Is Fuel Switching to Natural Gas Right for You?

by | Jun 20, 2013

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The US has gone through a major change in its fuel supplies in a short time. A decade ago, the US was planning infrastructure upgrades in order to import large quantities of liquified natural gas. Now, we are producing so much of it that we are a net exporter.

Advantages of Switching to Natural Gas

As for your facility or installation, there are significant advantages to switching your combustion equipment to combust natural gas from fuel oil, including:

  • Cost.  Currently, natural gas is less half the price of oil and even coal on a Btu basis. The return on investment (ROI) of your upfront costs should be excellent (better than keeping money in the bank!) given the long life of combustion equipment and expected long-term price of natural gas.
    • Air emissions in neighborhood.  Switching to natural gas results in significant decreases in greenhouse gas and most air pollutant emission rates (one notable exception: carbon monoxide), perhaps enough to allow your facility to leave a major air permitting program and to exempt you from other environmental rules, saving you time and money.
    • Risk reduction. With natural gas piped into your facility instead of oil being trucked in, you are reducing (perhaps eliminating) the risk of messy, expensive-to-clean oil spills on or off site and of heavy truck traffic in the area. This could reduce your insurance premiums and labor and training costs and needs.

However one feels about it, hydraulic fracturing or “fracking” has led to a dramatic increase in natural gas production in the US, increasing supply much faster than demand, causing natural gas prices to drop. Meanwhile, prices of fuel oil and coal have risen because of Mideast worries and rising costs of treating coal exhaust. We all know that fuel prices tend to cycle, and there is concern that natural gas prices may rebound because prices are higher abroad and US natural gas producers want to tap that market. Will the price differential continue for many years or only for the short-term? While the DOE recently issued its second permit to allow a US firm to export LNG unconditionally, pressure from US manufacturers may make this the last one for awhile. In its recommendation for this permit, the DOE stated that it projects abundant domestic natural gas supplies to meet anticipated domestic, modest export demand with only minor price hikes over the next 25 years.

So with all of these benefits, is it worth it in the short and long terms for you to switch your fuel source for your combustion equipment from oil or coal to natural gas or just keep the status quo and stay the course? I think the benefits above and the prediction that natural gas prices will remain relatively low should be enough to sway you to make the switch. Not only is the payback good, but likely to get greater as unit prices of oil will likely continue to rise..

The Effort to Switch to Natural Gas

However, realize that switching fuels is not simple, and does have some engineering issues that need to be addressed. Here are some of them to be addressed to make the switch go more seamlessly:

  • Availability.  Natural gas is not available throughout the whole country and, in fact, is not necessarily available even in certain local areas. In New York City, for example, certain buildings have natural gas service while just a block away there may be none. What to do? Negotiate with your utility (gas transmitter). What would be the cost to them to extend a line into your building or facility? Perhaps it is six figures, but you could negotiate a deal to pay that cost off in time. And with the proposed long-term price differential, this additional cost may still be absorbed profitably. I had a client whose facility was in a relatively isolated area. Their utility presented a multimillion dollar proposal to extend a line a few miles to their facility. I advised them to negotiate the price down based on the utility’s ability to supply gas at the same time to many other buildings along the way. If such upfront money is not available, there also may be organizations willing to front some of it in return for a portion of the longer-term cost savings.
  • Equipment compatibility.  Does your combustion equipment have the capability of burning natural gas in place of oil? Some are manufactured as “dual fuel”, and that is good. In that case, work with the manufacturer for some likely minor adjustments. If the equipment is not capable of burning natural gas, then more major adjustments are necessary, such as a whole new burner or boiler. While this may add high tens to hundreds of thousands to the cost, again, given the longevity of a new burner (several decades) and the long-term price differential, this can still likely be financially beneficial to you.
  • Have a backup fuel.  One can never predict the long-term future. Natural gas may become expensive again years from now. Many utilities provide financial incentives to turn off natural gas during the coldest days (“interruptible service”). What to do? Consider a backup fuel. No. 2 fuel oil is a good candidate, although you will need to install storage tanks. But No. 2 is easier to manage than No. 6.
  • Conservation is always a winner. Of course, it’s always good to burn less of any fuel. What to do? While you are upgrading your boilers and making the fuel switch, look into other measures that will reduce your short-term fuel burning needs, such as upgrading insulation, windows, your roof, and other processes.

Success Story

I was fortunate enough to be the Construction and Environmental Manager for the conversion of three large boilers producing steam and domestic hot water at the East River Housing boiler house, serving 8 apartment buildings (over 2,700 units) in Manhattan. They had been burning over 2 million gallons of No. 6 fuel oil per year. We helped them switch to natural gas. The benefits became apparent very quickly. It has now been one full year since the switch. They saved over $2.2 million in fuel costs in the year compared to the year before despite the fact that this was a colder winter. Their avoided cost (extra cost they would have had to pay in the last year had they never implemented this project) was $4.8 million. The payback for their upfront investment will likely be under 2.5 years. Given the 30-year expected life of the new/modified equipment, the total savings will be over $65 million (not bad for a $6 million upfront investment). Plus, they have already seen secondary benefits, such as getting out of the Title V Permitting program, having only a handful of truck visits for the backup fuel, No. 2 oil (from over 300 per year), and a more automated system to manage the new equipment.

This appears to be a unique time with many short- and long-term benefits to make the investment to switch to natural gas. One needs to do it right, but many of the financial and environmental factors are pointing in the right direction for your benefit. Don’t be afraid to get out of the ordinary and make a robust move, as it has been done successfully many times and has so many financial benefits.

Marc Karell is the owner of Climate Change & Environmental Services. CCES has helped buildings and facilities successfully convert from oil to natural gas and maximize their financial benefits. Our team of diverse engineers and technical experts can help you do this right, making the process as smooth as possible, including finding outside seed money to support such a project.  Contact us today.

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