The construction of a comprehensive, nationwide gas transmission grid in the early 1970s, to accommodate North Sea natural gas, quickly resulted in gas becoming the overwhelmingly dominant energy source for space heating with a market share in the region of 80-85%. In comparison, oil’s share is around the 5-6% mark and various forms of electric (storage, portable, etc.) around 10%.
The need to achieve net zero GHG emissions by 2050 implies a radical change in a sector which has seen extraordinary stability over the past 40 or so years. The Government, through its ‘Heat and Buildings’ strategy, published in 2021, signalled its clear preference for heat pumps as the principal energy source for space heating, but a lot of clarity is still needed regarding alternatives where heat pumps are not appropriate and/or impractical.
We will now look at the future prospects for two of these ‘alternatives’.
This product heralded the age of the oil industry in the late 19th century when it was sold as lamp oil. The balance of probability is that its use as the principal fuel for aviation, in the form of Jet A/A-1, will outlast the use of all other refined oil products as fuels (as opposed to feedstock), especially in the hardest to decarbonise long-haul aviation sector.
Its use as a heating fuel is largely confined to the UK and Ireland, with the major, mainland European markets, in Germany, France and Belgium, using mazout, a heating gasoil grade. Currently, in the UK as regular burning oil, it accounts for around 15% of kerosene demand.
When considering its future prospects in the space heating sector it is instructive to refer to comments in the following:
UKPIA, Future Vision (2019):
The industry association makes two clear statements about the intention to cease the supply of heating oil for properties off the gas grid in ‘the 2020s’:
• Under ‘Options for decarbonisation’ – to phase out high carbon, fossil fuel heating for new and existing buildings and housing off the gas grid during the 2020s.
• Under ‘ All scenarios’ – the use of liquid fuels for space heating will fall to very low levels in the 2020s and is only retained for buildings (mostly historical) which are difficult to retrofit, to be replaced by other energy carriers, especially renewable electricity and green hydrogen
Government Heat and Buildings Strategy (2021):
This long-awaited document contains a ‘ten-point plan ambition’, one of which is ‘to start by phasing out the installation of fossil fuel heating systems in properties not connected to the gas grid’. Alongside this strategy, there will be consultation on ending the installation of high-carbon fossil fuels to heat homes that are not connected to the gas grid in England from 2026 and non-domestic buildings not connected to the gas grid from 2024. Households will not be forced to remove their existing boilers, instead an approach will be aligned to markets and consumer behaviour to minimise costs and disruption.
It remains to be seen both how the above translate to concrete actions, as well as the timescale thereof. A plausible scenario suggests that the heating oil market could decline by around 30% to 40%, from the current 2.2 billion litres, by 2026/7 and to near-zero by 2030, with a progressive acceleration in the rate of decline in the latter part of the decade, as existing heating oil outlets switch to alternative energy sources. A big unknown will be the measure of ‘official’ acceptance that there will be a future role for bio-kerosene – which brings us conveniently on to HVO.
Interest in HVO has soared in recent years as a replacement for road diesel and, increasingly, from a lower start point, in the aviation sector as a sustainable replacement (SAF) for Jet A/A-1. There have also been a number of successful trials as a successful replacement for kerosene as a heating boiler fuel. What these applications have in common is that HVO has almost the same chemical structure as middle distillates derived from oil refining, so it can be used in engines and plant that are designed to run on petroleum distillates, with no blending required, and is therefore an ideal drop-in fuel.
It also has excellent cold flow properties, good storage stability (no oxidation due to absence of oxygen) and ignition/clean burning qualities (Cetane No @ 70).
In trials, in both transport (vs diesel) and heating (vs. kero) it has delivered GHG reductions of up to 90%.
However, there are some significant, and related, hurdles to be surmounted, among others:
• Availability- total production was assessed to be circa 8 mln tonnes at the start of last year and, according to French biodiesel broker, Greenea, capacity is projected to increase rapidly over the next 3 years to somewhere in the 28-30 mln mt range by mid/late decade. While this could more than amply service UK heating oil requirement, there are the very substantial, competing demands potentially emanating from both aviation and ground transport ‘in the mix’.
• Intrinsic to the above is access to a reliable, continuous supply of feedstocks of the requisite credentials and provenance, be they waste, used cooking oil, animal fats, vegetable oils, etc. to be able to support a viable sector.
• A major current challenge is the cost of HVO, which is principally driven by (a) lack of scale ( vs. hydrocarbon liquid fuels) and (b) feedstock cost. Achieving that scale rapidly will go part of the way to addressing this challenge.
At the moment there are three kinds of HVO production facility:
• Bespoke/ stand-alone greenfield plants-established and dedicated to HVO production
• Former oil refineries converted to bio-refineries; Total have converted two former petroleum facilities in France to bio-refining facilities, as have ENI in Italy and Phillips66 in California.
• Co-processing at existing oil refineries, where renewable fuels are processed through an existing HDS unit, with the only additional infrastructure required being that to accommodate feedstocks. An example of this is the Phillips 66 Humber refinery.
Particular benefits of the second and third categories, above are:
1. Ability to achieve greater production scale, relatively quickly.
2. The output can be fed in to an established ‘downstream’ supply chain and route to market, supported by established distribution and sales / marketing expertise.
Oil refining capacity in the developed economies exceeds market requirement, and this ‘overhang’ is likely to become larger as the energy transition gathers pace. So, there must be a commercial logic to utilising these facilities more widely, either through conversion to bio-refineries or co-processing at existing refineries, to speed up the transition through greatly increased production of sustainable, low carbon liquid fuels. It is beginning to happen but needs to be accelerated.
This decade is almost certain to witness the full phasing out of kerosene as fuel used for space heating. It does not follow that there is not an important role for a low carbon liquid fuel, such as HVO, to replace it. There are sufficient quantities to cover what is a relatively modest market requirement and trials have ‘proved’ the technology, although cost remains a problem to be addressed.
The case for such fuels to support the energy transition has been accepted in official circles for both ground transport and aviation. Why not also for heating in buildings, helping to reduce the GHG emissions therefrom (which account for 25% of the total)?
It’s been generally accepted that the effective combating of climate change requires a suite of solutions over different time frames. Sustainable, low carbon liquid fuels are part of this suite; clarity around Government intentions is needed to give both direction and momentum.
Rod Prowse, worked for 30 years across the full spectrum of the downstream oil sector, in both the UK and USA, which has included leadership positions in both retail and wholesale fuels businesses. Rod draws on his extensive knowledge of this global industry to bring us ‘Industry Insights’.