Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
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By day, I am a mild-mannered employee of a company that manufactures heating appliances.  One of the ongoing challenges that we face is helping people understand how to compare the cost of heating with one fuel versus another.  After all, natural gas is sold by the therm, heating oil and propane are sold in gallons, and electricity is sold by the kilowatt-hour.  What people really want to know is: If I spend $1 on heating fuel, how much heat does that give me?

The math for figuring this out is relatively straightforward:

(Heating Value of Fuel per Unit) X (Heating System Efficiency) / (Cost per Unit of Fuel) = Heat per Dollar

Let’s use a real example to see how this works.  In my part of the world, the average price for a gallon of home heating oil is currently $2.41.  A quick Google Search reveals that there are approximately 140,000 BTUs per gallon of fuel oil.  A typical oil fired heating system is probably going to have an efficiency in the low 80s, and to be generous, the most efficient fuel oil heating systems are about 86% efficient.  So:

(140,000 BTU/gal) X (.86) / ($2.45/gal) = 49,959 BTU/dollar

The two factors that can change in this calculation are system efficiency and cost per unit.  The system efficiency can be determined in a number of ways:

  • Many service companies, especially those servicing oil equipment, will run a combustion analysis during the annual service.  Often, the results of this analysis will be left on a printout or written on a service tag that’s attached to the heating appliance.  This is a very good number to use.
  • Newer equipment is required by law to have a label indicating either the cost to operate the equipment or the efficiency and its relation to similar equipment.  You’ve have more than likely seen these yellow labels on new refrigerators, air conditioners, washing machines, heating appliances, etc.  If an efficiency is given here, this is also a good number to use.  With heating equipment in particular, this label shows the results of a specific test used to determine the Annualized Fuel Utilization Efficiency (AFUE).  This number is not necessarily the same as the actual combustion efficiency of the appliance, as it takes into account factors such as standby losses, and is closer to the real world efficiency.
  • If neither of these are available the next best thing to do is to use a rule of thumb.  If your heating system:
    • uses PVC pipe to carry the exhaust gases away, use 92% for the efficiency
    • has a fan that comes on before the burner lights, use 85% for the efficiency
    • has a standing pilot light that has to be lit periodically, use 75% for the efficiency
    • is between 25 and 40 years old, use 70% for the efficiency
    • is greater than 40 years old, use 60% for the efficiency
    • is oil fired and tuned up every year but no service tag is available, use 80% for the efficiency

If you are comparing your current system to a new system, then you’ll have to decide what efficiency system you will compare to.  A new natural gas or propane fired system can range from 80% to as much as 95% efficient, but an oil fired system can only achieve a maximum of 86%.  Electric resistance heaters are 98% efficient, but any kind of wood fired systems generally don’t get much better than in the high 70% efficiency range.

The other variable is the pricing of fuel.  I’ve found that I can pretty much find the cost of all major fuel types with some Googling.  Natural Gas prices can be a little tough to find if you’re not already a customer, but with a little digging I was able to come up with a unit cost.  With Natural Gas and Electricity, you have to be a bit careful in making comparisons if you are already a customer since there are often different rates for different types of service.  Residential Heating is often the lowest rate available.  When all else fails, a quick phone call to a local utility or service provider will be enough to turn up the going rate for the fuel you are comparing.

Let’s look at the best cases for some other fuels at the highest available efficiencies for each:

Natural Gas:

(103,000 BTU/therm) X (.95) / ($1.70/therm) = 57,558 BTU/dollar


(91,200 BTU/gal) X (.95) / ($2.54/gal) = 34,110 BTU/dollar


(3,413 BTU/kWh) X (.98) / ($0.20/kWh) = 16,724 BTU/dollar

Cord Wood

(20,000,000 BTU/cord) X (.77) / ($225/cord) = 68,444 BTU/dollar

Wood Pellets

(16,400,000 BTU/ton) X (.83) / ($300/ton) = 45,373 BTU/dollar

So if I was in the market to replace my heating system, based on the present fuel prices in my area, the cheapest to the most expensive fuels would be:

  1. Cord Wood
  2. Natural Gas
  3. Fuel Oil
  4. Wood Pellets
  5. Propane
  6. Electricity

The clear winner here is natural gas, since I have no desire to stoke a wood fired boiler, furnace, or fireplace. 

What are your thoughts?  Have you considered switching fuels lately?  How do prices in your area compare to these?  Let’s hear your thoughts on this in the Comments Section below.


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8 Responses to “Comparing the Costs of Different Heating Fuels”

  1. Kimberly Says:

    so a question for you - which would be cheaper - keeping my natural gas heater at 68 degrees and using an electric space heater in DS’s small room at 72 degrees and one in my bedroom at 72 degrees or just to put the natural gas heater at 70 degrees for the whole five bedroom, two full bath two story home?

  2. Rick Says:

    Based upon what I am paying for pellets for my stove right now ($7 per 40lbs.)the BTU/dollar is 38,891. This is helpful and actually confirms something that I suspected -pellet stoves are no great bargain. It works for me only because of it’s location in my home if I use it strategically rather than as a primary heating source. The price of pellets went up substantially this past year along with heating oil. Heating oil has dropped again - but pellets haven’t so it isn’t a great bargain. I think many of the pellet suppliers were forced, due to demand, to pre-order very far in advance and are locked into pricing that must be passed on to the customer. Of course, my local supplier could just be ripping me off. Unfortunately I don’t have the space to order pellets in large quantities to take advantage of quantity pricing.

    One other consideration is convenience versus price. With natural gas, oil, and propane there is virtually no effort involved. Wood, coal, and pellets require quite a bit of time and energy to stock, monitor, clean, and maintain. If one were to quantify these efforts I am sure that this comparison would make these options much less attractive.

  3. MITBeta Says:

    Kimberly: Do you mean just at night or all the time? The answer to this really depends on the relative costs of electricity and natural gas in your area. By virtue of the fact that you have a central furnace fired by natural gas, I’m going to guess that gas is a lot cheaper to heat with than electricity. In my area, electricity is over 3 times more expensive to heat with than gas, and a 4 degree difference in room temperature isn’t going to use anywhere near 3 times more gas. My gut feeling on this is that natural gas is still going to be cheaper, but it’s hard to say without more information.

    Rick: Your conclusion is the same as mine which is why I think that natural gas is the real winner here. Propane was a lot more attractive earlier in the year when oil prices rose dramatically, but now that they’ve fallen again it’s not as much of a bargain. $7 for 40lbs is only ~17% more than the bulk rate, but it does seem like the per dollar heat rate is a lot lower.

  4. Tyler Young Says:

    air conditioner is always a necessity at home:;;

  5. Cordless Screwdriver · Says:

    most modern air conditioners are not guzzlers of electricity and are energy star certified ::

  6. Yolande Timinsky Says:

    Great web site. A lot of useful information here. I’m sending it to some pals ans also sharing in delicious. And naturally, thanks on your effort!


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