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There are a number of benefits to using biofuels aside from guaranteeing the longevity of the supply system. First, biofuels are produced domestically, and the feedstocks for them are grown domestically. This helps reduce our country’s trade deficit and creates jobs in our country, both of which are good for our economy. Our agricultural community especially stands to benefit, since biofuels are made from crops and agricultural residues, providing options for new valuable crops and new uses for existing crops and residues.

Producing our fuels domestically also improves our energy security; we become less dependent on the strategic, political, and economic whims of other countries. And with continued Middle East turmoil it is important to remember how vulnerable we are and how heavy our reliance is on imported oil. Key among the reasons for rising oil imports is the limited domestic resource base of crude oil.

Finally, producing and using biofuels is much better for the environment than burning fossil fuels. Biofuels produce fewer harmful emissions during production and combustion and they contribute virtually no carbon dioxide to the atmosphere, which is very important for reducing the build up of greenhouse gases.

Heating Oil Markets an Overview
Escalating heating oil prices sparked concern during the 1999-2000 heating oil seasons as homeowners and industrial heating oil customers faced significantly higher heating bills as well shrinking supply. According to the U.S. Department of Energy (DOE), consumers paid an average of $1.21 per gallon throughout that winter; however, during late January to early February 2000 heating oil prices rose from $1.21 to $1.99 per gallon. An alternative fuel commonly manufactured from soybean oil quickly gained visibility as a way to heat homes and buildings while extending the supply of heating oil which would contribute to a more stable price structure. “Biodiesel” became and has remained the buzzword among energy insiders in Washington and in the Northeast where today both field and laboratory testing continue to demonstrate that Biodiesel could not only extend the heating oil inventory, but also enhance the properties of heating oil which have been clearly identified as requiring attention to its basic properties.

“The phone was ringing off the hook with government agencies wanting to know if they could use biodiesel as heating oil – even the White House called,” said Krysta Harden, Washington representative for the American Soybean Association. “Representatives on Capital Hill wanted to see how biodiesel could alleviate the heating oil shortage and how it could fit into the overall energy program long term.” It appears for the first time that our leadership is taking a proactive, not reactive approach to the national energy security picture.

Although the dire predictions of heating oil shortages ultimately fell short, it continues to loom today as our country prepares to engage in Middle East conflict. One item this scenario promoted was it got people thinking about the future, about the importance of domestic energy security and alternatives to generic petroleum products currently being used to heat physical spaces as well produce power that enables us to enjoy the many luxuries we may all take for granted.

Biodiesel was among the first alternatives to be considered for good reason. Biodiesel can be used in any diesel engine, usually with no hardware modifications. It can be blended with distillates at any level, and in fact blends in seamlessly with the existing petroleum infrastructure that stores, blends and distributes our conventional fuel oil and gasoline products. It is similar to diesel in performance and is the safest fuel to use, handle and store. More than eighty fleets use the fuel and it has been proven successful in more than 40 million on-road miles, plus countless off-road and marine miles.

“The use of Biodiesel as a heating oil has been overlooked in the past due to the availability and historical low costs of petroleum fuels,” said Paul Nazzaro, president of Advanced Fuel Solutions, Inc, an energy consulting company based in Massachusetts and lead National Biodiesel Board contractor spearheading the evaluation of this emerging biodiesel market. “However with the ongoing interest in reducing foreign oil imports and resolving the continuous supply disruptions that are now all too common in the Northeast, biodiesel may offer niche markets with a viable liquid alternative to Number 2 heating oil.” Another driving force that makes the oil heat industry eager to understand biodiesel properties and application to heating oil is its desire to re-claim market share lost over the past twenty years to natural gas. It is not a secret that the heating oil industry has been losing market share since the 1970’s when 20% of American households heated their homes with oil to the current use which is below 10%. Today only 4% of new homes use heating oil as its primary heat source.

Recognizing the need to modernize and develop marketing campaigns to compete against natural gas utilities the industry lobbied Congress successfully to establish a national check-off program in 2000. It is called the National Oilheat Research Alliance (NORA). The goals of the program are to support oilheat technology improvements, production of clean oil and improved storage and transportation of same. These improvements will be communicated via advertising expenditures to improve the public perception of oilheat, enter stage left, biodiesel.

No. 2 heating oil, a product refined from crude oil, is used as a heating fuel primarily in the Central Atlantic and New England states. It is a liquid fuel compatible with biodiesel. At this time a blend of 20% biodiesel continues to be used by the Warwick School Department in Rhode Island following a one year field test where 10%, 15% and 20% blends of biodiesel demonstrated to be an overwhelming success. All throughout New England numerous micro-managed pilot projects are underway many not being managed as professionally as we would like. However, all those we spoke with have provided encouraging results that improved operational performance was realized with blends of 10 - 20%.

One fuel oil dealer in Maine claims to be providing a homeowner with 100% biodiesel at the request of his customer and has enjoyed problem free operation. It is not recommend at this time for blends higher than 20% to be used until industry leadership completes the well thought out testing protocols which have been designed to validate all parameters of biodiesel blends performance from emissions to overall operational impacts.

