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ISO NE utilities have burned 2 mil barrels of 4.5 mil oil inventory: Morningstar

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ISO NE utilities have burned 2 mil barrels of 4.5 mil oil inventory: Morningstar

Houston — New England electric utilities have actually burned through nearly half of the 4.5 million barrels of oil set aside for winter 2014-2015, despite data from the region's grid operator that shows tepid demand for oil for power generation, Morningstar Commodities Research said Thursday.

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ISO New England handles electric markets for Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. The entity has so far this winter reported low oil-fired electric power generation compared with previous winters. Data published Wednesday showed electricity generation from petroleum products is averaging less than 2% of total power generation in 2015 so far, compared with nearly 9% in the same time last year.

However, the actual level of oil burn could be higher but not apparent in the data due to the way the data is presented. In late January, ISO New England said more than 550,000 barrels of oil were used in December.

"This was interesting not only because it was a mild December but also because the data in the ISO-NE operational reports doesn't show the oil burn in December," Morningstar said. "Only the primary fuel shows up on the fuel burn. Therefore oil burn is being recorded only if oil is the primary fuel and actual oil burn is showing up as either coal or gas incremental burn (switching)."

Essentially, the ISO's data for oil-fired generation considers only power plants that burn exclusively petroleum products. Dual-fuel units that can burn either natural gas or oil products are included in the natural gas category, even if a facility might have burned oil on a particular day.

Morningstar calculated more than 1.5 million barrels of oil were burned for power generation January 1-25. Given that the pre-winter oil inventory was about 4.5 million barrels, that "leaves approximately 2.5 million barrels left on-site (assuming no restock)," according to the report.

This suggests the actual oil-burn rate has been higher than many market sources have assumed. Market sources perhaps assume the oil-burn rate is lower because utilities have not sought resupply.

Even if more oil has been used than thought, regional fuel oil prices are well off levels seen in 2014. For example, New York Harbor 0.3% sulfur low pour fuel oil has averaged $15.35/barrel more than New York Harbor 1% sulfur fuel oil in 2015, compared with a premium of $30.70/b in 2014, according to Platts data.

--John-Laurent Tronche,
--Edited by Derek Sands,