As Heating Oil Costs Keep Rising, Oil Dealers Seek Waiver from Mills

As Maine retail heating oil prices surge to $5.43 per gallon and some market analysts predict rationing, Maine’s oil dealers say Gov. Janet Mills could ease pressure on Maine families this winter by issuing a waiver to allow them to import and sell non-low sulphur products, which have been banned in Maine since July 2018.

Chris Herb, president of the Connecticut Energy Marketers Association, told Bloomberg Monday that fuel oil wholesalers are putting retailers on allocation, which limits the amount of fuel they can obtain and in turn constrains the amount of fuel they can deliver to customers.

The move is intended to prevent panic buying, but it was shocking news for many New Englanders, especially those living in Northern Maine, who are concerned about staying warm this winter.

Charlie Summers, the President and CEO of the Maine Energy Marketers Association, was a more measured than his Connecticut counterpart in his view. He said unprecedented geopolitical turmoil, federal regulations, and a harsh winter might combine to cause problems in the market, but that he wasn’t expecting difficulty keeping oil tanks full this winter.

“If everything moves the way it’s moving, there may be some little spotty times,” Summers said. “But we should get through the winter without difficulty.”

Much depends on the severity of the winter. A polar vortex event, such as the one that dropped temperatures across the American northeast in 2013-2014, could complicate matters.

In Maine, 7 out of 10 homes use either heating oil or propane for home heating, meaning about 300,000 households will be impacted by sky high prices this winter.

The cause of the high prices is multifaceted, but the story begins with American policy regarding domestic energy production. Under former Republican President Donald Trump, domestic oil and natural gas production increased broadly, leading to lower prices at the pump. But when Democratic President Joe Biden took office in 2021, he issued an order halting new federal land leases to energy companies, which decreased the supply of oil and gas and had a chilling effect on the industry. Biden also ordered the cancellation of the Keystone XL pipeline, which further exacerbated supply weaknesses.

Against the backdrop of federal policies hostile to energy production, the COVID-19 outbreak came and governments began locking down populations. As people started traveling less, energy demand sagged, and producers began to cut back production.  A string of refinery closures ensued. When the pandemic began to wane, oil and gas demand increased, but the supply response lagged, leading to an increase in prices. Then, in the middle of confused market signals and unfriendly federal policies, the Russian invasion of Ukraine and resulting sanctions against Europe’s largest energy producer sent Europeans looking to America for their energy. That increase in demand put additional upward pressure on prices.

More refinery closures, some permanent and some for regular maintenance, have limited production capacity, especially on the east coast. Although Biden has attempted to mitigate fuel prices as midterm elections approach, the release of oil from the country’s strategic petroleum reserves will not have much impact on prices in the northeast due to the lack of operational refineries. Another factor is backwardation in fuel markets. Backwardation occurs when current prices are higher than expected future prices, which means market participants have no incentive to stockpile fuel, as is now the case. According to Bloomberg’s report, New England fuel reserves are one third of what they typically are at this point in the season.

Summers said his trade group has been talking to Maine Gov. Janet Mills’ Energy Office about a policy fix that might help increase heating fuel supplies and lower prices, especially in northern Maine.

He said the governor can issue a waiver that would allow oil dealers to import and sell non-low sulfur oil and kerosene from Canada. Those non-low sulfur products have been banned in Maine for several years because of the higher emissions compared to low-sulfur products.

However, Summers said that, from a greenhouse gas emissions perspective, burning the non-low sulfur fuels would be preferable to Mainers turning to wood stoves as an alternative for keeping warm.

Dan Burgess, Director of the Governor’s Energy Office, did not respond to a phone call and an email inquiring as to whether Mills was considering such a waiver.

Maine’s gubernatorial candidates sparred over differing energy policies during last nights debate, with Mills saying she intended to work with the next Legislature to come up with a new welfare program to help Mainers pay higher energy bills this winter.