Biodiesel has proven environmentally superior over No. 2 heating oil as a sole heating fuel. But not surprisingly its cost and generic handling characteristics are potential roadblocks to go it alone. At this time the recommended maximum blend ratio appears to be 20%. Two factors place biodiesel in a strong, timely market position as consumers are increasingly environmentally conscience while at the same time cognizant of the problems associated with our nations continued dependency on foreign oil.

Facts about the Heating Oil Market
Market Size & Economics
Based on data collected by the EIA (Energy Information Agency) for the year 2000, No. 2 heating oil is consumed in 7.7 million homes in the United States, of which 69% or 5.3 million homes are located in the Northeast corridor. Residential consumption of No. 2 heating oil in 2000 was 6.7 billion gallons of which 88% or 5.5 billion gallons were consumed in the 11 Mid-Atlantic and Northeastern states. This makes for a desirable blend market for biodiesel and one that must be taken seriously by biodiesel stakeholders for future industry growth.

The wholesale cost of No. 2 heating oil is a function of crude oil costs, refining cost, transportation, and supply and demand. “Projecting prices for commodities such as oil is a very complicated process that is impacted by political and economic factors that are dynamic.” says Lewis DeRosa, president of PetroHedge a New Hampshire based petroleum hedging company. It is not practical to introduce or discuss pricing in this article because it would be irrelevant and outdated by time the reader reviewed this document. To keep the document fresh and timely we encourage you if interested in economic comparisons between the fuels to visit www.nymex.com to see current trading ranges of heating oil or by contacting a local fuel distributor in your area to ascertain prevailing real-time market prices for heating oil. You can do the same for biodiesel by contacting any of the biodiesel suppliers listed on this website.

Industry Fuel Quality Dilemma
It is widely known that poor fuel quality and sulfur emissions contribute to the fouling of heating oil burners and boilers. This condition lowers the efficiency of the heating system and demands more frequent cleaning. The cost of lower efficiency results in higher fuel consumption. The cleaning cost is paid by the consumer or by the retailer of fuel oil in the event the consumer has a service contract (which is a common business practice in the industry). Cleaner fuels have a positive impact on the retailer’s bottom line in lower service expenses. Our Warwick Rhode Island study, (sponsored by the National Renewable Energy Lab) (see PowerPoint presentation) has unequivocally shown that Biodiesel blends up to 20% have positively impacted the cleanliness of filters, strainers and nozzles all fuel wetted parts that have chronically damaged a fuel oil dealers bottom-lines because of premature failure.

Biodiesel and Heating Oil a Perfect Match
It is clear that biodiesel can mitigate some of the negative attributes of heating oil since the sulfur content is virtually zero it will have a positive impact on the burner reliability and efficiency, it will reduce foreign imports of crude oil, is biodegradable and produced domestically. NORA (National Oilheat Research Alliance) realizes the potential of biodiesel to improve the marketing image of heating oil and has authorized funds to continue the work Advanced Fuel Solutions, National Renewable Energy Labs and Warwick Rhode School Department started last heating season. The purpose of this test project is to evaluate biodiesel and generic fuel oils in a range of furnaces and boilers, and analyze combustion performance over the various operating conditions. The objective is to identify potential benefits in combustion performance and lowered air pollutant emissions, while noting any combustion problems caused by using biodiesel blends. The program principal investigator is John E. Batey, P.E., president, Energy Research Center, Inc. home based in Connecticut. This data will be available for review early 2003.

Testing Background to Date
The use of biodiesel to heat homes and buildings is common practice in Italy, but it is a new concept in the United States. American studies of blends of biodiesel and heating oil have been completed by Brookhaven National Laboratory, Upton, NY, “Biodiesel Blends in Space Heating Equipment” C.R. Krishna, December 2001, funded by National Renewable Energy Laboratory, Program Manager, and Dr. Shaine K. Tyson. The report number is BNL-68852 and can only be accessed through Brookhaven Labs with NREL authorization.

A preliminary analysis of biodiesel produced from soybean oil had been conducted in a Beckett Oil Burner which is one of several popular oil burners in use throughout the saturated home heating oil marketplace noted earlier in this paper. In cooperative spirit with Ag Environmental Products this material was released to NBB and is titled Soy Diesel: An Investigation of Its Use in a Beckett Oil Burner, dated April 22, 1993. This was possibly the first official investigation of biodiesel as a home heating oil replacement or heating oil blend stock ever prepared. Some key highlights of this early evaluation uncovered the following highlights:

* Both the soy diesel and fuel oil were close in performance (similar BTU content and combustion characteristics with the soy diesel showing a tendency toward less smoke and sulfur oxides while the fuel oil showed a slightly brighter flame.

* The materials in the burner were compatible with soy diesel with the exception of some gaskets and label adhesives which runs parallel with what we know of material compatibility issues with biodiesel in the diesel fuel marketplace which is clearly outlined on our website listed under the Fuel Facts.

* Soy diesel appeared very thermally stable compared to fuel oil.

