period when the mean temperature fell below 65 degrees -- were 12 percent above normal and 35 percent above last year, according to the EIA short-term energy outlook. Ms. Emerson says it's all part of what she refers to as the "perfect storm." She said this was the worst possible winter to have excessively cold temperatures -- Venezuela cut off oil exports, and there is the lingering expectation of war with Iraq. The three factors led to higher demand for oil and lower inventories. But relief for homeowners may come as early as the next two weeks, Ms. Emerson said. Mid- to late March usually marks the end of the home-heating season and the decision to go to war with Iraq should be made soon. Whether we go to war or not, a decision would end a period of uncertainty, which is historically detrimental to oil prices, she said. Also favoring a return to normal prices are increasing oil imports from Venezuela, the fourth leading supplier of crude oil to the United States. At the core, prices rise when supplies are low and demand is high. Dave Costello, economist with the Energy Information Administration, said weak demand for oil in the first half of 2002 caused inventory levels to lower. But the demand for oil rose sharply this winter because of cold weather and loss of oil supply in Venezuela. This triggered an interaction that sent prices sharply higher. Barring no further major world disorder, next winter should bring lower prices. "Generally, anything that causes further disruptions in the supply of crude oil increases the prices of heating oil," Mr. Costello said. A big hurdle the government must overcome before prices drop is filling low inventories. The strong heating demand from residential and commercial consumers, and demand for production from a slowly recovering industrial sector, have resulted in 64 percent more of the country's natural gas storage being used than last year. More than 2.75 trillion cubic feet is likely to be withdrawn from stored natural-gas supplies by the end of this winter heating season, which would be an all-time record high, according to Energy Business Watch. Total supplies for the year will likely fall to 1.5 trillion to 2 trillion cubic feet below the Energy Department's 2003 forecast of expected U.S. consumption. Crude inventories are dangerously low, on the verge of not being enough to supply the refineries, according to a report from Dailyfutures Inc. OPEC 10 has increased its quota by 1.5 million barrels per day as of Feb. 1, to 24.5 million barrels per day, but the oil is slow in arriving, the report states. EIA estimates that OPEC countries, excluding Iraq and Venezuela, hold between 2 million and 2.5 million barrels per day of excess oil production capacity that could be brought online. Around 70 percent of this spare capacity is located in one country -- Saudi Arabia -- with nearly all the rest located in four Persian Gulf countries: UAE, Qatar, Kuwait, and Iran. The U.S. government recently announced it would be ready to release oil from the nation's petroleum reserve if war with Iraq broke out. Mr. Costello said such a move would likely lower prices of crude oil. Ron Planting, American Petroleum Institute analyst, said the only other time the government tapped into the petroleum reserves for emergency purposes was the Persian Gulf war. But exhausting its oil supply should not be a concern at this point, Mr. Planting said. The U.S. has about 600 million barrels of crude oil in reserves. Even at a high rate of usage -- 2 million barrels a day -- the supply is enough to last 300 days without any imports.

www.nj.com Sunday, March 09, 2003 BY TOM JOHNSON Star-Ledger Staff

Natural gas prices have doubled in the past year. Caps on electric bills will be lifted this August. A possible war in Iraq and a strike in Venezuela have pushed the price of oil to nearly $40 a barrel.

If businesses are not yet feeling the pinch from soaring energy costs, they soon will, experts warn. Businesses that in the past paid little attention to the cost of energy no longer can afford to ignore it.

"For most people, the energy portion of the business is not something they normally focus on, but now you see consumers are really getting hammered right now," said Richard Soultanian, co-president of NUS Consulting Group in Park Ridge, which helps companies manage utility bills. "Saving money on energy expenses without significant modifications in your operations is at a premium right now."

Businesses have always had to deal with contingencies like oil shortages and unusually cold winters, and the effect they can have on energy costs. But until recent years, that effect was often small because energy markets were tightly regulated.

"In the past, you had utilities act as the shock absorber for energy crises, at least in the short term," said R. Scott Helm, president of American PowerNet, an electric management and procurement company based in Wyomissing, Pa.

Over the past several years, New Jersey has taken steps to deregulate the sale of natural gas and electricity, the two main sources of energy for most companies. As a result, experts say, businesses are more vulnerable to market forces when it comes to purchasing energy.

