Diversification has not only been a trend in the industry, it is increasingly seen as a necessity. Gallons are down as efficiency ramps up and the trend shows no sign of slowing. That is good for the long term success of oil as a heating fuel, but it also requires an aggressive evaluation of existing business models with an eye to the future.
Diversification has typically involved areas like offering motor fuels, propane and HVAC service. Even, perhaps, wood pellets or solar. Maybe look into seasonal opportunities for existing staff, such as landscaping or even port-a-potty service. But for some larger marketers, additional opportunities exist that offer the added twist of taking some back from forces that work against heating oil marketers and dealers on a daily basis – natural gas utilities.
A number of states have “deregulated” natural gas and/or electric. If you are a marketer with the scale and resources – both financial and human – to pull it off, you can find an opportunity to convert gas users away from the utility to your business as a gas fuel supplier.
It is not uncommon for heating oil dealers with HVAC service to handle the actual equipment conversion when a customer makes the choice to go gas. Through deregulation, the opportunity exists to not only handle the furnace or boiler conversion, but actually continue a trusted relationship and actually “sell” that customer fuel.
The article by Steve Bennett on page 18 outlines the process in more detail, in a case study focused on fuels marketer Shipley Energy based in Pennsylvania. NOCO Energy in New York, among others, also follows a similar business model. Basically you buy wholesale gas, hedge and sell your service offering to customers with a price competitive contract. The gas utility is responsible for the delivery infrastructure.
As it is emphasized in the article, the goal is not to convert existing oil customers to gas. Rather, if a loyal customer has made the decision already, it represents an opportunity to not only make money on the physical conversion, but capture revenue that would otherwise be lost forever on the fuel itself. Similarly, it represents an opportunity to leverage existing core competencies and get revenue from customers that might never have been served by oil or that converted long ago. That holds true for commercial electric service.
Oil has a strong story to tell, but successfully reconverting a customer from gas to oil or preventing a customer from converting to gas can be an uphill struggle. While this model will not work for every oil marketer, for those that can make it fly, it represents an opportunity to beat the utilities at their own game for a change.