Oil & Energy Magazine: May Feature

Bringing the Heat

Bioheat Symposium draws big crowd to Fenway Park... and wins converts
By John MacKenna

Bioheat® advocates recently brought their message about "The Evolution of Oilheat" to the New England market with a full-day workshop held at historic Fenway Park, in Boston. More than 150 attendees from 84 companies turned out for the event, and the National Biodiesel Board (NBB) signed on 20 new Bioheat licensees.

Dubbed the New England Bioheat Symposium, the event provided a far-ranging look at the challenges and opportunities in marketing Bioheat, which is a blend of traditional heating oil and biofuel made from organic, renewable materials such as soybeans, plants and waste cooking oil.

Farmers See Synergy
Heating oil marketers heard from experts, including soybean farmer and NBB Board Member Greg Anderson, who explained that soybean farmers are very supportive of Bioheat, which represents a great marketing opportunity for them. He explained that farmers were instrumental in establishing biodiesel as a viable product because it created a strong market for soybean oil.

Bioheat is a particularly attractive use for biodiesel because it creates a winter market that replaces the demand that is lost when fleet operators scale back on biodiesel use in the cold months, according to Anderson. "With Oilheat, it's consistent demand, and that's good for the farmer," he said.

Anderson said there is no "food vs. fuel" debate when it comes to soy-based biodiesel, because soy is grown primarily for the meal, with the oil as a byproduct. "As farmers, we can do both. There is no problem with that," he said.

Anderson said there is excellent synergy between soy farmers and Oilheat dealers because they have so much in common. Both industries feature multi-generational family businesses and are very dependent on weather, and they deal with severe market uncertainties, he said.

RFS2 Boosts Biodiesel Supply
Another NBB representative, Shelby Neal, told the audience that the Bioheat market received an important boost in 2010 when the U.S. Environmental Protection Agency created Version 2 of the Renewable Fuel Standard (RFS2). Building on Version 1, which mandated the use of biofuel in transportation, RFS2 mandates biodiesel production of at least one billions gallons per year. "That's the floor for the industry, and it gives us a lot of certainty," he said.

RFS2 requires refiners and fuel importers to comply with biofuel blending requirements. This creates an incentive for those companies to market blended fuels such as Bioheat. The mandated minimum for biodiesel sales will increase annually until 2022, Neal explained. Biodiesel qualifies for inclusion in RFS2 because it achieves a 57 percent reduction in greenhouse gases (GHG) compared to petroleum diesel. To qualify for RFS2, a biofuel must reduce GHG by at least 50 percent, compared to the comparable petroleum fuel.

"This creates significant growth for [producers] and means that there will be lots of volume available to you," Neal said. He said he hopes Congress will reinstate the biodiesel blenders' tax credit of $1 per gallon this year, but he expects no action be taken before the November presidential election.

Neal told the audience that New York City has been a "phenomenal bright spot" for the biodiesel industry because of its decision to mandate the use of Oilheat/petroleum blends in place of traditional heating oil. Starting in October of this year, Oilheat dealers must sell a B2 blend in place of straight petroleum heating oil. The city also uses biodiesel blends in many of its vehicles.

Biodiesel demand in New York could go even higher if the state legislature approves a Bioheat mandate for several downstate counties that encompass a population of 5 million.

Positive Research Findings
Increasing biodiesel supply is not the only good news on the Bioheat front. Thomas A. Butcher, a senior researcher at Brookhaven National Laboratory, told the audience that his extensive research with biodiesel-petroleum blends has yielded many encouraging results.

Butcher described biodiesel as chemically very similar to diesel but with certain advantages, such as lower nitrogen content, high lubricity and virtually no sulfur content. "It is really a perfect fuel to blend with No. 2 oil," he said. One of the nice things about biodiesel is that it can be produced at a grassroots level and get a lot of people involved, he added.

While it can be produced easily, biodiesel is not a "garage-level fuel," according to Butcher. Compliant fuel is produced to a specification (ASTM D-6751), which has tightly defined properties, including one for fuel stability. "This ensures that the product will be stable and will not degrade, Butcher said. "I wish we had a stability specification for No. 2 oil."

Another important advantage of biodiesel is that it requires relatively little energy to produce. Research from the University of Idaho and the U.S. Department of Agriculture indicates that for every unit of energy needed to produce biodiesel, 5.54 units of energy are produced. That figure has improved as producers improved their production technology: In 1998, producers achieved a 3.2-to-1 ratio of energy units produced, and that had improved to 4.5-to-1 by 2009.