"The landscape in energy has changed dramatically," Soultanian said. "With deregulation, with the opening up of markets, one of the side effects is volatility. Now, it is a true supply and demand market."

For most companies, energy is the second-largest cost after labor.

Deregulation was going to lead to more competition and lower prices. At least that is what state officials thought when they decided to break up New Jersey's gas and electric monopolies beginning in 1999.

In fact, there has been little savings for business, other than a one-time statewide discount. Few companies have bothered switching suppliers, either for electricity or gas.

A new wrinkle in the energy equation will come this summer, when the state lifts caps on electric bills for businesses as well as consumers. The move is expected to lead to rate increases of up to 13 percent.

"Unfortunately, I believe the way the system was set up, there's going to be sticker shock," Helms said.

Most at risk are 1,700 of the state's largest industrial customers. Beginning in August, their electricity rates will fluctuate not by the month or week or day -- but by the hour.

During peak usage, Soultanian said, some businesses could see electricity prices triple within the span of an hour.

Unless companies more aggressively manage their energy costs -- seeking new suppliers, switching usage to off-peak hours -- they could see their August electric bill jump by 50 percent over the July bill, Helms said.

Indeed, some experts see the new pricing system as an opportunity for larger users to better manage their energy costs.

"This type of pricing is going to give them a big inducement to shift their energy use to off-peak periods and to conserve energy," predicted Steve Gabel, president of Gabel Associates in Highland Park, an energy consulting firm.

Small and medium-sized businesses, as well as residential customers, will have some protection from the lifting of price caps this summer. For these customers, the state has locked in electricity prices, though at a level about 6 percent higher than they are now, Gabel said.

Ratepayers face still other increases on the electric side. The utilities are seeking to recover $1 billion in costs they incurred in buying power at prices they could not pass on to customers because of rate caps. Customers also face rate increases from the utilities on expenses they incurred in upgrading the lines and poles that deliver power to homes and businesses.

Just how large the final bill is will not be determined until later this year during proceedings before the state Board of Public Utilities.

"It's a historical accident that all these things are kicking in at the same time," said Steven Goldenberg, a lawyer representing big energy users in the New Jersey Large Industrial Users Association. "It's kind of pancaked on top of each other."

No wonder some businesses are already looking to cut energy costs any way they can.

At Archive System Inc. in Franklin Township, Ed Vogelson, its chief operating officer, decided to invest in $38,000 in retrofitting a 200,000-square-foot warehouse that stores business records and files with more energy-efficient lighting fixtures to reduce his electric bill.

The project, undertaken in conjunction with Jersey Central Power & Light Co. and the New Jersey Clean Energy Program, has reduced the facility's monthly electric bill from an average of $4,300 last year to about $1,900, Vogelson said.

"I knew the prices were going to go up in August," said Vogelson. "My energy bills are a significant part of my business."

Tom Johnson can be reached at tjohnson@starledger.com or at (973) 392-5972.

www.gopbi.com By Ted Jackson, Palm Beach Post Staff Writer Sunday, March 9, 2003

If all of a sudden it feels like you've got less money to spend this year, it could be because you're feeling the effects of soaring energy prices.

Higher energy costs aren't just bad for the pocketbook.

It's a dangerous situation for the sputtering economy, which already has been badly mauled by uncertainty about a possible war with Iraq, economists say. As a group, economy watchers seem to be growing increasingly worried that high energy costs might tip the nation into a recession.

Some are blunter than that.

"If oil prices do not come down relatively soon, there will be another recession," said Thorsten Fischer, an economist at West Chester, Pa.-based Economy.com, an economic research firm.

Oil price increases have played an important role in helping cause virtually every recession over the past 40 years. Except for a brief period in 1987, every time oil has jumped by 60 percent or more the economy has slipped into recession shortly afterwards, according to Economy.com.

Oil prices are up 60 percent from a year ago.

Analysts at that firm say the economy already is fragile, pointing out that gross domestic product growth slowed to just 1.4 percent in the fourth quarter.

"It's clear that the price of oil will be a decisive factor in whether the economy slumps or rebounds," says Daniel Yergin, chairman of Cambridge Energy Research Associates in Cambridge, Mass.