* Soy diesel has virtually no sulfur which helped reduced sulfur oxides emissions, the leading cause of maintenance issues.ARS Program

A few years back one government agency took action to help alleviate the projected shortage of heating oil by using Biodiesel to heat some of its buildings. The Agricultural Research Service (ARS) in Beltsville, MD., used a blend of five percent Biodiesel (B5) in its heating oil throughout the winter. ARS is the research agency within the U.S. Department of Agriculture.

The goal of this project and still remains its goal to date is to demonstrate that it can work as home heating oil and to raise awareness in the government that it is an option to stretch our heating oil supply moving into the future. More on ARS in web article listed on our site.

The most current testing and most comprehensive to date remains to be the Warwick School Department study detailed in the this Power Point presentation. Spearheaded by Paul Nazzaro, president of Advanced Fuel Solutions and contracted and funded by the National Renewable Energy Labs and Robert Cerio, Energy Director, Warwick Public Schools, this one year evaluation which continues independently today with state funding demonstrating that biodiesel blended up to 20% improved both emissions and operational performance.

Along with evaluating these critical areas, AFS worked towards identifying methods of distribution that would promote efficient and economical broad based distribution of biodiesel blends as the industry matures and becomes more receptive to depending on biodiesel as a heating oil blend stock. For more details regarding this test contact Paul Nazzaro at 978-664-5923 or Robert Cerio 401-734-3219 x 320.

Summary
The momentum is building and the likelihood that biodiesel ends up being blended with heating oil in residential and commercial boilers appears to be stronger than ever. When the oilheat industry officially embraces this liquid blend stock option it may offer substantial opportunities for marketers in the heating oil industry.

Historically petroleum marketers are eager to deliver products to their local marketplace that their customers can benefit from and biodiesel will certainly become one of those products. Noted benefits of Biodiesel to fuel marketers include, but are not limited to:
1. Development of a “green fuel” liquid product line.
2. Contributing to sulfur reductions, improved (air quality).
3. Lower maintenance costs from sulfur reductions.
4. Capturing consumer confidence in heating oil.
5. Flexibility to reduce economic volatility caused by refinery disruptions.
6. Domestic production potential in all regions of the country.
7. Reduces the public perception that oil is dirty, sooty and smelly.
8. Disarms issues suggesting that oil causes higher maintenance costs versus natural gas.
9. Diminishes every consumers perception that there fuel distributor is tied to “Big Oil.”
10. Alleviates fears that long-term availability is in peril and absolutely contributes to the reduction in foreign oil supply.

Because of biodiesel’s environmental attributes, biodiesel blends could be used to develop a diversified market structure, e.g., “regular” heating oil and a “premium” heating or “green” heating oil. Biodiesel fuels produce 78% less carbon dioxide on a life cycle basis compared to Number 2 fuel oil. Most biodiesel contains less than 15 ppm sulfur and some fuels could be virtually sulfur free. Biodiesel has the highest BTU content of any alternative fuel and blends reduce the heating content of the fuel by very little depending on the amount of biodiesel being used.

This structure would allow for variable markup structure and hopefully, some increase in profitability for the industry. A green fuel line can be used to develop environmental public images and thus gain some leverage to compete for market share within the communities they compete in.

There is an emerging possibility that carbon dioxide credits could be generated from biodiesel that have global market value. Similarly, sulfur credits produced by reducing fuel sulfur content may be marketable among commercial and industrial users. Reducing fuel sulfur may also lead to lower maintenance costs though reduced corrosion and fouling of heat exchanges. Add to that biodiesel’s superior lubricity, and these savings would be revealed through lower maintenance contract costs and fewer service calls.

Another key role for biodiesel use in heating oil markets would be to introduce the fuel to the industrial commercial interruptible gas consumer who predictably seizes dangerously low levels of heating oil causing panic and price spikes during unseasonably cold weather. When winter temperatures challenge the system ,natural gas companies notify the commercial customers advising them that they will now have to turn to oil to meet the demands of heat and production. From that point the reliability and dependability of the petroleum industry takes over and always fulfills the supply demands, but not without compromising inventory disruptions that impacts costs which drive the homeowner’s fuel oil to record highs - as was the case in 1999-2000.

The visionary fuel marketer has a real business opportunity if they embrace biodiesel distribution with an eye wide opened approach. They could very well deliver biodiesel both into the heating oil pool as well the diesel fuel pool. Markets exist with military bases, utility companies, state and federal fleets and some municipal and private fleets (refuse trucks and school buses to name a few). Along with these noted markets you have electricity generation, marine fuels and national parks and mining.

Fuel suppliers that maximize throughput, minimize storage costs, and expand into new market segments at lower risk will ensure success in this new area. Biodiesel has enjoyed progressive yet rapid growth these last few years and although there is much more road to travel before wide acceptance is attained, it is clearly an intelligent choice to any diesel-powered engine, as well as residential and commercial fuel oil burners.

Product economics and distribution strategies are currently being reviewed to smooth the transition of this unique liquid fuel option, but ultimate market acceptance is now being measured in feet not miles.