There is no shortage of oil. The U.S. broke a production record in December 2023 with 13.5 million barrels of oil per day. That’s more than any country has ever produced thanks to the immense domestic reserves of shale oil. Moreover, major Oil companies are merging, Exxon bought Pioneer and Chevron plans to buy Hess. But in the news – the U.S. energy policy is driving towards electrification and a phase out of fossil fuel. So, what does this mean for Heating Oil?
The Northeast is really the only remaining market that uses Heating Oil to heat homes – 19% in NY, 24% in MA, 29% in RI, 39% in CT 40% in VT, 43% in NH and 59% in Maine1.
But if you read the news – Policy makers are driving hard to eliminate oil consumption. So, what does this mean for the Heating Oil Companies?
- Energy Choice at risk: Most heating oil associations are fighting hard to keep the anti-fossil fuel authoritarians at bay. But there is a new attack on Energy Choice every day with crafty legislation, regulatory pressure, and outright bans.
- Propane is the preferred marketer’s choice: Most Heating Oil only companies are struggling to keep up. If you haven’t invested in Propane yet, you should consider the investment (knowing it takes 3-5 years to see the returns). Heating Oil Only distributors will likely phase out over the near term.
- Electrification: Heat Pumps are hot right now. And even if Heat Pumps are sufficient to heat an entire home in a 3-day New England winter storm – keep your eye on electricity prices and reliability. The New England transmission grid is ‘grid locked’ and as we double and triple the load, the prices will react accordingly.
- Consolidation: The most likely outcome in the Northeast is continued consolidation. The large national and regional Oil and Propane distributors can manage the regulatory pressure and market volatility – but its harder for the small oil only distributors to keep up. The good news is there is still consolidation in the market (well good news for the seller!).
The U.S. is going to continue to be a world leader in Oil production. Our reserves are too big, and our production costs are too good to slow that down – but Heating Oil distributors will continue to feel the pressure in the current Energy Policy fight. We’d recommend adding Propane and HVAC services to diversify against the oil only risks – but if that isn’t in the cards and you are ready to plan an exit strategy or sell your business, starting with a review of your operations and a Business Valuation is a good place to start. Give us a call to start a confidential no pressure conversation – 207.747.9959
