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Jan 18
2010
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With crude oil prices hovering around $80 a barrel in recent days following the end of the nationwide cold spell, it is an opportune time to discuss the importance of crude oil prices for multifamily building owners and management. This is especially important to owners in Harlem, the Bronx and the Upper East Side, where older heating systems using oil heat are still prevalent.
After real estate taxes, heating oil (for those who use it) is the greatest expense in a multifamily building. More importantly, oil is an expense that is completely out of your control as a consumer. Major global investment bank energy analysts are predicting short-term prices above $80 per barrel before oil markets tighten in the coming years.
Throughout the New York City area, many residential and multifamily buildings are still heated by oil – but you don’t have to be at the mercy of market price swings, which are affected by any number of factors around the world. It may be possible that switching your heating source from oil to natural gas may decrease your building expenses considerably over the long run. Natural gas is currently selling for less than half that of oil per million BTU and is therefore a less expensive alternative. However, replacing an oil boiler with a gas system (complete with gas lines) can be a costly endeavor. Electing to replace a failing boiler with a natural gas system can be a sensible, cost-saving idea. Alternatively, if your heating system is running well, you should calculate the life-cycle cost of replacing your system, as you may be better off investing your money elsewhere right now.
Additionally, if you are not yet ready to give up on oil heat, there are several avenues you may still explore. Consider a ‘conversion’ boiler that can be hooked up to both gas and oil sources, and can be run on either fuel depending on which is more cost effective at the time. Oil heating systems can also be run on biofuel blends that are more environmentally friendly and do not require modification to your existing units. Another idea to hedge the price of oil could be purchasing exchange traded funds (ETF’s) of oil companies – if the price of oil rises, your heating costs will increase, but your investment value will increase as well.
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