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Time to Convert

Like crude oil prices, fuel oil prices have risen dramatically (click here for more information).

The above graph shows the monthly average spot price history of #2 fuel oil delivered to New York Harbor. The prices shown date back to June 1986 and run through November 2011.

Fuel oil is a distillate of crude oil that is heavier than gasoline and similar to diesel. There are various grades of fuel oil (#1 through #6) but the most common is #2, which is used primarily for home heating and, occasionally, for electricity generation. As a home heating fuel, #2 fuel oil competes with natural gas, primarily in the Northeast US.

While crude oil and fuel oil prices have risen dramatically, natural gas prices have dropped precipitously (click here for more information). This has led to a large disparity in the cost of heating homes using fuel oil versus heating with natural gas.

The above graph shows the historical price relationship, on an energy equivalent basis, between fuel oil and natural gas, both delivered to New York City. Since 2006, the premium for fuel oil has increased at an increasing rate. For the month of November 2011, a million BTUs of fuel oil cost five and a half times the cost of a million BTUs of natural gas. This is a stunning difference in price for the same amount of energy. Home owners who heat with fuel oil and have the option to switch to natural gas should consider converting.

Many home owners who use fuel oil and would like to switch but do not have access to natural gas ask if they should convert to propane. Unfortunately, there is not much advantage in doing so. While propane is often produced in association with natural gas, propane prices track crude oil and fuel oil prices. This correlation with crude oil and fuel oil is true also with other natural gas liquids such as butane and ethane.

The above graph shows the historical price relationship, on an energy equivalent basis, of both fuel oil and propane compared to natural gas. Like fuel oil, since 2006, the premium for propane has increased dramatically. For the month of November 2011, a million BTUs of propane cost almost five times the cost of a million BTUs of natural gas.

Note: These prices are in nominal dollars and have not been adjusted for inflation.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at jmcdonnell@avalonenergy.us

Copyright 2011 by Avalon Energy® Services LLC