Butcher has tested the fuel thoroughly in numerous ways, looking for any potential problems. "Once we determined that the combustion was fine, we found we needed to focus on other attributes relating to end use," he said. "We have to pay close attention to the effects throughout the fuel system." He ran tests on the fuel's behavior inside a storage tank, on the materials used in gaskets and seals, and on potential for the fuel to gel.

Much of Butcher's early work was focused on B5 blends, because Brookhaven was working with the National Oilheat Research Alliance and several manufacturers on a campaign to redefine the ASTM specification for No. 2 heating oil (D-396) to include biodiesel/petroleum blends up to B5. The campaign was a success, and dealers can now sell blends up to B5 with no fear of equipment warranty violations for using a non-conforming fuel.

Beyond B5
Changing the heating oil specification opened the door for Bioheat blends up to B5, and now Butcher and others are focusing their research on higher blends levels. Of particular interest to the Oiheat community are blends of B12 and above, because B12 is the point at which a blend of ultra low sulfur heating oil and biodiesel achieves equivalency on emissions with natural gas.

Natural gas has serious problems with methane emissions that are not related to combustion, such as leaks during drilling operations and from aging pipelines. If Oilheat can achieve equal or lower combustion emissions by using ultra low-sulfur/biodiesel blends, the industry can make a convincing case that Oilheat is the cleaner fuel.

Despite the early focus on B5, researchers have lots of data on higher blends, according to Butcher. "We have extensive B20 field experience, and that serves as a big database of practical experience," Butcher said. He continues to test higher blends with the aim of eventually making a formal case for using higher blends.

Current testing focuses on the effects of biodiesel blends on "legacy" equipment. "We want to know how much higher we can push the B-blend with legacy equipment so we can determine the 'legacy-safe level," he said.

Butcher said he is unsure exactly how the industry can package the data to support the use of higher blends, but he will continue to generate data so that manufacturers will know which legacy equipment works with higher blends and what equipment changes might be necessary. "We want to be sure to have the data documented to make a case and then go to ASTM to raise the blend level above B5," he said.

The new data he is generating strengthens the case for higher Bioheat blends, Butcher said. He is very encouraged about the durability of the seals in legacy equipment after extensive testing with high-percentage biodiesel blends. "We cannot find any material impact," he said. He also has been unable to generate evidence to support the theory that biodiesel blends cause sediment to foul nozzles and filters. "We can't find any test that shows that," he said. "I don't believe it's a significant factor."

He is now conducting tests on 40 oil pumps using different blends. The pumps will run for a year, continuously cycling on and off. "It a really rigorous set of tests to find out how far we can push beyond B5," Butcher told the audience.

Butcher said it is important to keep pushing the biodiesel content in Bioheat in order to demonstrate that Bioheat can be an important part of the country's vision for a lower-carbon future. By shifting to Bioheat blends that include ultra low sulfur heating oil, the industry can encourage manufacturers to introduce condensing equipment that does not require specialized metals capable of resisting sulfuric acid. High-efficiency equipment would then be more affordable, and customers could improve their heating efficiency at a reasonable cost. As a low-sulfur fuel, biodiesel fits nicely in that model, he said.

Butcher's testing also shows that biodiesel blends offer much lower particulate emissions than wood burning appliances do. A homeowner who uses a wood fireplace twice in a season is generating more particulate emissions than an Oilheat system generates in a full season of use, he said.

Bioheat Success Story
Dealers considering Bioheat can also draw encouragement from the experiences of Michael Devine, CEO of Earth Energy Alliance, who works with NBB to promote Bioheat.

Devine told the Fenway Park audience about the finding of several focus group meetings that brought Oilheat customers together to discuss Bioheat.

The customers exhibited limited awareness of biodiesel and virtually no awareness of Bioheat;
They see the flexibility in choosing a dealer and shopping for price as an important benefit of using Oilheat;
They have a favorable view of natural gas overall but consider it somewhat dangerous;
Cost of fuel is a major concern;
Reduced dependence on foreign oil is one of the biggest perceived benefits of using Bioheat.
U.S. job creation is perceived as a positive attribute of Bioheat usage.

NBB used the research data to develop a consumer-facing marketing campaign that it rolled out in New York City earlier this year to support the city's new Bioheat mandate. In New York, the campaign calls on consumers to "join the evolution" by finding a Bioheat dealer near them. The campaign encompasses a multimedia approach with radio spots as well as placards on buses, trains and subways. NBB is also helping to underwrite a campaign in Massachusetts that includes radio ads and billboards.

