Should You Switch from Oil to Natural Gas Heat?

(2010 Update: See how we saved on oil consumption year by year.)  

     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

[Charles Calloway]

My mother has a small rancher with an old oil fired furnace. The furnace heats the home with hot water base board heat . The base board heat is fine but the furnace is old and insufficient. The oil tank is under ground. Could the system be converted to the natural gas and tied into the current base board system.

[James Flanagan]

Thanks for the great information. My wife has had a contentious relationship with our oil supplier and wants to convert to gas. Our home was renovated in 2006 (no plans to sell) and our heating was expanded to accommodate the added sq. footage (2600 in all). Our burner is probably at least 40 years old (it was here since I bought the house in 1986) but gets annual maintenence (83-85% efficiency). Our oil tank is in the basement, in good shape, and is nearly invisible since we painted it. We already have a gas line for our oven and water heat. Would we need a new line for gas heating?
I am reluctant to convert to gas due the expense and the present economy but my wife feels that she is being cheated by our oil supplier. Just want any more thoughts to see if it's worth it.

Thanks,
Jim

[Janet]

I know it's a tough decision. Since you have a relatively new furnace, you might check into converting it to gas-fired unit--that will still cost you some $$, but not as much as buying a
brand new furnace. (Cal your local utility to check this out.)
If you decide to stick with oil, I would definitely put a new tank inside--not underground outside--it will last much longer if not exposed to the elements. No one will ever have to worry about it corroding and leaking. A new tank will cost several thousand $$, and assuming you have a basement it could be installed there.
I had an old (60 plus years) underground oil tank removed from my elderly Mom's yard last year, and replaced it with a brand new tank which was put in a utility room in her basement. It cost me $450 to have her soil tested to make sure there was no leakage. Luckily, there wasn't.
The total cost of digging up the old tank, disposing of it, transferring whatever oil was in that tank to a new tank, buying the new tank and having it put into her basement utiltiy room with a proper pipe hook up to the outside for oil delivery was about $4,000.00. Yours might be less because they don't have to test your soil and dig up your old tank.
But, to buy a new tank (assuming you need one--although they might just be able to move your existing tank inside) would coast you at least a couple of thousand $$. I'm not sure how much it would be to just move the existing tank indoors, but if you decide to stick with oil heat I would definitely suggest having the tank indoors.
Before you make a decision to switch to gas heat you should ask your gas supplier to refer you to several households in your area who have done so. Talking to them will give you the best sense of whether or not it is worth the effort/$$ to make the switch.
As far as the buyers of my Mom's house were concerned, they were not remotely interested in gas heat, and were thrilled to see a brand new tank in the basement. It was a good investment, and I'm sure it added to the attractiveness of the house (which is in Northern NJ, by the way) when it came time to sell it!
Good luck, and let me know what you decide.

[Ellen]

Our 1939 home is heated by oil with the tank being above ground just outside our dining room window.

We found out the house was originally fueled by coal and had one oil furnace installed about 40 years before we purchased the house in 1986. We installed a new furnace in 1999 or 2000.

Oil heat has never given us a moment's trouble but I have an issue with the behomoth oil tank in the back yard. I'd like to build an addition off the dining room but the tank is in the way.

I've done a fair amount of research on having the tank - or a newer version - buried in the yard but I'm seeing negative reviews about doing so. We're about to install our first ever HVAC system (yeah...we're THAT last American family that has never had whole house AC!) and will be including a heat pump system.

My dilemma is what to do with the tank. Should we take the plunge & convert to natural gas - which scares the bejeezus out of me & will cost a bloody fortune - or should we just forget about the addition?

Are folks with oil heat finding it's a deterrent when trying to sell their homes? We're considering selling within the next five years & don't want this to be an issue.

So many questions...so many decisions...such an ugly HUGE tank.

Thanks!

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[David J Marchant]

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[SIDROGERS]

We have a very old large house with a oil heat system. The boiler is about 50-60 years old and with a 500,000BTU capacity. We use around 1500 gallons per heat season, when we put the heat at around 62 deg.

We have a 1000 gallon underground oil tank. We are thinking of changing to gas heat. Is this a wise move. I do not intend to stay in this big house, but the economy is bad and I cannot sell the house.
I'd appreciate your replies.
thanks

[central heating replacement]

Awesome tips. I might try this out. Makes sense even though there is a hefty up-front cost. Good tips on converting oil to gas heat.

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[chimney liner]

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

[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.

[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.

[alternative energy]

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[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!

[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

[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!