By Art Nash, Energy Specialist
As of the last day of October, oil is just over $94 per barrel for Brent crude oil (with general crude running $8 less per barrel). In comparison, 11 months ago in the midst of winter, it was pricing out at just under $69 a barrel. Thus, many countries in Europe are fearing an “energy armageddon” this winter as the seasonal cold moves in. There are concerns that sustained energy costs could trigger, if not exacerbate, a world recession.
Yet, the market price has been north of $100 per barrel of oil several times in the past decade and a half, so what is so devastating this time? Some of the current scare is over oil supply — and who holds it. OPEC (Plus) is making direct attempts to curtail output. The current sanctions in place limit Russian oil and gas (a partial substitute) exports, and disruptions to Europe of transportation routes for fuel have contributed to these concerns.
Historically, what is interesting is that when oil was at its highest ever (June 2008 – $127.50 per barrel), Alaska heating oil, on average, was $5.50 per gallon. Then, while crude began to drop over the next half year, Alaska heating oil peaked at almost $6 per gallon, and then dropped back down to around $5.50 per gallon — yet the price of crude was at an all-time low of $35 per barrel at that time!
Today, heating oil is running $4.50 per gallon on the national market exchanges, which is just about a dollar more than the national average last January and a half dollar less than the Alaska average last winter, according to the state’s Division of Community and Regional Affairs. (For historical perspective, I spoke with a Fairbanks resident who came to Alaska just a year after statehood and was greeted with 19 cents per gallon for his nominal cost of heating oil!)
The obvious lesson here is that national and local heating oil costs don’t necessarily follow corresponding trajectories with the price of crude oil on the world spot market. There are other factors at play than just world commodity pricing. To some extent the federal government can try to influence some with reserves and regulation, while the state in the past has had a hand in offering relief through fuel assistance for various residents. And, of course in the long run, the state has influence over incentives and leases for further oil extraction.
Yet, Europe will be where all eyes look this winter with how supply curtailments and distribution disruptions of oil (and natural gas) affect the heating costs of residents. And while the EU has carbon restriction commitments that on their own curtail the use of fossil fuels, in the short run this winter those may fade in importance if the North Atlantic oscillation weather patterns end up producing challenges for indoor heating (though current weather models are favoring slightly higher temperatures over the past three decade’s averages).
One thing is for certain, this last year has brought worldwide attention to energy production — but even more so distribution — to the forefront of concerns per energy weaponization and power crises. And that doesn’t even get into how these types of situations will affect Alaska’s budget, revenues and spending — but more will most likely be discussed on these close-to-home responses once we get past our elections in just over a week.
Art Nash is the UAF Cooperative Extension statewide energy specialist. For questions, he can be reached at 907-474-6366 or alnashjr@alaska.edu.
