Oil vs heat pump: the cost-per-GJ math

If you heat your home with oil and somebody on the internet has told you that switching to a heat pump will save you money, you've probably also wondered whether they're right. The honest answer is that it almost always does, but how much it saves depends on three things you can measure: the price of oil where you live, the price of electricity where you live, and the seasonal efficiency of the equipment you would install.

The trick is to compare both systems on a fair basis. You cannot compare litres of oil to kilowatt-hours of electricity directly because they are not the same unit. What you can compare is what each one costs to deliver the same amount of heat to your house. The standard unit for that comparison is the gigajoule, written GJ. One gigajoule is the amount of useful heat needed to do a specific job, regardless of how you produced it.

The two formulas

Here is the cost to deliver one gigajoule of heat using a fuel-burning furnace:

And here is the same number for a heat pump:

The number 277.78 is just the conversion from kilowatt-hours to gigajoules: one gigajoule equals 277.78 kWh. The two formulas use the same logic. You take what you pay for the energy going in, then divide by how much of it ends up as useful heat coming out.

For an oil furnace, the input is oil and the conversion efficiency is around 0.85 (meaning 15% of the fuel's energy escapes up the chimney). For a heat pump, the input is electricity and the "efficiency" is the COP, which is usually somewhere between 2.0 and 3.5 over a full Canadian heating season. The reason a heat pump's COP can exceed 1.0 is that the electricity only runs the compressor; most of the heat comes from outside the house. We have a separate article on how heat pumps actually work if you want the physics.

Worked example: a New Brunswick oil home

Imagine a 130 m² home in Moncton heated with oil at $2.00 per litre, with a furnace operating at 85% efficiency. Here's the conversion to dollars per GJ delivered.

Oil has an energy content of 38.68 megajoules per litre when fully combusted (the higher heating value, or HHV, which Canadian energy audits use as the convention). That means one gigajoule of oil contains 1,000 MJ ÷ 38.68 MJ/L = 25.85 litres. At $2.00 per litre, raw fuel costs $51.70 per gigajoule. After accounting for the 85% combustion efficiency, the cost per GJ of useful heat is $51.70 ÷ 0.85 = $60.82.

Now consider the heat pump. New Brunswick residential electricity is around $0.145 per kWh including delivery. A seasonal COP of 2.5 is typical for a cold-climate heat pump in NB's climate.

Cost per GJ delivered = $0.145 × 277.78 ÷ 2.5 = $16.11

So at New Brunswick prices, a gigajoule of heat from oil costs $60.82, and a gigajoule of the same heat from a heat pump costs $16.11. The heat pump is about 73% cheaper per unit of warmth. If the house needs 60 GJ of heat in a year, the oil bill works out to about $3,650 and the heat pump electricity bill to about $970. A difference of roughly $2,700.

Where the math turns against you

The same formula tells you when a heat pump is not a clear win. Three things can flip the comparison.

Cheap natural gas

In Alberta, residential natural gas is delivered for around $8 per GJ (commodity plus delivery and transmission). A 92%-efficient gas furnace delivers heat at about $8.70 per GJ. Alberta electricity, meanwhile, is around $0.17 per kWh. With a COP of 2.5, the heat pump cost works out to $0.17 × 277.78 ÷ 2.5 = $18.89 per GJ delivered. The heat pump costs roughly twice as much to run as the gas furnace.

This is not a knock on heat pumps. It is a knock on the rate ratio. If electricity were closer in price to gas on an energy-content basis, the heat pump would still win because it uses outdoor heat. The cheap-gas-plus-expensive-electricity combination is unusual.

Very cold climates with single-stage backup

The formula uses a seasonal COP. The average over the year. But a heat pump's COP drops as the temperature falls. In Whitehorse or Yellowknife, a unit rated COP 3.0 at +8°C might deliver COP 2.0 averaged across the year and only COP 1.3 in January. If you don't have a good backup system, the unit's heating capacity also drops below the home's demand, and the electric resistance backup kicks in. Resistance heat has a COP of 1.0, so the seasonal average plummets if it runs often.

For the coldest parts of Canada, a dual-fuel setup that keeps the original furnace as backup tends to win on operating cost, even though it complicates the install.

Wood heat

If you cut your own wood or buy from a local supplier, your delivered cost can be $5 to $8 per GJ. A 65% efficient wood stove still beats most heat pumps on running cost. The case for switching from wood is usually about convenience, indoor air quality, and not having to handle firewood. Not about saving money.

What the formula doesn't capture

The cost-per-GJ comparison gives you the operating cost side of the decision. It does not tell you whether the install cost is worth it. To answer that, you take the savings per year and divide it into the net install cost (after rebates).

For the New Brunswick example above, if a heat pump installation costs $20,000 and rebates cover $8,000, the net cost is $12,000. Annual savings are about $2,700. Simple payback is 12,000 ÷ 2,700 ≈ 4.4 years. After that, you are keeping the savings.

For the Alberta gas example, there is no payback. The heat pump costs more to run than the gas furnace. The case for switching would have to rest on something else: getting summer air conditioning, eliminating combustion in the home, or reducing emissions on a grid that is slowly cleaning up.

Quick reference table

Here is the per-GJ cost for several common heating sources at typical Canadian prices. These are illustrative. Your own bills are the truth.

The pattern is clear. Heat pumps win against oil and propane almost everywhere in Canada because oil and propane are simply expensive per unit of heat. They tie or lose against piped natural gas, particularly in provinces where gas is cheap and electricity is not. They beat electric baseboards by roughly 2 to 3 times because that's the COP doing its work.

Doing the math for your own home

Take last year's heating bill. Divide by your fuel rate per GJ from the table above (or your utility's published rate) to estimate how much heat your home actually consumed. Multiply that by the heat-pump cost-per-GJ for your province. The difference is your projected savings.

Or skip the arithmetic and use the check, which does exactly this but with your local climate data and the current rebates baked in.