Other energy markets, such as natural gas, have been skyrocketing as well. Many believe that while there is a possibility oil prices will come down in a quick war with Iraq, problems in the natural gas market are longer-term in nature and could be a drag on the economy for some time to come.

Also, if the disruption in the Middle East turns out to be longer than generally anticipated, economists are universal in saying that will be very bad news indeed for growth.

"A protracted war in Iraq would be a disaster for the economy," Economy.com's Fischer said. "Not only would energy prices likely go sky-high, but consumer and business sentiment would be badly damaged."

Think about the recent hikes in energy prices as an onerous tax on consumers. But instead of the proceeds going to government coffers, they are flowing into the pockets of oil company shareholders and the treasuries of oil-exporting nations.

Palm Beach County residents are paying 45 percent more for gasoline, at $1.77 per gallon, and 175 percent more for natural gas, at 82 cents per therm, than they were a year ago.

Florida Power & Light Co. won approval last week from regulators for a 6.2 percent residential fuel adjustment rate hike beginning in April, an increase that could be the first of several as the utility has become increasingly reliant on natural gas as a source of fuel.

Nationally, Fischer estimates, households are spending about 7 percent of their budgets on energy, up sharply from 4.3 percent on average last year.

"When energy prices go up like they have, it affects people's spending decisions," said Ron Earley, senior economist at the federal Energy Information Administration in Washington.

Over the past few months, it seems almost everything that could possibly happen to put upward pressure on energy markets has happened: prospects that war might disrupt vital Middle East oil supplies and actual major disruptions in key oil-producing countries such as Venezuela have combined with soaring U.S. weather-related demand to push some fuels to their highest levels in history.

How long energy prices will stay this high is fast becoming the most important question facing the economy.

"It's key right now," Fischer said.

The prevailing wisdom is that there will be a repeat of what happened during the Persian Gulf War in 1991, when oil prices surged in much the same way they have recently, but quickly fell after the war started and it became clear there would be a swift victory.

Alexander Levien, an oil trader at Boca Raton-based Ken Wolf Commodities, has positioned himself to profit from just such a scenario.

"We believe the war will be short and that oil prices will fall quite a bit once the war begins," he said. Levien's view is mirrored in the prices for oil in the futures market, which he says are anticipating a fall in oil to about $30 per barrel by the end of the year.

Crude oil traded at around $36.50 last week in New York, 20 percent higher than at the start of the year.

The stock market also is discounting a near-term fall in oil, analysts say. Although oil prices have soared and oil companies have been minting money in recent quarters, investors have not bid up oil shares because they believe oil prices will soon tumble, erasing the recent rise in company profits.

But the prevailing wisdom does not take into account that factors other than just the threat of war in the Middle East are behind the rise in oil prices, according to David Costello, economist in charge of short-term oil and gas forecasting at the Energy Information Administration.

He believes the cold weather, low levels of crude oil inventories and political unrest in Venezuela are enough by themselves to have caused much of the steep rise in prices.

"We are forecasting a big jump in oil prices for this year no matter what happens in Iraq," says Costello, adding that he anticipates that oil will end up averaging $32.40 per barrel in 2003, up 25 percent from last year.

Even if oil prices do fall quickly on any war in the Middle East, that doesn't mean energy costs will also fall quickly at home.

Because of technical refining factors having to do with Clean Air Act requirements, the AAA Auto Club says gasoline prices will rise by another 10 cents per gallon in the spring no matter what the price of oil. Global Insight, a Lexington, Mass., economic consulting firm, believes it could be as late as August before gasoline prices start coming down, if they fall at all.

Should the disruption to the oil market caused by a war in Iraq prove to be longer-lasting, oil prices could stay higher for longer as well.

OPEC officials admitted a week ago that members are barely capable of covering Iraq's 2.5 million barrels per day in production in the event of war, so any unforeseen disruption in supply could have an outsize impact on the price of oil later on this year, they warned.

One thing that will have a calming effect is that President Bush is almost certain to release oil from the country's enormous Strategic Petroleum Reserve stockpile if there is a war with Iraq. The extra supply will help push oil prices down at least over the short term, analysts say.

