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Alternatives to Gas and Oil Michelle Wilkinson COM/150 Astrid Cleveland April 4, 2010

2 In the challenge of todays economic climate, consumers are testing the threshold of what is tried and true to what is a new commodity in the market, at any given moment. We are all trying to find ways to save money to survive in this volatile market, and the following will help show the path of some of the decisions we can make as educated consumers to help save money and maybe our environment, the stress of what is todays conventional fuel sources. Even though alternative fuel sources may help lower gas and oil prices, prices are high because they are a market driven commodity, and there will be supply and demand even with a crude surplus. Alternative fuel sources such as bio-fuel and wood byproducts (pellets) can help lower petroleum fuel prices as well as the dependency on them. It is a simple equation of supply and demand; if more people start using pellet stoves instead of oil to heat their homes, the demand for oil goes down. Therefore, the supply goes up, causing the street price to decrease. Gasoline will experience the same effect as more Americans switch over to bio-fueled cars, leaving the old gas guzzler to rot in the junk yard. What Is Crude and Where Does It Come From? To understand why fuel prices are what they are, we first need to understand what fuel is and where it comes from. By definition, crude is the unrefined remains of plants and animals buried deep in the earth for millions of years. Once crude is harvested, it needs to be refined or purified so it can be used to power our cars and heat out homes. Gasoline is a durative of crude oil and used to power internal-combustion engines. Heating oil is also a durative of crude oil and requires a different level of refining to be used as home heating oil. Crude oil is not only refined to gas and heating oil, it is also refined to jet fuel, liquefied petro gases, and diesel, to name just a few (www.eia.doe.gov). Although we have many refineries in the South, the United States does not

3 harvest its own crude to be refined. Most of the refined crude oil is an import from places like Canada, Russia, and Venezuela. Oil v. Pellet Stoves With the cost of heating oil continually rising, more homeowners are turning to alternative heating sources, such as pellet stoves. Pellet stoves burn wood pellets made of recycled sawdust, which is a wood byproduct, for which there is less of an impact on the environment. Pellet stoves have thermostats that can regulate the heat in one room quickly but have difficulty providing even heat distribution throughout an entire house as compared to a central oil furnace. Pellet stoves require the user to load the hopper with product that can weigh as much as 40 pounds per bag. Due to this weight, this can be an issue for some people. Oil heat has virtually no homeowner maintenance other than calling the oil company to fill the tank and service the furnace at the beginning of the cold weather season. As the demand for pellets rises, homeowners who have not converted to pellet heat hope the price for heating oil will decrease. As an educated consumer, it is up to the home owner to research the pros and cons to converting from oil to pellet heat before choosing which option is right for them and their household budget. Gasoline v. Bio-fuel Following the same example as heating oil, gasoline prices are rising to the point that many people are looking for alternatives. Bio-fuel has become a popular option. Bio-fuel is a renewable fuel source, derived from plant biomass, or plant matter, which can be converted to fuel. The issue with bio-fuel today is that it is more expensive to produce than gasoline (www.eia.doe.gov). Ethanol, a grain alcohol usually made from corn, can be mixed with gasoline to create a cleaner alternative to straight gasoline. The most popular ethanol alternative is E85, which is mainly used

4 in the Mid-West and South. Converting to E85 can be costly and does not apply to all cars. According to a Department of Energy estimate, switching to Flex Fuel Vehicles can save Americans up to $300 per year in gas costs. The problem is that not all cars are FFV/E85 compatible. For the American consumer to take advantage of this $300 yearly savings, they will have to first live in an area that offers E85, and then purchase a new car that can use E85. Studies have shown that E85 is better for the environment. One study, out of the University of Illinois at Chicagos energy Resource Center, found that the global warming impact of ethanol plants is 40% lower than gasoline. Because ethanol fuel is in the infant stage, it is not something the average American consumer can take advantage of. Dollar for dollar, gasoline powered cars are the better deal for the consumer. Consumers have been using gas powered transportation for more than 100 years, and the market has complied with that. It is often more convenient and easier to buy a car that uses unleaded fuel as well as finding unleaded fuel to drive that car. We may save $0.50 a gallon by using ethanol, but figuring the cost of a FFV compatible car and relocating to an area the sells E85 fuel, dollar for dollar, gasoline powered cars are the better deal for the consumer. Tips To Save on Fuel Costs As I drove around my area, I logged the price of regular unleaded gas. I found the average price to be $2.75 per gallon in a five town radius. Unfortunately, New England has not converted to E85 fuel so I could not calculate an average cost savings from gasoline versus e85 Bio-fuel. According to E85Prices.com, the national average cost of E85 bio-fuel is $2.32 per gallon compared to the national average for gasoline at $2.81. That comes to almost 18% price difference (www.e85prices.com). That is a significant cost savings to a family trying to make

