Some of us remember the oil shortages of the 1970’s. We all have heard about them. I remember waiting in line as gasoline was rationed by stations in our hometown.
What most people take for granted is the twenty- five year period of relatively inexpensive oil prices that followed the Iranian Revolution and the Arab Oil Embargo.
When I was growing up, my father heated his home with oil. In 1980 he made the switch to Natural Gas. He was motivated primarily by the projected savings the natural gas utility claimed he would enjoy. He fired his local oil dealer. He invested what amounted to about two months pay, dug up his lawn, installed new heating equipment and incurred unexpected expenses that the utility failed to prepare him for.
I began working in the oil business in 1982. Every year my dad would ask me (because the gas company’s bills are difficult to read) to figure out for him if he was actually saving money with natural gas. He was very disappointed when he learned that within a year or two of making the switch, home heating oil was, on a BTU equivalent basis, cheaper than natural gas. Heating a home with oil continued to be cheaper than gas for fifteen of the next seventeen years that he lived.
A few years ago, when oil prices rose to levels never seen before, as they did in the days of Jimmy Carter, natural gas utilities once again dusted off their marketing programs in an effort to attract consumers who were “stuck with expensive oil.” We all know what happened next: Oil prices fell as markets corrected causing those who spent ten to twenty thousand dollars to switch from oil to natural gas to feel like fools and suckers. Some things do not change.
My dad had a friend in our neighborhood who was a landlord. He was very smart. We will call him “Billy”. Billy wisely bought a lot of property in the sixties, seventies and eighties. My dad told me how Billy borrowed money off his life insurance policy at 2% and reinvested it in a secure money market account at 18% (you could do that back then). Billy was, “Shrewd. He knows what is going on…always did”, my dad would say.
When I was in high school Billy bought the most prominent commercial building in our town. Almost twenty years ago, when Billy learned that I owned Jamie Oil, he asked me about putting the commercial property on automatic delivery. He negotiated hard, he knew all about BTUs, therms and kilowatt hours. He knew the value of each. Then about twelve years later, when natural gas was once again cheaper than oil for a few months, Billy told me “Switching to gas simply does not pay, you just can’t amortize or recover the expense, especially when you add in the hidden costs. It rarely pays to panic.”
My dad was right. Billy knew what was going on and he still does. We delivered oil to his building last week.