By Gregg Hennigan for REG
Heating oil is, for the most part, a cold-weather product. By the time the grass is green and swimming pools are open, many heating oil companies are done supplying fuel for a few months.
In the summer, their focus is on fleet and equipment maintenance, budgeting, forecasting and other duties. Some do sell fuel, but it’s often larger companies, and they tend to stick to diesel, gasoline or propane.
There is an opportunity, however, to tap another resource that can help a company diversify and, potentially, achieve higher margins. And it’s a product that already is increasingly being associated with heating oil: biodiesel.
“If you have the assets and you have the storage facilities, or if you can add them, then you really should be talking to somebody about biodiesel to help you evolve your heating oil business,” said Barry Knox, director of blended fuel sales at Renewable Energy Group, Inc., a leading producer of advanced biofuels.
BIODIESEL AND HEATING OIL
Heating oil is a petroleum product, and the industry has seen a shift in recent years toward cleaner-burning fuels to reduce harmful emissions. Consumers want it, and in some cases local and state governments have gone along.
Biodiesel has stepped in as a cleaner alternative. Traditional heating oil blended with biodiesel, known as Bioheat™ blended fuel, has lower emissions than petroleum diesel and has very low sulfur content.
Bioheat blended fuels usually have between 2 and 5% biodiesel, referred to as B2 and B5, although many buildings are heated with B20 blends and even higher.
So, heating oil suppliers are well aware of biodiesel, and many already offer the renewable fuel. An opportunity exists for them to diversify into the transportation fuel market during the heating oil offseason by offering biodiesel blends for on-road use.
SUMMER BLENDING BENEFITS
There are several reasons why this would be beneficial.
For one, diesel fuel consumption is increasing, especially in passenger vehicles. The U.S. Energy Information Administration has forecast that drivers will consume 17.1% more diesel fuel by 2023 and 26% more by 2040. The trend has already started. Diesel car and SUV registrations in the U.S. increased 24.3% from 2010 through 2012, compared with a 2.75% rise for all car and SUV registrations, according to a Diesel Technology Forum analysis.
The CAFE standards coming over the next decade will require significantly improved fuel economy among cars and light-duty vehicles, and diesel-powered passenger vehicles are up to 40% more fuel efficient than gasoline cars.
Biodiesel is a cleaner alternative, reducing net carbon dioxide emissions by 78% on average compared with petroleum diesel.
On a related note, more and more drivers care about the environment. They want clean fuel and improved fuel economy, and heating oil suppliers that add biodiesel-blended transportation fuel can tap into that customer base.
“It’s really about options,” Knox said. “As we look to what the energy solution is going to be, the next generation is really concerned about being good stewards of the environment and having a greener alternative and a lower carbon footprint.”
Drivers also care about their vehicles. Biodiesel has a higher cetane number than petroleum diesel and superior lubricity while providing similar horsepower, torque and fuel mileage. Bioheat blended fuel users are already aware of how biodiesel’s lubricity reduces friction and wear in their heating equipment. They also know that biodiesel, when stored and handled properly, works fine in harsh Northeast winters, where heating oil use is most prevalent.
Also, the heating oil offseason coincides with the time of year biodiesel has an economic advantage over No. 2 ULSD. Retail outlets that offer biodiesel blends at the pump often increase their blend level—for example, they’ll go from B5 to B20—in the summer because certain cold-weather steps aren’t necessary. When biodiesel is less expensive than No. 2 ULSD, increasing blend levels helps increase margins.
Finally, even bigger savings can be had in states with economic incentives, often in the form of tax incentives, tied to selling biodiesel. Additionally, some states and communities call for the use of biodiesel blends with on-road diesel or with heating oil. Pennsylvania, for example, requires a B2 blend in on-road diesel. New York City requires a B2 blend of heating oil, and the New York state assembly has considered a statewide biodiesel blended heating fuel incentive.
Heating oil companies that operate in jurisdictions that incentivize or dictate biodiesel use will have the experience and the infrastructure that will make it easier to expand into offering biodiesel as a transportation fuel.
This isn’t to say there are no barriers to heating oil companies that want to get into summer blending of transportation fuel. One constraint in the Northeast is less-than-ideal terminal positions, according to Knox. Also, there are some players in the heating oil market that are already established in supplying on-road fuel.
Knox suggests that companies that want to get into the biodiesel market start by making sure they have the right infrastructure, including storage tanks, and are knowledgeable about proper handling. The good news, he said, is they are already experienced with handling fuel of various types. And some states offer financial assistance for biodiesel-related infrastructure improvements.
“There’s an economic and monetary improvement that you can realize by selling biodiesel blends in the summer provided that you have the hardware to handle it,” Knox said. “This is where the industry is going. Do you want to fight it, or do you want to embrace it and be a leader?”