We shun trading in copper, corn and other commodities as high-risk speculation, but like many other Washington families we have just placed a big bet on future prices of another commodity -- energy. Putting our money on the line, we have just paid $2,895 to switch from oil to natural gas.
It looks like a safe investment. The average price of oil is 87.9 cents a gallon, according to the Washington Gas Light Co., the local natural gas distributor, and an equivalent volume of natural gas (1.4 therms) costs about 50 cents. A saving of 38 cents a gallon makes gas a much cheaper fuel.
But a family that must buy a gas furnace (or boiler) is unlikely to save enough on fuel to recover the initial outlay in full in one heating season. Anyone who makes such an investment is betting the natural gas will continue to be markedly cheaper than oil for some years.
We believe it will. The 13-nation producers cartel, the Organization of Petroleum Exporting Countries, has priced aggressively for several years, exploiting high and rising world oil consumption. OPEC has lifted crude oil prices in six years from $3.50 a barrel to more than $20. Such high prices may hasten the development of new sources of energy, but oil seems likely to remain the workhorse fuel of the industrial world for 20 years or more.
Natural gas prices also will rise, but probably less rapidly. What producers charge is still partly regulated by Washington, although under the 1978 Natural Gas Policy Act prices house holders pay can be expected to rise by 15 percent a year for five years, Washington Gas Light says.
That means a doubling in five years, making the price of 1.4 therms of gas (equivalent to a gallon of oil) roughly $1. Who would doubt that today's 87.9 cents a gallon for oil will be far above $1 in five years? Only last weekend there were reports from Iran of cutbacks in export volumes, the very problem that drove our heating oil cost to 61.9 cents a gallon last spring from a September 1978 price of 49.9 cents.
It was that price surge and the signs of still prices to come that made up decide to switch to gas. As we watched them haul away the old burner a few weeks ago, the fanality of our decision took on new meaning, and we had a moment of unease. It was dispelled by reports in the past few days from Mexico, Libya and other oil exporters of higher prices and possible production cutbacks.
The farther into the future one looks, the less confident one is of any forecast. That is a good reason for seeking an early recovery of the cost of conversion, perhaps within three or four years. We don't expect to earn back our $2,895 that soon, but we feel we made the right decision, and we learned a few things that may be useful to others who decide to convert to gas.
To make your own calculation, multiply the number of gallons of oil you burned in the past 12 months by 1.4. That will give you the equivalent number of therms of gas. The price of a therm is 36.9 cents in the District, 35.2 cents in Maryland and 34.2 cents in Virginia. In addition, a residential customer pays a fixed monthly "systems charge:" $5 in the District and $6 in Maryland and Virginia (but $9.42 in Virginia for those who burn more than 1,082 therms a year).
A strictly economic calculation would also take account of the cost of financing, if you pay for your gas boiler on the installment plan, or, if you pay cash, the interest your money could earn (less income taxes). We omitted this calculation to balance the peace-of-mind we would achieve by getting rid of a 1935 oil burner for which spare parts are unavailable. Had it broken down in winter, there would have been no time to convert to gas.
With the heating season here, one obvious question is: how fast can the job be done? The answer depends on whether you already have gas service for cooking or hot water. If so, and if the service line that delivers gas from the main to the house is adequate for space-heating volumes, conversion to gas heat can be made as fast as the householder can line up a plumbing contractor.
Be warned, however, that the plumber may have difficulty getting his hands on a boiler. Our plumber said in September that he could't get delivery before Christmas on additional units.
If a service line must be installed or enlarged, more time will be required -- time for Washington Gas Light to advise whether it will do the job free or require a payment by the customer, time to get a work permit from the local government, time to bring in a WGL crew and time for the plumber to do his work.
Houses with no gas service now may be unable to convert to gas heat before the end of winter, said Susan Butz, a spokeswoman for WGL. The company has been flooded with applications, she said, and has a big backlog of orders.
"When we give a commitment" to install a service line, "it takes six to eight weeks before we'll be out there," Butz said. "Some of our present applicants will not be on this winter."
Since last spring, WGL has received 4,700 inquiries about conversion. of those, 1,300 have been approved for initial or expanded service, Butz said. Of the other 3,400, about 400 have been eliminated for one reason or another, mostly because the houses were too far from the gas main. That leaves a working backlog of roughly 3,000 applications in various stages of processing.
In 1972, WGL stopped accepting new customers because of a shortage of natural gas, a shortage that grew worse for several years and reached crisis proportions in January 1977, following abnormally cold November-December weather. The supply situation has been improving since early last year (when WGL started adding new customers again) for two reasons: many industrial and commercial customers have switched permanently to other fuels; second, the Natural Gas Policy Act of 1978 gave producers partial price deregulation and made it possible for the interstate pipelines to attract, by paying higher prices, gas that had been sold in an unregulated instrastate market.
What was a trickle of oil-to-gas switches in 1978 turned into a torrent in 1979 as oil prices soared. Even though we were among the early applicants last spring, our conversion took more than four months from our initial inquiry. Inevitably, there were problems and red tape that neophytes couldn't possibly anticipate.
Two of the plumbing contractors we telphoned for estimates came promptly. Two others took 14 to 18 days to show up.There of the four counted the number of secions in every one of our hot-water radiators and from the sum inferred how large a boiler we needed. A fourth simply cast his eye over the house as he walked up the path and made his recommendation -- for a smaller unit than the others proposed.
Of the three careful contractors, one (after sending a technical consultant for a second look) proposed a larger, more costly boiler than the other two. The recommendations and prices of the other two were almost identical. We gave the job to Atchison & Keller, a company highly recommended by a friend.
Meanwhile, we had telephoned WGL to ask about getting connected to the gas main. The gas company sent a personable marketing representative. He was guardedly optimistic but he advised that a technician had to take a look. At issue was whether the company would install a service line without charge.The charge could have been as high as $2,000, a sum that would have tipped us in favor of staying with oil.
Whether WGL will install or enlarge a service line without charge depends on how costly the job will be and how much gas the customer is likely to use. Usually, it is cheaper to install service lines in the suburbs because less ripping of sidewalk and repaving are necessary, Butz explained.
"In general," she said, her tone emphasizing that there are exceptions to this rule-of-thumb, WGL can install up to 65 feet of service line from a suburban house to the gas main without a cash "contribution" by the customer.
After some weeks, WGL has good news: they would connect us without charge. At our request, the marketing man sent a letter saying so. It's a good idea to get that in writing from the gas company before committing yourself in writing to buy a boiler. (You must give WGL a copy of such a contract before they will install service.)