Despite High Oil Prices, US Businesses Slow To Conserve

The poll, which anonymously canvassed more than 308 chief financial
officers from public and private companies, shows high energy prices ranked
among executives’ chief concerns for 2005. But only one-fifth of the
respondents reported making any efforts to conserve fuel, and that fraction has
shrunk from the third quarter.

Despite High Oil Prices, US Businesses Slow To Conserve

01-06 11:29: Despite High Oil Prices, US Businesses Slow To Conserve
DJ Despite High Oil Prices, US Businesses Slow To Conserve

By Leah McGrath Goodman
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–John Hatsopoulos remembers the difficulty of selling
equipment that promised thousands of dollars in energy savings to a New York
hotel.

The former chief financial officer for Thermo Electron Corp. (TMO) said the
hotel’s operator sniffed at his $250,000 offering price. “The man said, `I
don’t have a quarter of a million dollars – and if I did have it, I would make
a new lobby, I wouldn’t worry about conserving energy,”‘ Hatsopoulos recalls.

That was back in the 1980s. But even after a year of $40-plus oil,
Hatsopoulos says little has changed. The business world remains slow to react
to towering energy prices.

A fourth-quarter survey by Duke University and CFO Magazine bears out his
point. The poll, which anonymously canvassed more than 308 chief financial
officers from public and private companies, shows high energy prices ranked
among executives’ chief concerns for 2005. But only one-fifth of the
respondents reported making any efforts to conserve fuel, and that fraction has
shrunk from the third quarter.

The lack of conservation points to a key characteristic of the oil market
rally: Demand has not only proven resilient to high prices, it has continued to
grow. U.S. energy officials expect that growth to keep prices high this year.

“I personally was shocked that so few companies had bothered to do anything
in the face of fuel prices that are solidly above $40 and extremely volatile,”
says Campbell Harvey, a professor of finance at Duke University, Durham, N.C.
Harvey co-directed the business outlook survey with New York’s CFO Magazine.

Driven By Demand

Although crude oil futures in New York have falle about a fifth from
their record highs of 2004, they remain more than 40% above their level a year
ago. Gasoline futures are up more than 25% and heating oil more than 30%.

Rising global demand – driven by China, but also by the U.S. – has been a key
cause of the run up. World oil demand growth will slow by about a quarter this
year from last year’s scorching pace, but will be strong enough to outpace
growth in supply and keep markets tight, the statistics arm of the U.S.
Department of Energy said Wednesday.

“Global oil demand growth is likely to be the key factor for oil markets in
2005,” the Energy Information Administration said. “While most analysts expect
global oil demand growth to be significantly less than the 2.6 million barrels
per day seen in 2004, markets will remain tight if it is close to the 2.0
million barrels per day EIA expects in 2005, a level that exceeds expected
growth in non-OPEC supply and downstream refinery capacity.”

The quarterly Duke/CFO Magazine survey covers a broad cross-section of North
American companies. The latest survey, in December, listed high energy costs
alongside worries about health-care costs, competition and rising interest
rates.

About 20% of the chief financial officers polled in the survey said their
companies had measures in place to reduce fuel consumption, down from 21% in
the third-quarter survey, Harvey says.

“Eighty percent of respondent have taken no steps to reduce their level of
fuel consumption,” he says. “There are many small things that are low-hanging
fruit that can be done, but many companies are doing nothing.”

Fuel-reliant companies such as airlines and manufacturers have responded more
aggressively to lofty energy prices than other firms, but even they have made
surprisingly few changes. In the December survey, only 31% of transportation
companies and 32% of manufacturers said they were conserving fuel, Harvey says.

“I would expect that more than 50% of all companies would have taken steps by
now,” he says. “The transportation industry and manufacturing industry have
been conserving more, but these numbers are still very low.”

Among other measures, transportation and manufacturing companies said they
were replacing old vehicles with more fuel-efficient ones, downsizing some
fleets and installing vehicle-tracking devices to reduce idle time.

Why They Hold Out

Companies that aren’t taking such measures may be hoping to stick their
customers with the bill, says J.T. Fisher, chief financial officer for Delta
Connection Inc., a unit of Atlanta-based Delta Air Lines Inc. (DAL).

“Maybe some companies aren’t doing anything, because they believe they can
offset high prices by passing them along to customers,” he said.

For its part, Delta has worked to conserve fuel for the past two years,
investing in technology to increase the efficiency of flight planning and
providing pilots with tools to manage fuel consumption, he said.

Most companies don’t have a great deal of room to use less fuel, says Nick
Dazzo, a New York derivatives marketer for Koch Supply & Trading LP, a unit of
Koch Industries Inc. (KOH.Xx), a closely held trading and investment company in
Wichita, Kan.

“Even if you do conserve, is that the sole way to control your energy costs?
If oil prices double, you’re still going to have to face that,” says Dazzo, who
helps companies hedge against exposure to high energy prices. “A hedge is going
to give you a better bang for the buck.”

But fearing they’ll end up on the wrong side of a shaky market, most
companies remain wary of locking in a fixed price.

The main impediment to greater efforts at conservation, however, is that the
conventional wisdom is still that high oil prices won’t last.

“I don’t think people are doing very much about it, because the concept is
that we’re in an energy market bubble, and it’s not going to last,” Hatsopoulos
says.

Dazzo agreed: “It’s probably reasonable to say that more people believe we’re
in a new price regime today than a year ago, but I don’t think that’s the
majority view.”

-By Leah McGrath Goodman, Dow Jones Newswires; 1-201-938-2062;
Leah.Goodman@dowjones.com

(END) Dow Jones Newswires

01-06-05 1429ET

DJ info:
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N/LNG,N/PEC,N/PET,N/TSY,N/WEI

KEYWORDS: FSN37430 CET ENERGY FINANCIAL GENERAL STOCKS

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