ENERGY BOOMER

WHEN SHOULD I SWITCH FROM PROPANE TO ELECTRIC HEAT?

With the high price of propane, folks have been asking me when they should switch from Heating Oil or propane to electric space heating.

I made up a table of equal energy values to help answer the question.

In making up the table, I assumed that your propane or oil furnace is about 83% efficient.

Check your electric bill and determine your cost for the next kilowatt that you would use for heating. Take the total amount of the bill and subtract the any items that are a fixed cost per month. If you pay a fixed charge for the service or for the meter take it off the total.

Divide the dollar amount by the number of kilowatt-hours you used (kWh). That result should be about 10 cents, plus or minus a few pennies.

Look up your electric price per kWh up in the left column of the table. Then read across the equivalent price for propane.

Let’s look at an example:

If your price for electric is, $0.080 (8 cents per kWh) then you should stop heating with propane if you are paying more than $2.58 a gallon for it. If your delivered cost of propane is less than $2.58 a gallon it is less expensive to heat with propane.

If you are paying 10 and a half cents for electrical power then as long as the price of propane stays below $3.39 a gallon it is a better deal.

I added a column for heating oil to help folks see the difference. If you are paying 10 cents a kilowatt-hour for electric then it is less expensive to heat with oil as long as the price is below $3.87 a gallon.

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Click here for a free money saving report written by the Energy Boomer titled HOW SAVE MONEY ON YOUR NEXT HEATING BILL

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Danger High Propane Prices Ahead

Propane prices are at a historic high. Look at these olnergy.com graphs and think that just a few years ago oil and gas companies burned off propane just to get rid of it as a waste material.

In some parts of the US, it may be less expensive to heat homes with electricity than with propane. Some thing is not right with this picture.

If you use propane for home heating I recommend, that you make your home as weather tight and ready for winter as you can starting now. Have a well-developed plan to use electric heat as a back up in case your cost of propane goes above the cost of heating with electricity.

Read this and you will see why.

1. Propane is used in many of our homes for heating, making water hot, cooking, and drying clothes. Almost as much propane is used to make petrochemicals. It is a raw material for plastics, fibers, and cosmetics. Other uses include the drying of farm crops and as a transportation fuel.

2. Propane naturally occurs in raw natural gas and crude oil. Propane is easily liquefied when subjected to a small increase in pressure. We store it and transport it in compressed liquid form. As a liquid, it takes up 1/250 of the space it needs as a gas. Simply opening a valve to release propane from a pressurized storage container allows it to vaporize into a gas ready for use. Like other liquid fuels, propane is sold by the gallon or by weight.

3. Propane is a unique fuel because it is not produced for its own sake. Propane is only made as a by-product of natural gas and petroleum processing. Propane (and Butane) is removed, as an impurity, when raw natural gas is cleaned up before sending it into pipelines. When oil refineries make gasoline and heating oil, propane is produced as a by-product. It is important to understand that the by-product nature of propane production means that the volume made cannot be adjusted when prices or demand changes.

4. When natural gas inventories are high its production drops. This also reduces the production of by-product propane. Disruption of natural gas production or oil refining for any reason reduces the production of propane. Hurricanes, fires, maintenance, breakdowns, strikes etc. can reduce propane production. Natural gas inventories are high now thanks to a couple of mild winters.

5. Addition demand is met by imports of propane. Although imports only provided about 17 percent of the U.S. propane supply last year, they are vital when demand exceeds available supplies. Propane is imported by land by pipeline and rail car from Canada. It also arrives by sea in tankers from Algeria, Saudi Arabia, Venezuela, Norway, and the United Kingdom. China is using more propane driving the price of imported propane up.

6. Historically, the price of propane goes up and down with the price of oil. Although propane is produced from both crude oil and natural gas processing, its price is influenced mainly by the price of crude oil. This is because propane competes most directly with oil-based fuels. The price of crude oil is high now.

7. The price of propane also goes up and down as the seasons change. While propane production is not seasonal, residential heating demand is highly seasonal. This imbalance causes inventories to be built up during the summer months when consumption is low and for inventories to be drawn down during the winter months when consumption is much higher. When inventories of propane at the start of the winter heating season are low, chances increase that higher propane prices may occur during the winter season. Propane inventories are lower than normal now.

8. The price of propane is influenced by the weather. Colder-than-normal weather can put extra pressure on propane prices during the winter heating season. There are no readily available sources of increased supply except for imports. Imports may take several weeks to arrive, during which time larger-than-normal withdrawals from inventories may occur, sending prices upward. Cold weather early in the heating season can cause higher prices sooner rather than later. Early inventory withdrawals affect supply availability for the rest of the winter. The National Weather Service is suggesting that this may be another mild winter. I hope they are right but I am not taking that to the bank.