But by purchasing large amounts oil in the open market last year for the reserve, the Bush administration helped push oil prices higher without achieving its goal of increasing overall stockpiles, according to a sharply critical report issued last week by a Senate investigative committee.

Unfortunately for the economy, oil isn't the only energy market that's been skyrocketing lately.

Natural gas futures hit an all-time high of $11.89 per million British thermal units in New York trading a couple of weeks ago and have since settled back to around $7 per million BTUs, up 75 percent since the start of the year.

Although much of the recent natural gas price rise is due to very cold weather across much of the nation, analysts say that natural gas prices are likely to remain historically high over the next several years even under normal weather conditions.

The problem is that natural gas use has soared 30 percent since 1996, while production has barely kept pace. Production actually fell about 5 percent last year and is expected to keep falling through 2005, according to a report by Lehman Brothers.

Florida Power & Light, a division of Juno Beach-based FPL Group, says it buys about 15 percent of its natural gas on the open market, so the utility is largely sheltered from short-term price fluctuations by long-term natural gas contracts. Nevertheless, FPL has become increasingly reliant on natural gas. For example, it converted its Fort Myers facility to natural gas from oil recently.

Last year, the electricity company used natural gas to power 33 percent of its generating capacity on average, up sharply from 24 percent in 2001. The company has the ability to quickly switch about 20 percent of its generating capacity to oil, which is somewhat cheaper than natural gas now. By comparison, New York state can switch only 10 percent of its capacity.

"We are required by law to use the cheapest fuel," FPL spokesman Bill Swank said. "We are burning more oil right now."

There's no doubt that economists are very concerned about high energy prices and their growing impact on the economy.

But they also point out that the nation is far less dependent on energy to power growth than in the 1970s, when big price increases led to a decade of anemic national economic performance.

"We are using less oil per dollar of gross domestic product than at any other time in the last 100 years," said the Energy Information Administration's Earley. "We are using energy a lot smarter."

ted_jackson@pbpost.com

www.gmtoday.com March 8, 2003

MILWAUKEE - Saying this winter’s high energy costs have created a crisis for many Wisconsin families, Gov. Jim Doyle on Friday released $5.6 million in emergency energy assistance funding.

The extra money will help about 14,000 state residents pay their heating bills despite a spike in prices that has pushed the cost of natural gas 77 percent higher than last year, Doyle said.

‘‘We will not let anyone, particularly a senior citizen or a disabled person, make the awful and sometimes dangerous decision of not turning on the heat when it’s very, very cold outside,’’ Doyle said.

Doyle made the announcement, which includes $5.1 million in federal money, at the offices of the Social Development Commission, an agency that helps low-income Milwaukee County residents get assistance such as the heating help.

Deborah Blanks, the commission’s executive director, said the agency has already helped 24,000 low-income families through the end of January, a 4,000-family increase over the same time last year.

So far this winter, public funding has helped more than 100,000 state households, 12 percent more than last year, said Steve Tryon, director of the state’s Bureau of Energy Services.

The state Department of Administration said this week that natural gas prices are at their second highest level since the state began tracking the information.

Heating oil was $1.527 a gallon for the week of March 3, 55 percent higher than a year ago. LP gas was $1.465 a gallon, up 40.7 percent, the agency said.

Emma Mitchell, 68, went to the commission’s offices Friday to apply for help heating the Milwaukee home she owns.

‘‘It’s a struggle to pay the bills,’’ said Mitchell, who earns $8.50 an hour at her part-time job at an agency that provides care to seniors.

Her heating bills have been rising for the last few months - to $207 this month - and she’s finding it hard to meet her monthly $300 mortgage payment as well as clothe and feed her daughter and foster daughter, both 10.

‘‘They are lacking for some things I would love to have them have,’’ Mitchell said.

Intake worker Erica Coles said Mitchell would qualify for some type of monthly assistance.

The state had predicted heating costs would rise an average of 25 percent this winter because of expected colder weather. Costs have climbed higher than expected, partly because of a possible war in Iraq and an oil strike in Venezuela that has reduced crude oil suppliesin the United States.

About 66 percent of Wisconsin homes heat with natural gas, 11 percent with propane and 8 percent with heating oil.