Should You Switch from Oil to Natural Gas Heat?

     Oil or gas heat? That is the question we have been pondering for a while now, especially with oil prices so high. So, when we got a flier recently from PSE&G, our local utility, encouraging us to call them for a free estimate on converting to gas, we decided to take them up on the offer. For us, it doesn't pay to change. Here's why.

    I should start by saying that we decided a few years ago to replace our 80-year-old coal-burning furnace, that at some point in the distant past was converted to oil, with a newer, more efficient model.  (We affectionately called the old unit Frosty because it was covered with white asbestos and reminded our then 5-year-old daughter of a snowman!) The new furnace, which cost about $6,500 in 2002, cut our oil use by more than half—from about 1,600 gallons a winter to 750. (At the current price of about $2.60 a gallon, that's a seasonal savings of roughly $2,200—not bad!)

    It seemed like a really good decision at the time.  In retrospect, we should have looked into converting to gas then—the investment might have paid off if we converted in 2002, applied the $6,500 we paid for the new oil furnace to a new gas unit, and then stayed in our house for fifteen more years.

   We learned from Scott, PSE&G's very amiable and knowledgeable Replacement Service Representative, that to replace our oil furnace with a completely new gas-fired unit would cost about $12,000. That's $9,000 for the gas burning unit plus $1,500 for a chimney liner and $1,400-$1,500  to remove the 275 gallon oil tank from our basement. I asked if we could just leave the oil tank there since it's not visible from the finished part of the basement, but he said local codes required its removal.

    Scott told us that since our current furnace is only six years old and has a life expectancy of 15-20 years, we could replace the oil burner assembly on the furnace with a gas burner for a cost of about $4,000. The boiler unit itself, the metering, and all the safety equipment could stay in place. That beats the $9,000 a completely new gas-burner unit would cost. But we'd still need to pay the $1,400-$1,500 to remove the old oil tank and $1,500 for the chimney liner, bringing the total conversion cost today to around $7,000.

Timing Is Everything

    Scott offered other insights. He suggested we ask ourselves why we're considering converting to gas heat, and pointed out that time may not be on our side. Our current plan is to stay in our house around seven more years, until our daughter goes to college.  At today's prices for heating oil and natural gas, we wouldn't even begin to see a return on our investment for about 10 years.

    For one thing, today oil and gas are roughly the equivalent price for the same amount of heat value. Actually, oil is a little more. Based on the current price of natural gas, a break-even price for heating oil is around $2.20 per gallon. (See this PSE&G Web site for a handy conversion table.) Today heating oil is close to $2.50, so it's a bit more expensive. 

    Sure, we'd pocket some money if we converted to gas. At today's prices, we'd save about $158.00 this year. Assuming the price spread between gas and oil stayed the same, at today's rate, it would take us close to 50 years to pay for the conversion work!! Now, it's unlikely the oil/gas price ratio will be static—but even if heating oil goes to $4.00 per gallon (possible—even probable, since it was $4.20 per gallon in the Northeast at its peak last winter) and gas stays at its current price, our annual savings would be about $950 per year and it would take us about eight years to pay for our furnace conversion—just about the time we're thinking of moving!

    After some investigation, I'm not saying a household shouldn't switch from oil to gas. But it's clear that there are many factors to consider. Once the recession if over, heating oil prices may rise more sharply than gas and the economics for conversion may improve. (see EM article: Why is Heating Oil More Expensive Than Gasoline?)

    Also on the plus side of conversion, moving to gas could make your house more attractive to potential buyers.  You might absorb the cost of the conversion or actually profit from it when you sell.

    Time value of money is another benefit of gas. With oil, your distributor may fill your tank near the end of the heating season. If a cold spell comes along, you'll be grateful. But, if the weather is mild, you could end up sitting on a full tank of heating oil for six months. At $2.60, a 275-gallon tank can tie up about $700 all summer and into the fall. That's not great for your cash flow!