9. Markets Served - Propane demand comes from several different markets. Each market has its own distinct usage patterns in response to the seasons and other influences.

• Residential demand, for instance, depends on the weather, so prices tend to rise in the winter.

• The petrochemical sector is more flexible in its need for propane and tends to buy it when prices are low. If producers of petrochemicals have to depart from this pattern, the demand could raise all prices. The economy is booming now so I would think the demand for plastics and such is up.

• Prices could also be driven up if agricultural sector demand for propane to dry crops remains high late into the fall, when residential demand begins to rise. If this year’s harvest is poor due to floods or drought then the need for propane to dry crops would be less. There is a big trend toward growing more corn for ethanol production. This is corn grown beyond the amount needed for food production. More corn means more propane will be used to dry it.

1. Propane prices do spike upward at times. Because propane is produced at a relatively steady rate year-round by refineries and gas processing plants, there is no ready source of incremental production when supplies run low. Propane wholesalers and retailers are forced to pay higher prices as propane markets are bid higher due to dwindling supply. Higher propane prices are simply passed on to consumers. Imports do not offer much cushion for unexpected demand increases or supply shortages due to the long travel time.

2. Cost vs. Price - The purchase cost of propane is fixed when it goes into storage. There are three levels of storage in the propane system. The first level is the big tanks that the producers fill as propane is separated from Natural Gas or at oil refineries. The second level storage is at the distributor level. The distributor near you has storage tanks. His purchase cost of gas is locked in when he fills his tanks. Then there is the storage tank that the end user has. Examples are the tank at your house or at an industry where propane is used. Your cost for the propane does not change after it goes in your tank. Your distributor should base his selling price on fuel that is already in his tank or based on the cost he knows he will have to pay for the addition propane needed to fill your order. Think about the gas station where you buy fuel for your car. Their cost is locked in when the gasoline goes into their under ground tanks. But, that does not stop daily price changes at the gas pump does it. The market price of propane will be what the seller can get for it today. There is very little media focus on propane profits so there is no incentive for them to hold retail prices down.

3. In areas of the US, where there are a large number of propane users, there may be several propane distributors. Competition among the distributors will make the price lower than in areas where there is only one distributor.

4. Parts of the country that are more distant from the producers of propane will have higher prices than areas that are near producers or near the pipeline or seaport terminals. Transportation costs are driven up by high crude oil prices.

What can you do?

It is a good idea to watch the price cycle and fill your tank when prices are at their low. The price is likely to be low in late summer or early autumn.

The bigger the tank you have the more flexibility you have in choosing your price. Having a big tank may make a more distant supplier willing to drive a delivery truck to your tank beating the price of the near by distributor.

Have a big enough tank may let you ride through short term price spikes.

If you are locking in at a fixed price, it may be best done, in the early fall, when prices are low. That way you can get a good average price and can budget for it. Watch out for fall hurricanes.

Notice there is nothing above about propane prices going down. It seems to be a one-way street.

Have a back up plan ready so you can switch to electric heat when your cost of propane goes too high.

I will work up a future post with a table comparing the price of fuel with the price of electricity so you will know when to switch over.

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Click here for a free money saving report written by the Energy Boomer titled HOW SAVE MONEY ON YOUR NEXT HEATING BILL

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IS IT BETTER TO HEAT WITH ELECTRIC OR PROPANE?

Recently a friend asked me that question. He is building a new home located where there is no natural gas service. His choices for heat are limited to #2 heating oil, propane or electric. To be complete I will include natural gas in this post.

Thanks to the SEMCO web site, I have some current data to show you.

The cost per million British Thermal Units tells part of the story. The other part of the story is how efficiently the energy source is used.

Natural gas At $8.10 per million BTUs is by far the least expensive, where it is available. Having natural gas available also gives you low cost for water heating, cooking and for the clothes dryer. Best of all it is low in pollution and it comes mostly from within our borders. The demand is seasonal so there are price peaks in winter and summer. You can usually get the best deal in September.

If your house is not located where the natural gas pipes are then the choice gets more involved. The efficiency of how well your heating system can use the available energy becomes a big factor.

Propane Is $15.37 per million BTUs works like natural gas but at a higher cost.

No. 2 heating oil With the second best cost at $10.03 per million BTUs is a good choice, as long as:

1. The tank is outdoors to keep spillage smell outdoors
2. The price of oil doesn’t go crazy due to some international incident
3. The price of oil doesn’t go crazy due refinery damage from fire, storms or worse
4. You don’t mind annual fuel filter replacement, burner adjustment and cleaning service.

