Oilheat's pricing war of attrition vs. natural gas

Bioheat can eventually outcompete natural gas on GHG emissions when blended in higher levels and mixed with ULSD base fuel, but will it ever compete on price?
By Ron Kotrba | November 16, 2011

Yesterday brought with it the season’s first accumulation of snow in Grand Forks, N.D. This morning we woke up to 10 degrees F. More than a month remains until the winter solstice, and yet the sun already sets at 4:45 pm. The roads were icy on the drive to the office this morning. So it begins in the Upper Midwest—six long months of dreadfully cold winds, drifting snow, and empty pockets thanks to the high cost of home heating fuel.

I received my biodiesel-blended heating oil fill-up a couple of weeks ago at about $3.76 a gallon for a blend of No. 1 and No. 2. According to the Winter Fuels Outlook by Howard Gruenspecht with the Energy Information Administration, projected average expenditures for heating oil users are at their highest level ever—despite the fact that inventories of distillate fuel oil and natural gas are currently above the recent historical average.

The EIA forecasts that oilheat customers are going to pay more than $26 per million Btu this winter, while natural gas customers will pay around $13 per million Btu, or about half of what oilheat users will pay. It also says oilheat consumers will pay more than 35 percent more this winter for fuel oil compared to the five-year average. Natural gas customers, however, will be paying around 15 percent less this winter compared to the five-year average.

Bioheat is a great way to compete with natural gas on greenhouse gas emissions. Several Bioheat advocates touted a presentation slide at the Bioheat Northeast Workshop in Pittsburgh last month, one that shows Bioheat can begin outcompeting natural gas on a GHG emissions basis at the 12 percent blend level mixed with ultra-low sulfur heating oil (“Annual CO2 emissions comparing noncondensing oil boiler to natural gas condensing boiler”). Other measures to compete include the fact that natural gas is largely methane, a powerful greenhouse gas. Also, it’s a fossil fuel—i.e., nonrenewable.

Bioheat can compete on nearly all levels, but what about price? Ed Burke, chairman of Dennis K. Burke Inc., affectionately referred to as the Godfather of Biodiesel in the Northeast, says, “I don’t see it happening.” Burke distributes a lot of Bioheat in the Northeast—and he’s also hosting the grand opening of Burke Oil’s first electric vehicle charging station Nov. 18, powered by a 50 kW photovoltaic unit, in Chelsea, Mass.—but while he says Bioheat is economical now because of the tandem existence of the $1 per gallon tax credit and decent RIN prices, this probably won’t be the case in the future. Historically biodiesel is priced higher than fossil diesel. Using the pricing EIA forecasts above, will the environmental benefits of biodiesel-blended heating oil be enough to stop the market share war of attrition going on between natural gas and oilheat?

I am as big a Bioheat advocate as anyone is. It is part of my professional life as the editor of Biodiesel Magazine, and it is part of my personal life as a user. And despite the price differential, I will continue using it. But one cannot ignore the fact that huge newly tapped deposits are going to drive natural gas prices down, while oilheat prices are forecasted to continue on an upward trend. So I ask all of you, can biodiesel-blended heating oil compete on price with natural gas? If not, is the customer service aspect of heating oil and Bioheat—knowing your provider, putting a friendly face to home heating product, knowing that your fuel comes from a person you trust rather than a faceless gas line—enough to justify the higher price? 


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