Comments

[Deborah Lansing]

Great synopsis of a question I have been pondering on for a long time. Thanks Janet!
As a a realtor I definately see that some buyers find gas more attractive, but I always tell them that an above ground tank removes the main issue with oil -- that of the underground tank and possible pollution of surroundings and nightmare tales of horrendous clean-up costs.

We actually did convert to gas and remove our oil tank a few years back at a cost of about $7500 including re-paving the hole in the driveway. We chose this route purely for re-sell reasons with the catalyst being the furnace failing. Whether or not it has saved us anything yet is not clear!

But I always remember one thing my plumber (and former oil supplier) told me at the time: "On a cold day, you won't be as happy with the heat from gas as you are with oil" and whether or not his reasons are accurate, it seems to us that he was right. According to him, when it's cold outside and you have gas, everyone cranks up their furnaces at the same time, the amount of gas you get to your home will be diminished and your house will not feel as warm. With oil you have your own oil supply, so it makes no difference how much your neighbors are using...

[energy stocks]

Good post.Thanks for providing the information...

[Tom]

This information is very helpful. One thing I have not been able to figure out is the cost of having a gas line run from the street to my house. I have called Jersey Central Power & Light to ask but am unable to reach a liver person. Any ballpark figures are greatly appreciated.

[Sarah]

We are about to purchase an older home - with original windows. (not so energy efficient!) We are debating converting to gas when we move in. The original owners tell us that they go through 1.5 tanks/season. We spoke to someone else that said they may not be telling the truth...and that it will be closer to 3. The home is 2200 sq/ft. We don't keep our home really warm in the winter - usually around 68-ish. How many times would we need to fill it?

Thanks! Great article!

[Janet Link]

Hi Sarah,
Sorry it has taken me so long to respond, but we've been away. Our home is 1900 sq/ft and we used about 720 gallons of heating oil for the 2008/09 season versus 740 gallons in 2007/08, although this year was 9 percent colder in the Northeast where we live.

The actual temperature in our house during the day was 64 degrees, even though we kept our thermostat at 62. Our oil tank holds about 220 gallons, I think. So, we used a little over 3 tanks full of heating oil. Obviously, it depends on the capacity of your tank.
Janet

[Janet]

Hi Tom,
According to our local utility, PSE&G, the cost of having a gas line installed varies widely. First, they need to know if a gas line already exists on your street. It's a lot cheaper if it does, because then PSE&G only has to lay a pipe from the street to your house. But costs still vary widely.
Depending on the new gas consuming appliances you install, and PSE&G's estimate of how much gas your household will use, you will receive what they call a revenue credit toward installation of the gas pipeline. So, for instance, if you are going to install a new 100,000 BTU gas heater, PSE&G will give you a handsome credit toward installation of the pipeline because they know your household is going to be consuming a fair amount of gas. Unfortunately, I couldn't get absolute $$ figure because it varies so much from residence to residence, but I was told that there are cases where the pipeline from the street to the house costs nothing. Again, it all depends on the revenue credit.
Your best bet is to call PSE&G and ask for their Construction Inquiry Dept., or you can go to their website and fill out a form called a gas load inquiry sheet. They will respond by sending someone to your house for an estimate. Their phone # for this is 1 800 722-0156. Press #1 for residential inquiries. Good Luck!

[alternative energy]

Good informative post.Thanks for posting the valuable information on oil and gas..
alternative energy

[stock market newsletter]

Hi,
Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills. It is an important fuel source, a major feedstock for fertilizers, and a potent greenhouse gas.

[sean]

I found that the futures markets of wall street pretty much harmonized all the energy prices.

I found out that propane was way cheaper than gasoline for my car. And, then the price went up to match it.

[Janet Link]

Hi Sean,

Interesting post on propane. My husband's dad, in the 1950s, converted his Plymouth to run on propane. He said it worked great. I'll write a post on this soon!

[chimney liner]

I recently switched from oil to gas heating in my home and I have loved it.

[chimney liner]

Really enjoyed reading your blog post. I will have to bookmark your site for later.