5 ends meet (minus the cost of a new car that will run on E85). The easiest and cheapest way to save on gas consumption is to make sure your car is serviced regularly and the tires have the proper air pressure. I also logged the home heating oil cost for the same five towns. On average, New Englanders pay $2.599 per gallon for home heating oil (thats $649.75 for a 250 gallon tank). High prices like this are causing some families to choose between heat and food. Common sense dictates that less oil is used in the warm weather months to heat our house, causing a surplus of product. Filling the oil tank at the beginning of the winter season (when prices tend to be lower) could save as much as the cost of one full tank of oil. According to American Biomass Distribution (www.woodpellets.com), a web site that specializes in the sale and distribution of wood pellets, in 2009, the average homeowner can save as much as $600 this year by converting to pellet heat (not including the up from cost such as conversion of the heating system and purchase of the pellet system). As I dove further into my research, I found that I could find the very same information regarding gas and oil pricing by doing a simple web search. The web site WWW.NewEnglandOil.com has the same oil company prices I found while out on my field trip (prices subject to change). I also found the web site WWW.InternetAutoguide.com that has a zip code search to find the lowest gas price available in that area. The web site www.woodpellets.com has information on the cost of pellets versus oil and shows the calculations. The web site www.e85prices.com shows where in the country you can find E85 fuel and the cost comparison to gasoline.

6 It is challenging for the American consumer to strive with the challenges of our economy and the choices that have been made to overcome adversity. The global market will continue to evolve along with our choices as consumers. Demand will continue to grow along with the variety of alternative fuel sources. Both well-known and new independent emerging companies will compete with other alternative fuels for consumer options. Today, our choices are clear and revolve around what has been made available to us within our global marketplace. Supply and demand drive our market whether we like it or not. The evolutions of various fuel alternatives, such as E-85 Ethanol and wood pellets, have shown us that, historically they are not perfect. What is clear is that we are making progress as a nation to become more efficient to help the scale of our own economics and in the end our environment.

References

7 US Energy Information Administration Independent Statistics and Analysis [no author]. (last reviewed July 15, 2009). Gasoline Explained. Retrieved 12-MAR-10, from URL http://tonto.eia.doe.gov/energyexplained/index.cfm?page=gasoline_home

US Energy Information Administration Independent Statistics and Analysis [no author]. (last reviewed July 15, 2009). Heating Oil Explained. Retrieved 12-MAR-10, from URL http://tonto.eia.doe.gov/energyexplained/index.cfm?page=heating_oil_prices

US Department of Energy For Consumers [no author]. (last reviewed n.d.). Retrieved 12MAR-10, From URL http://www.energy.gov/forconsumers.htm

Energy Data Corp. (2007). Oil prices for Northwest Massachusetts [no author]. Retrieved from URL http://newenglandoil.com/massachusetts/zone14.asp?x=0

Internet Auto Guide.com. (2010). Internet auto guide find gas prices by state [no author]. Retrieved from URL http://www.internetautoguide.com/gas-prices/index.html

E85 Prices.com (2010). The first and only site dedicated to covering the price of E85 fuel [no author]. Retrieved from URL http://e85prices.com

American Biomass Distribution, LLC (2009). Fuel cost savings [no author]. Retrieved from URL http://www.woodpellets.com/