Biodiesel's True Calling

As biodiesel struggles for widespread acceptance as a transportation fuel, it has found a warm, cozy home in the residential heating oil market.
By Ron Kotrba | January 01, 2008
Heating oil has a reputation of antiquation. It's one of those unique forms of energy able to conjure imagery of weather-worn New Englanders in old Victorian town homes, or the dying breed of Midwestern farmer aging alongside crumbling agrarian empires of rusty implements and dilapidated buildings. Short, gray days when life slows to a crawl atop the packed, accumulating snow; the vicious circle of snowfall and shoveling, plowing and blowing, only to do it all over again tomorrow; cold, long, dark nights spent inside looking out.

The Northeast and central Atlantic states have by far the highest concentration of heating oil usage compared with other regions-the Energy Information Administration reports 83 percent in 2005-but homes sparsely peppered across the nation are warmed by oil in the fall, winter and early spring months. Nationwide, slightly more than 8 million households out of 107 million, or 7.5 percent of U.S. homes, burn heating oil for warmth, according to the U.S. EPA. National Oilheat Research Alliance President John Huber says this represents about 10 billion gallons of diesel fuel a year.

In the fall, weather projections indicating colder than normal winter temperatures typically induce supply and pricing fears in the heating oil markets sending prices upward. This winter, record-high heating oil prices were expected even though the National Oceanic and Atmosphereic Administrations outlook covering the first three months of 2008 predicted above-average temperatures for most of the continental United States. However, temperatures in the Northeast, from New York to Maine, were given a big question mark-an equal chance of above-average, normal or below-average temperatures for those same three winter months. Despite the unknown in the Northeast and warmer winter weather throughout the rest of the country, heating oil prices are expected to hit record highs this winter. "We're close to an all-time high for heating oil, in inflation-adjusted dollars," Huber told Biodiesel Magazine in November. "1980 is still a touch higher, but we're getting up into that range now. I've heard people pricing up in the $3.30 to $3.50 a gallon range for delivered heat." The EIA's short-term energy outlook formulated in November 2007 forecasts heating oil prices to hit season highs in first quarter 2008 at $3.07 a gallon in the Northeast and $3.08 a gallon out west for delivered heat, including state taxes.

Armed with a list of advantages fuel oil has over its competition, this energy with an aging reputation is being repackaged for a new generation of consumers. Despite information from EIA, which states most older U.S. homes outside New England have replaced oil burners with propane or natural gas, and that oil no longer has an appreciable share of the new construction market, heating oil advocacy groups and fuel distributors bill heating oil, especially when blended with biodiesel, as clean, safe and affordable. Moreover, new systems technologies with greater utility are emerging, and may help heating oil and biodiesel gain footing as an attractive source for residential heating, air conditioning and electricity.




Comparisons
EIA Administrator Guy Caruso recently testified before a legislative subcommittee in Washington D.C., where he told Congress that depending on temperatures this winter, residents using electricity for heat could expect a 3 percent price increase, natural gas an 11 percent increase, propane a 20 percent increase and heating oil an increase of 26 percent compared with the previous year. Andrew Schuyler, director for the Northeast Biofuels Collaboration, tells Biodiesel Magazine the oil industry has systematically scaled down petroleum bulk storage capacity over the past two decades. If bulk storage capacity is lean, then increasing heating oil production to meet expected increases in demand would do no good because there would be no place to store the excess supply. But that's only part of the story. "While some of this can be attributed to changes in crude oil availability, the consolidation of the oil industry and its preference for tight supplies is well documented," Schuyler says. "There's been a lot of talk about the industry's use of 'just-in-time' inventory management, which is designed to ensure that product only arrives at retail points when it's needed. While this clearly increases profits, it also leaves regions like the northeast vulnerable to any type of supply disruptions, such as weather or geopolitical events." Despite this news, fuel distributors and proponents of heating oil say when adjusted for inflation and on a per million British thermal units basis, heating oil is still an economical choice. "Natural gas prices have not moved up as steadily as petroleum prices have risen," Huber says. "This has a lot to do with the fundamentals of petroleum, and of biodiesel. It's an international market for those products, so as the dollar declines in value, they've got to make it up, so the price has gone up. Natural gas is still very much a domestic market. America has had a bit of a manufacturing recession after Katrina and Rita, so a lot of demand for natural gas has still been depressed but the supply has been there." So while natural gas prices appear more attractive than heating oil this winter, propane, which consists of 50 percent petroleum and 50 percent natural gas, is less so. "Propane is still probably more expensive than heating oil," Huber continues. "In general, propane has been more expensive and according to the DOE will continue to be higher priced in the market." Even at record petroleum highs, biodiesel is still priced higher than diesel fuel at the retail level. "The two products, biodiesel and fuel oil, track each other," Huber says. "If biodiesel is a little more or a little less than petroleum, you're going to have a market. You can't go much higher or you'll lose market, and if you go much lower, then you'll sell out instantly, so it's got to be in range."

Biodiesel's True Calling
In December, just as ASTM was expected to pass a B5 measure in D975, the on-road diesel fuel spec, advocates for biodiesel use in home heating applications expect D396, the heating oil spec, to do the same. NORA and the National Biodiesel Board have trademarked the name "Bioheat" to market home heating oil blended with quality biodiesel up to and including 20 percent. "We're still completing our research so we have not settled on what that exact blend should be," Huber says. "But when the ASTM ballot for B5 in D396 is passed, we'll move the Bioheat trademark to say it means a 5 percent blend. I would rather move the industry up 5 [percent], 7 [percent] or 9 percent as opposed to moving it up 50 percent, or using off-spec product, and then having disasters and getting the idea into the general community that this product doesn't work as heating oil."

