Insulate Margins by Building Value
by Steve Klein, Renewable Energy Group
How Bioheat® fuel might help dealers and customers weather increasing energy prices
Are heating fuels the latest commodities to succumb to the pressures of rising inflation costs? The New York Times seems to think so, calling winter heating fuel bills “the next inflation threat” in an article published November 8, 2021.
Whether current price spikes are being driven by inflation, lagging crude oil production or a combination of factors, there’s no denying that the 2021-2022 heating season has already brought forth some of the highest energy prices seen in seven years.
For the week of October 25, 2021, residential heating oil prices averaged $3.397 per gallon – the highest retail price since November 2014, according to the U.S. Energy Information Admin-istration (EIA). Not surprisingly, the wholesale market faced similar pricing challenges, with NYMEX heating oil futures contracts trading as high as $2.565 on October 25, their highest price since October 2014.
All told, EIA forecasts consumer heating oil prices will average $3.39 for the 2021-2022 heating season – 33% higher than last winter. In terms of overall cost to the consumer (factoring in consumption), EIA expects the average U.S. household to spend 43% more on heating oil this winter than last year, based on slightly colder temperatures predicted by the National Oceanic and Atmospheric Administration. However, if the coming winter is 10% colder than forecast, home heating oil expenses will be 59% higher than last winter!
In other words, if temperatures are lower than expected heading into January, February and March, keep an eye on the price of heating oil futures and other wholesale price indicators. Increasing rack prices could be a serious cause of concern for heating oil marketers.
The good news for dealers weary of losing customers to competing energy sources is that prices are expected to be up for electricity, natural gas and propane as well. Additionally, biodiesel-blended Bioheat® fuel may offer dealers a way to help insulate their companies from rising energy prices, while simultaneously enhancing their value proposition for retail customers.
How does this work?
Firstly, biodiesel and Bioheat fuel may come equipped with a range of financial incentives that can help dealers “weather the storm” of rising heating oil costs. Adding these incentives to your financial playbook can create all new revenue streams for your company in much the same way that offering new services or pricing programs can.
Additionally, Bioheat fuel enhances heating oil companies’ value proposition by providing dealers the opportunity to market and deliver a cleaner, more sustainable product. According to a recent survey, 64% of Americans are willing to pay more for sustainable products, and the percentage increases to 75% for millennials (i.e., new homeowners, your future customer base). By switching to Bioheat fuel, you are offsetting carbon emissions and providing your customers with the sustainable fuels they want!
According to the latest estimates by the Oregon Department of Environmental Quality, Renewable Energy Group (REG) biodiesel reduces carbon emissions by as much as 89% compared to conventional diesel fuel. As an easily accessible drop-in fuel, biodiesel can be used to replace price-volatile and carbon-heavy heating oil on a gallon-for-gallon basis.
Assuming an 89% reduction in carbon emissions for each gallon of REG bio-diesel, a gallon of B20 Bioheat fuel, containing 20% biodiesel produced by REG, can reduce customers’ carbon emissions by approximately 18%. Increase the blend to B35 and the amount of carbon emissions offset by your company’s Bioheat fuel delivery climbs to 31%.
That is a significant environmental and economic benefit that can position your company as both a premium fuel provider and a valued sustainability partner. Talk to the REG team today to discuss how Bioheat fuel can help enhance your company’s value proposition in the face of rising heating oil costs.
Steve Klein is Senior Manager, Marketing at Renewable Energy Group. He can be reached at firstname.lastname@example.org or 515-239-8364.