March 18, 2012

Propane a suddenly affordable alternative to oil heat

By Tux Turkel
Staff Writer

Mainers looking for alternatives to expensive oil heat have an unexpected option: Propane.

In a rare instance during a Maine winter, the cost of heating with propane is roughly equal to burning oil.

Propane heat typically is more costly than oil, and fewer than 7 percent of Maine homes are warmed by it, according to 2010 census figures. But the run-up in global crude prices has pushed heating oil to new winter records, while the boom in domestic natural gas drilling has stablized and even cut wholesale propane prices.

Natural gas remains way cheaper than oil or propane, and state government is promoting the development of new pipelines for industry in Maine. But natural gas heats only 5 percent of Maine homes and getting distribution lines to a significant number of homes and small businesses could take decades.

Propane heat, on the other hand, can be hooked up almost anywhere, in a day.

These market conditions are evolving just as a controversial proposal to build a large propane storage tank in the port of Searsport is moving forward. Town voters rejected a call earlier this month for a moratorium on the project, which still needs federal and local permits and could face legal challenges.

If built, the 22.7-million-gallon tank would become Maine's first propane storage facility able to hold more than a week's worth of winter capacity. Having a robust, instate supply could help temper prices and feed growing demand.

"Propane has been the growth market for my members," said Jamie Py, executive director of the Maine Energy Marketers Association.

Most of the trade group's 180 retail members sell both fuel oil and propane. Seven out of 10 Maine homes still use oil, but oil sales are declining, Py said, as people weatherize and offset their heating needs with less-costly fuels, such as wood pellets and cordwood.

Some homeowners have installed propane-fired fireplaces for looks and to warm a room. Central heat has been less common, but that's changing with the recent split between oil and gas prices.

"We're starting to see the first separation of propane and crude oil prices," said Joe Rose, president of the Propane Gas Association of New England. "We expect to see that trend continue."

Crude oil prices have been rising this year, which is one reason heating oil and gasoline are up. Natural gas, by comparison, remains very low.

Propane, or liquefied petroleum gas, as it's sometimes known, is a byproduct of oil and gas production. Propane prices typically follow crude oil, but today, they're tracking natural gas. That's because drilling in shale rock deposits is yielding a "wet" natural gas containing liquids that are refined into propane, butane and other components. By some estimates, more than 60 percent of domestic propane is coming from gas deposits.

Energy prices are unpredictable, of course. But for the current heating season, average residential retail prices for propane have remained stable, at $2.87 a gallon, while heating oil is up roughly 28 cents over last year to $4.10 a gallon, the U.S. Energy Information Administration says.

Propane and heating oil displayed a similar, although brief, inversion in 2008, when global oil prices surged to record levels prior to the recession. Oil's advantage resumed a year later, when demand fell in the economic downturn and prices plummeted.

For a homeowner with an older oil furnace, today's trend presents an opportunity for comparison shopping.

In Maine, the average statewide price for heating oil last week was $3.86 a gallon. The average price for propane used in space heating was $3.15 a gallon.

Propane contains less heat energy than oil, however, so comparing only prices isn't enough. The other part of the heat equation is burner efficiency.

(Continued on page 2)

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