Heating oil blends higher than B30 are not recommended, and results from a comprehensive study undertaken over several years at Brookhaven National Laboratory in Upton, N.Y., in conjunction with New York State Energy Research and Development Authority, explain why. While heating oil blends up to and including B30 displayed as good or even better combustion and operational characteristics than pure petroleum heating oil, "it was observed that, with blends of over 30 percent biodiesel concentration, the cadmium sulfide flame sensor would sometimes not see the flame sufficiently and, hence, the control system would shut down the burner as a safety precaution," C.R. Krishna, BNL, and R.J. Albrecht, NYSERDA, wrote in a paper detailing BNL's findings. "This occurrence was a function of the system, the airflow settings, the control system parameters, the [B]ioheat blend ratios, etc., and was not seen in all the systems tested. Caution is therefore suggested in the use of [B]ioheat blends with high biodiesel concentrations." Huber explains those findings. "With some of the higher blends, the fuel is burning so cleanly that the cadmium cell that's traditionally been used in the industry will not register the light waves," he says. "It's almost a pure-white flame [with biodiesel] whereas oil tends to burn yellow. Realistically, a lot of next-generation sensors on furnaces are using ultra violet where this will not be an issue. But we have 8 million to 10 million homes using the existing equipment, so we can't get ahead of what customers' equipment can do."

Not only do higher blend levels increase the possibility of operational issues, but BNL also states one of its primary findings in its lengthy study was that somewhere between B30 and B40, the upper limit on viscosity as defined in D396, was reached. BNL also determined, not surprisingly, that the pour and cold filter plugging points of heating oil increased proportionately to the blend, "but proper cold weather additives can more than offset any such increase." In addition, the flash point increases as the biodiesel percentage increases, and can be used by fuel distributors and advocacy groups as an additional selling point for the safety of biodiesel-blended heating oil. The BNL study also replicated what other open-flame combustion tests of biodiesel have displayed over the years, the reduction of nitrogen oxide emissions. Particulate matter emissions (2.5 micron size), directly and primarily dependent on the fuel's sulfur content, were shown by BNL to decrease proportionally as biodiesel percentages increase.

New Markets
Cleaner, safer and economically competitive on a per-Btu basis, biodiesel-blended heating oil is an attractive energy choice. "In a world concerned with global warming and as a nation trying to move away from relying on the Middle East, our industry has been very receptive to Bioheat," Huber says. According to Schuyler, "If there was ever a time to convince elected officials that we need to seriously alter our relationship with fossil fuels, it's now. We may have reached the so-called 'perfect energy storm'-we have high energy prices, a war that Alan Greenspan recently noted is largely about oil, and the words 'climate change' rolling off the lips of every serious candidate for president."
If only 5 percent of the 10 billion gallons of heating oil consumed annually in the United States was replaced with biodiesel, this would represent a 500 million gallon market-more than the U.S. biodiesel industry produced last year. Some states already have legislation on the books requiring use of biodiesel-blended heating oil in municipal buildings. Other state legislatures such as Massachusetts deliberated bills requiring low-blend mandates. All of these efforts would help get biodiesel usage in home heating oil to the B5 market saturation level. "But this doesn't mean a top limit, so if you're in that market, there can be some room for long-term growth in some of the offshoots we're looking at," Huber says.

These "offshoots" include combinatory heating, air conditioning and power generation systems for single-family homes. Hot water systems utilizing heat generated from combustion of heating oil, which essentially heat water for free when the heat is on, already exist and are gaining in popularity. NORA and equipment manufacturers are looking to go one or several steps further than this. "In the heating oil industry, we essentially have a tank of fuel at someone's home," Huber explains. "That presents some great opportunities, one of which is trying to develop electricity to supply backup for people using heating oil. Or if electricity rates go up high enough, they can produce their own power at home. Electricity rates are going up all around the country pretty radically." In states like Alabama, Kentucky or Tennessee, where lower-priced

Tennessee Valley Authority power is accessible, this might not be as attractive an option as it would be in other states. "In New England, they're using power from either high-priced nuclear plants or high-priced oil or gas plants," Huber says. The closer energy is made to its end user, the less that's lost. "That is something that could make this very attractive at some point," Huber says. NORA has an ongoing project investigating the possibility of powering air conditioning, the heat pump for which is typically run by electricity, with heating oil too, so one unit could supply both the heat and the air conditioning for the home. Biodiesel Magazine will follow these developments as they progress.

Higher-priced biodiesel, even without government usage requirements, would still command a presence in the marketplace. "Probably not as much," Schuyler says. "But there is definitely a segment of the population, particularly in the Northeast, who are willing to purchase slightly more expensive, value-added products. On the other hand, people who are struggling financially may not be able to afford any price increase. Therefore I think one of our biggest challenges is to diversify our fuel markets, which will lead to lower costs for both traditional and alternative fuels. In other words, a healthy biodiesel market will compete directly with petroleum for market share, and that competition will be good for consumers, the economy and the environment."

Huber says a lot of dealers market bio because they think it's an attractive ecological product and it sets them apart as a better industry. "There's demand for it-current demand-and even if the price for Bioheat is a bit higher, those who are running fuel distribution companies are saying, 'I want to be a quality company that sells this type of product.'"

Ron Kotrba is a Biodiesel Magazine senior writer. Reach him at rkotrba@bbibiofuels.com or (701) 738-4962
 
 
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