Fueling Competition

BAE, the state's largest manufacturer, converted the heating system at its Nashua headquarters from oil to natural gas in December 2012. It's one of the biggest examples of the trend occurring within NH's heating industry, where oil is being increasingly supplanted by natural gas and propane. At the same time, winters are getting warmer, heating up an already competitive environment where heating oil businesses are fighting for a piece of a shrinking marketplace, and are being forced to cut back and change business models to compete.

Nearly 50 percent of NH households heated with oil in 2011, while 19.5 percent heated with natural gas, according to data from the U.S. Energy Information Administration. While those figures show oil is still king, its reign seems to be waning. Between 2000 and 2010, total energy consumption of oil in NH decreased 24.9 percent while natural gas use increased a whopping 140 percent and propane use increased 13.4 percent.

One challenge facing the heating oil industry is that the expansion of natural gas pipelines is making natural gas available to many more businesses and households. A second challenge is the versatility of natural gas or propane, which can be used for stoves, fireplaces, dryers and generators while oil can only be used for heating and hot water. The oil heat infrastructure is not what it used to be, and I think that's a good thing, says Joel Bobbett, president of Simply Green Biofuels in Dover, which provides bioheat (heating oil mixed with waste vegetable oil). You're either on the wrong side or the right side of history. The move away from oil heat is being billed as a more sustainable future for America. I can't argue against that as a bioheat dealer.

A Smaller Flame

The winter of  2011-2012 was the warmest since tracking data began in 1895. The Granite State had 6,257 heating degree days (the number of degrees that a day's average temperature needs to be raised to reach 65 degrees Fahrenheit, the temperature below which buildings need heat) between June 2011 and May 2012. What is notable about that is the long-term average is about 7,550 heating degree days and NH hit that mark only once in the last decade and came close twice. That means NH's winters aren't as cold as they once were.

Another challenge for oil dealers is they increasingly find themselves locked out of the market, as renovations and new construction are installing more gas furnaces and boilers, according to several heating contractors. Steve Labbe, president of Paradigm Plumbing, Heating and Air Conditioning LLC in Hooksett, which maintains, installs and repairs heating equipment, says this is because gas is  more versatile. A gas stove, fireplace, a gas dryer, water heater-you can get high efficiency everything, he says, noting heating oil can only be used for heating and hot water. That versatility, Labbe says, combined with gas-fired furnaces being slightly cheaper (about $5,500 versus $6,000 for similar efficiency units) and having more options to control when and how they run, has made them a more popular choice. Labbe says while oil furnaces run constantly, gas furnaces can be modulated to rev up and down like a car, as needed. He says many rebate programs are also available for high efficiency gas boilers.

Natural gas requires pipeline infrastructure, so it is mostly in cities. But the low cost-$10.11 per million Btus based on costs between October 2011 and March 2012 as opposed to $28.34 for oil-means businesses are willing to pay for new equipment and pipes to reach a connection. There are some costs associated with conversion, says Dan Saad, vice president of operations and engineering of Liberty Utilities, based in Salem. But the overall cost of capital is low and the technology to put pipe in the ground is better than it used to be so we can do it cheaper. Liberty Utilities acquired National Grid's natural gas business last summer and is now the largest natural gas utility in the state.

The oil and gas differential is so favorable now that customers are calling Liberty to ask about converting, Saad says. In addition to BAE, the Hillsborough County Nursing Home in Goffstown and a number of housing developers and condominium complex owners have approached the company about converting to natural gas.

Selling Oil

For all the benefits of gas, not everyone is ready to invest in the switch-and oil dealers say they do have one huge bargaining chip: People with oil furnaces can shop around for the best price while propane and natural gas customers are tied to a particular company that owns their tanks, or in the case of natural gas, the pipes that reach the building. To attract customers, oil dealers offer prebuy contracts, downside protection (if the price goes below the prebuy rate customers can pay to be protected), budget plans to pay throughout the year and discounts for timely payments. We will take the entire cost for a year and spread it over 10 months. Some companies will charge customers to be on that program because it's more work, but we don't, says Donna Buxton, owner of Buxton Oil in Exeter. Buxton says customers switching to natural gas have taken a bite out of her business, but consolidations and other oil dealers going out of business have resulted in new customers.

Still, the oil business is tough. Last winter, Buxton drivers did not put in as much overtime as usual. Palmer Gas/Ermer Oil in Atkinson started laying off seasonal employees in March as opposed to later in the spring. And Simply Green Biofuels cut back on the number of shifts of its seasonal workers. But it is not all bad. Having a niche is helping Simply Green. The Portsmouth company sells bioheat containing 5 to 20 percent waste vegetable oil that can be used in all oil furnaces. Bobbett says environmentally conscious customers have helped lead the company to double its gallons sold since opening in 2007.

RE Hinckley in Claremont is a family-owned company with 12 employees. Three years ago the company expanded into propane as builders are choosing propane more, says Owner Scott Hinckley. Propane is very expensive for the dealer to get into, but down the road after years of payoff it tends to get better, Hinckley says, adding propane has attracted more customers.

Buxton balances her oil business with water. The company has a processing plant that filters water and delivers it to hospitals, conduits, community wells, swimming pools, and emergency deliveries for towns. The water company has grown substantially. It made up for the warm winter in the oil industry, says Buxton, adding her next venture may be propane.

Palmer Gas/Ermer Oil has offered oil and propane for decades, resulting in steady business. Owner and President Bill Ermer says oil volume has been steady and propane is a growing market. To reward customers for loyalty, it offers a program where points earned for fuel purchased can be exchanged for restaurant gift cards, donations to the NH Food Bank and any company service. The company is seeing more interest in propane, so it doubled its outdoor storage tank capacity from 10 tanks to 21.

While Simply Green sells only bioheat, Bobbett anticipates increasing its offerings in the next five years. The reality of degree days is very real. There was a 25 percent drop in terms of normal heating degree days [last year], he says. 

 

For more news, see The Buzz Online each Monday at BusinessNHMagazine.com.