Panic and profits as energy prices rise

September 25, 2005|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

Energy costs are miserable for cement manufacturers, cruise lines, cabbies, consumers and uncounted others. But for the makers and retailers of solar air heating systems? Golden.

There are winners as well as losers in this prolonged stretch of high energy prices - even if the losers are more numerous and obvious with $3-a-gallon fuel at the pump and heating oil and natural gas that will cost homeowners hundreds more this winter than last.

"You're destroying opportunity on the one hand because of higher costs, but yet you're creating opportunity on the other as entrepreneurs step in to create products," said Daniel Meckstroth, chief economist for Manufacturers Alliance/MAPI, a business and public policy research group in Arlington, Va.

Economists speculate that consumers will spend less on holiday shopping this year, less on restaurants, less on movie tickets. But they think Americans might be more inclined to substitute something cheaper - rent a film and order in a pizza, for instance, with no car trip required.

And even as families look to cut back on spending, they're paying upfront for products they hope will save them money. Many were jarred into action by the price shocks generated by Hurricane Katrina - and fears of what Hurricane Rita might do.

"We've been getting an incredible surge in business," said Sascha Deri, president and co-founder of the Alternative Energy Store of Massachusetts, which sells renewable energy sources online and through a catalog.

"We're already back-ordered on our solar air heating systems. Last year we had to push really hard to sell them; this year we can't keep up." The system uses 4-foot-by-8-foot "collectors" that cost $1,200 to $1,500 each, and a typical home needs two. But it offsets $300 to $600 a year in natural gas or heating oil, Deri said.

And what do you know - that's about how much extra the government expects it will cost this winter to heat a home with either fuel. "We've probably seen a tenfold increase in interest," Deri said.

Alternative fuel

Energex, which manufacturers wood pellets and sells to retailers, is also reaping the benefits of the sudden fuel-alternative popularity. In markets that hadn't ordered months in advance for the winter season, "I've seen in the area of 400 percent increase in demand," said Darryl Rose, vice president of marketing for the company, which has plants in Pennsylvania and Quebec.

Heating oil is at least 40 percent more expensive than pellets, he said.

"Over the past four years, we have seen very strong growth in our industry, and then in the past month, we've seen astronomical growth," Rose said. "I'm almost afraid to see what kind of growth we'll experience come Monday."

At Courtland Hearth and Hardware, which has stores in Bel Air, Fallston and White Marsh, interest in and sales of wood pellet stoves, fireplace inserts and the $189-a-ton pellets are way up.

"People are seriously scared, and legitimately so," said Richard Rasmussen, manager of the Bel Air store. "They're already feeling like the past winters have maxed them out, bill-wise."

The oil companies and associated businesses are clearly on the winning side of the energy equation, though energy economist James L. Williams of WTRG Economics in London, Ark., notes that the renewed drive for better efficiencies and fuel substitutes might hurt them in the long run.

Other potential beneficiaries are nuclear power and coal, economists say. Insulation manufacturers and anyone else who makes energy-efficient products. And hybrid vehicle makers such as Toyota Motor Corp., which expects to put gasoline-electric motors in most of its models in the not-too-distant future.

Then there's Netflix, which sends movies to its 3.2 million subscribers by mail and is happy to point out that you don't need to drive to entertainment when you can get it delivered. "This is a much better alternative," said spokesman Steve Swasey.

But there's more weight on the losing side of the energy seesaw. High gas prices are bad news for most auto manufacturers - especially ailing General Motors Corp., which has been hurt by faltering sales of its full-size SUVs. Ditto for airlines, many of which are struggling. And for makers of products like cement, which eats a lot of energy in the manufacturing process. And for retailing giant Wal-Mart Stores Inc., which is losing momentum because its lower-income customers are hard-hit by extra fuel costs.

Anyone who has to move people or products from Point A to Point B is feeling the pain, some more than others. Fuel is typically 10 percent of a cruise line's operating costs, for instance.

Many businesses haven't stuck consumers with the extra transportation bill - yet - because they're concerned about competition, not to mention the thought that gas-walloped Americans would revolt at increases anywhere else.

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