Oil is not as clean as electric, natural gas or propane. Cleaning the black soot out of the furnace and chimney pipe is part of the required annual service. There will be a slight oil odor in the house after each service visit.

If you use oil for heat, you pretty much have to use electric for everything else, cooking, hot water and clothes dryer.

Electric resistance heaters like baseboard heaters or space heaters, are a poor choice because they are the highest cost way to use the highest cost energy source. Electricity is the most expensive energy source at $27.54 per million BTUs,

Electric Heat Pumps that exchange heat with the outdoor air are an interesting choice for winter heat and for summer air conditioning. They use the highest cost energy source but they have a low operating cost due to their very high efficiency.

Folks who have electric heat pumps for heating and air conditioning tell me that the comfort level on cold winter days is only “fair”. Most end up using electric space heaters in some rooms on the coldest days. That kills the efficiency savings.

The reason for the “fair” comfort rating is mostly one of perception. A house that is 70 degrees with a heat pump feels cooler than a house that is 70 degrees using oil or natural gas. How is that possible you ask? The answer is wind chill.

Most fuel fired forced air heating systems are designed for as much as a 20-degree temperature increase from the return air to the warm air discharge. The air that the furnace blows out the heating registers feels warm.

With electric heat pump systems, the temperature increase is very low. With the “wind chill” effect, the air that flows out of the heating registers feels cool. The blower must run a larger percentage of the time to move the same amount of heat. The cool feeling airflow usually results in someone pushing the thermostat up a degree or two. There goes the savings.

Heat pump systems seem to be running all the time. We all know that fuel-fired furnaces run for a time and are off for a long time until needed again.

Heat pumps offer slow gentle heating and cooling. If you turn the heat down when you leave the house, it will take a heat pump system longer to warm it back up when you return.

Heat pumps that use geothermal heat from a loop of piping buried in the ground are the most energy efficient and, of course, the highest initial cost. Their efficient use of power lowers their operating cost close to that of natural gas.

So the answer is:

I told my friend, who does not have natural gas available, from a lowest operating cash flow for energy point of view the best are:

• Electric heat pump with ground loop for heating and A/C

• Propane tankless water heater

• Propane kitchen range

• Either electric or propane clothes dryer

If you cannot afford to buy a heat pump with ground loop, go with a propane furnace and very high efficiency air conditioner.

My personal choice in his situation would be:

• Propane forced air furnace

• Propane tankless water heater

• Lennox model XC21 very high efficiency air conditioner

• Electric range, electric dishwasher

• Electric clothes washer & dryer

This is a compromise for the best comfort at a low energy cost with reduced safety risk. This would use short propane pipes to one part of the basement only. My dream team picks would be similar with natural gas in place of propane.

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Click here for a free money saving report written by the Energy Boomer titled HOW SAVE MONEY ON YOUR NEXT HEATING BILL

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THINK BIG TO SAVE BIG MONEY ON YOUR PROPANE BILL

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THINK BIG TO SAVE BIG MONEY ON YOUR PROPANE BILL

Thinking big when you heat your home with propane means using a big storage tank to reduce you fuel cost. There are plenty of good reasons for having an extra large propane tank for your home heating supply.

When I say big tank I mean one that will hold enough propane for at least three winter months.

A big tank lets you play the price market with a fill up in mid summer. You can then avoid buying during high price winter months.

Having a big tank makes your propane supplier happy to deal with you. It saves them on delivery costs. They should be willing to give you the lowest possible gas cost.

With a big tank, you can negotiate a low annual contract price and a “keep full delivery” program. The supplier can top up your tank, at a fixed annual contract price, whenever they have a truck in the area serving other customers.

You supplier is happy because they can safely forget about you when other customers are pleading for immediate high price deliveries.

Having a big tank stops the worry over bad weather. When I used propane, I never knew if the heavy delivery truck would be able to make it through the snow and ice to get up the hill to my house.

If your tank is big enough, you can coast through the coldest winter months with out buying any fuel.

If your income varies from month to month, you can use a big tank like a savings account. Buy extra fuel when you have the cash and do not buy fuel during the months when you are short of cash.

On the down side, you can be tying up a big chunk of cash for a fill up. If you start early in the warm months your supplier may help your cash flow by filling half now and half later. It helps him smooth out his purchases of propane.

Your money is tied up in your propane inventory. With a big inventory of propane, your risk of loss due to leakage is higher with a big tank.

The advantages of getting the lowest price and a flexible delivery schedule will save you money when you have a big tank.

Click here for a free money saving report written by the Energy Boomer titled HOW SAVE MONEY ON YOUR NEXT HEATING BILL

Related Posts:

IS IT BETTER TO HEAT WITH ELECTRIC OR PROPANE?

UPGRADE YOUR THERMOSTAT

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