Devine explained that NBB has revamped its consumer Bioheat site, www.bioheatonline.com, to make it a better information resource for consumers and has created an active presence on Facebook.

Oilheat companies can succeed in Bioheat sales because they already do a lot of things well, and with Bioheat they're selling a more attractive fuel. Dealers are very good at service, emergency response and flexible pricing programs, and they are vested in their communities, he pointed out.

Unique Relationships
To illustrate the quality of dealers' relationships with their customers, Devine asked audience members to raise their hands if they have keys to any of their customers' houses. Many hands went up. Then he asked how many attendees had given their keys to another company, and no hands went up. "We are the only ones that get people's house keys," he said. "Think of all the trust and goodwill that we have developed."

Switching to Bioheat builds on those strengths, Devine said. "The only thing we're changing is the fuel. We're not changing the business," he said. When Devine Brothers began selling Bioheat a few years ago, the results spoke clearly. The Devines established a separate company for the Bioheat sales, and within three years it had grown to the same size as the original Devine Brothers.

"I woke up one morning and realized I wanted us to be a Bioheat company," he said. The company rebranded as Devine Bioheat, which helped with differentiation and customer retention.

Customers like Bioheat because it helps them be "part of the solution" by buying American energy, reducing the trade deficit, supporting U.S. green job creation and improving air quality, according to Devine. "It's a better fuel to market" because it's cleaner and uses domestic, renewable energy. "There is part of them that wants to do the right thing, and Bioheat makes them feel good about doing the right thing," he said.

Companies that switch to Bioheat can rebrand themselves as marketers of renewable liquid fuels and achieve great customers loyalty while attracting more interest from prospects, according to Devine. "Marketing Bioheat is fun," he told the audience. "There's a good story to tell."

NBB and its allies have developed extensive marketing materials that Bioheat licensees can use, including statement stuffers, brochures, door hangers and postcards. All Symposium attendees received a copy of the Bioheat Activation Guide, which was developed by NBB.

Something to Offer
Paul Nazzaro, President of Advanced Fuel Solutions and petroleum liaison to NBB, also encouraged dealers to embrace Bioheat as a marketing opportunity. Low natural gas prices make it hard to market Oilheat, but Bioheat has a better story. "If you're selling at $4 a gallon, you have to look like you have something to offer," he said.

Bioheat's environmental advantages are also significant, given the potential for tougher regulations on emissions and carbon intensity, he said. "It's here. It's ready," Nazzaro said of Bioheat, noting that a dealer can get out of the Bioheat business as quickly as they get in if they are not satisfied. "There is no excuse for standing by and waiting."

Utilities are marketing far more aggressively than in the past, and they have a price advantage. "They are unregulated and ready to beat us down," he said, adding that the Oilheat business cannot improve with adapting. "If not Bioheat, what?" he asked. "There isn't anything else. This is a solid product."

The audience also heard from Eric Slifka, President and CEO of Global Partners. He said Global has succeeded by trying new strategies. "The company that we started out as is not what we stayed, because we ventured out," he said. He predicted that dealers will experience unrelenting pressure on sales volume and urged them to try new ventures to strengthen their businesses.

"We have to diversify and try new angles," he said. "They do think of us as a dirty fuel." In addition to the negative perceptions about oil, companies now face a price problem. "It's a tough hill to climb," said Slifka.

Fighting Back
Attendees also heard from Massachusetts Oilheat Council (MOC) President Michael Ferrante and New York Oil Heating Association CEO John Maniscalco. MOC was a co-sponsor of the event.

Ferrante explained that utilities and the media are generating negative perceptions of Oilheat. National Grid launched an ad campaign last year in Massachusetts that called Oilheat, "crude and dirty" and said natural gas costs less than Oilheat, burns cleaner and is more dependable. Meanwhile, the New York Times was running articles that posed the question of why people were still heating with oil. "We need to rebrand our fuel, and the time is now," Ferrante said.

The event raised $7,500 for Home Base, a partnership between the Red Sox Foundation and Massachusetts General Hospital that is dedicated to improving the lives of veterans who deployed in support of the conflicts in Iraq and Afghanistan and live with deployment- or combat-related stress and/or traumatic brain injury.

The sponsors also held a drawing for a free Bioheat truck wrap. Cleghorn Oil, of Fitchburg, Mass., won the drawing.