Oil-fired boiler users converting to natural gas

Price advantage, availability of fuel seen as incentives increase.

By Source: Energy Solutions Center August 31, 2012

Industrial and large commercial energy users with oil-fired boilers are changing to natural gas, and the incentives are stronger than ever. Michael Collins is from Yankee Gas Services Co., a Northeast Utilities company. Collins said, “When natural gas is available, people want to make the switch from oil.” This is happening throughout the U.S. and Canada, but the movement is most prominent in the U.S. in the Northeast and the Northwest, where oil-fired boilers were widespread.

Price spread widening

In most of the U.S. and Canada, oil-fired boilers typically use either #6 or #2 oil. As the price spreads between these two fuels and natural gas continue to widen, the economic incentive to change becomes more powerful. Collins notes that it is not just the price difference that is driving the trend, though that argument is powerful. “Owners are also impressed at the opportunity to significantly reduce emissions including sulfur oxides, particulate and mercury.” He explained that the potential to dramatically reduce greenhouse gas emissions is also a motivator.

Another attractive aspect of gas-fired boilers is that natural gas is a North American fuel, and far less sensitive to global political and economic fluctuations. Collins points out, “Commercial and especially industrial accounts are very frustrated with fluctuations in the oil markets. It makes it difficult to plan and budget. They feel they won’t have that kind of uncertainty with domestic natural gas.”

Shale gas coming into the market

Collins says, “Here in the Northeast, commercial and industrial customers understand that much of the gas in the future will come from shale gas development in the eastern U.S. They like the fuel supply being closer to home.” New England in particular has few fossil fuel resources of its own, so customers are looking for reliable supplies for the future.

Bob Gallo from New Jersey Natural Gas indicates that his utility has a similar, proactive program to inform customers about the benefits of replacing oil as a boiler fuel with natural gas. “We are predominately providers to small to medium sized office, warehouse and food service customers. Annually, we switch about 200 commercial customers from oil to natural gas as a boiler fuel. Included are about 10-15 large commercial/industrial locations.”

Oil cost continues to increase

Gallo noted, “Currently we are emphasizing the price advantage, with our gas being equivalent to #2 fuel oil at $1.53 per gallon.” He adds that New Jersey emission standards are tightening for certain oil-fired boiler equipment. “This will add to the incremental cost of continuing to operate an oil-fired boiler.”

Owners are generally aware of the market price advantage of natural gas, but may not fully understand some of the other incremental costs of continuing to use fuel oil. Recently, Collins from Yankee Gas and Eric Burgis from the Energy Solutions Center presented a webinar to help large energy users understand the options, steps and benefits in going from oil to gas. In the presentation, they note that prices for #2 and #6 oil do fluctuate, but have been trending upward in recent years, and futures prices suggest this will continue.

Compare on a Btu basis

Comparisons of other fuels to the price of natural gas is best made on a dollars per million Btu basis ($/MMBtu). Using these terms, typical New England winter prices for oil for large users recently was about $18/MMBtu for #6 oil and $23/MMBtu for #2 oil. The presenters noted that these prices compare with natural gas retail prices for large users typically between $8 and $10/MMBtu, sometimes even lower. Expressed another way, current natural gas prices are approximately equivalent to #2 oil at $1.14/gal., or #6 oil at $1.24/gal.

In the presentation, Collins and Burgis emphasized numerous other cost advantages to the use of natural gas as a boiler fuel. Air emission permits may be more difficult to obtain for oil-firing, and additional emission control equipment may need to be installed, maintained and operated. Often the use of oil necessitates underground fuel storage tanks, which may require immediate or future replacement, along with leak monitoring and additional insurance. The presentation also noted, “With oil-firing, there is also a significant cost associated with the degradation of efficiency as soot builds up in the boiler between cleanings.” The loss in boiler efficiency because of soot buildup between cleanings may be as much as 15%.

Small penalties add up

In addition to these cost penalties, additional costs are incurred with oil from pumping costs, atomization energy, and with #6 oil, energy for preheating, storage heating and oil conditioning additives. Further, with both #2 and #6 oil, there are inventory costs associated with purchasing fuel before the time of use. Although many of these penalties are individually small, together they can add to an additional 2.8% for #2 oil and 6.8% for #6.

Taken together, all of the price, regulatory, and operating cost penalties with oil can make a conversion to natural gas yield overall savings of as much as 67% at current energy prices. In addition to the financial costs of continuing to use fuel oil, there are environmental drawbacks. Oil tanks, whether underground or above grade, are a continual environmental risk for spills and leaks. In the webinar presentation, it was demonstrated that a facility that burns 50,000 gallons of oil annually will emit 557 tons of CO2, versus 392 tons with natural gas, a reduction of 165 tons. From a greenhouse gas perspective, natural gas is obviously preferable.

Convert or replace?

Customers who wish to take advantage of the benefits of natural gas as a boiler fuel must evaluate whether to replace existing boilers with new equipment designed for natural gas or to convert existing oil-fired boilers to gas. Bob Gallo from New Jersey Natural Gas indicates that in their area, large customers generally retain existing boilers and install conversion burners and gas train equipment. Also in this area, the smaller commercial and institutional users tend to purchase new boilers at the time of conversion.

Current new packaged natural gas boilers have efficiencies ranging from 82% to as high as 90%, depending on the desired heating condition and operating environment. Replacement of an older boiler is also an ideal time to reevaluate your current and planned future steam or hot water requirements, and to buy a unit that most closely matches your needs.

Modular approach

Because of dramatic efficiency improvements in smaller package boilers, it is often desirable to install multiple smaller units to operate in modular fashion. This reduces standby energy losses and low part-load operation times. This type of modular boiler installation also improves availability through unit redundancy, and allows periodic boiler maintenance without service interruptions.

Time is ripe

The payback for conversion or replacement of boilers is today often very short, a matter of a few months or at most a couple years for a full replacement. The benefits also include lower emissions, fewer environmental risks, and overall better system reliability. Even if you’ve considered changing to natural gas in the past and not taken the step, now is the time to give it serious consideration.