Gas vs oil vs propane furnace: install cost, fuel bills, and conversion math

What you can actually get matters more than what is "best"

Every comparison guide online leads with efficiency ratings and fuel-cost tables. Those numbers matter, but they only matter if you can buy the fuel in the first place. About 47 percent of US homes heat with natural gas, 5 percent with oil (mostly Northeast), and 5 percent with propane (mostly rural). The rest use electricity or other sources. Your home is in one of these buckets based on geography and history, not preference.

Call your local gas utility before doing any other math. Ask one question: is there a gas main on my street, and what would the tap fee be to connect. The answer routes everything else. Here is how the rest of the decision plays out based on what you find:

• Gas main on your street, tap fee under $2,000: Switch to gas. Total cost to convert from oil including tank removal and new furnace runs $5,000 to $15,000, and the fuel savings usually pay it back inside 7 to 12 years.
• Gas main close but utility wants to extend it ($5,000 to $15,000+ in line extension): Math gets borderline. Propane is usually faster and cheaper to switch to from oil, even if the per-BTU cost is higher long-term.
• No gas in the area, not coming: The decision is oil vs propane. The next section covers it.
• Already on gas: Almost never makes sense to switch. The only exception is if you are also adding solar and want to electrify the whole home with a heat pump. See the cold-climate heat pump guide for that path.

What each fuel actually costs to run

For a 2,000 square foot home in climate zone 4 or 5 (most of the Midwest and Northeast), here is what a typical heating season costs at current US average fuel prices. Natural gas is the benchmark; the other two are multiples of it.

Current US average fuel prices: natural gas around $1.39 per therm (delivered residential), heating oil around $4.46 per gallon, propane around $2.67 per gallon. Northeast prices on all three run 20 to 40 percent above the national average. Source: EIA residential fuel price data. The gas vs electric furnace calculator plugs in your local utility rates to give a more specific number.

What it costs to switch from one fuel to another

Almost every homeowner reading this is already on one of the three fuels and is asking whether to stay or switch. Here is what conversion actually runs from each starting point, including the often-forgotten tank work.

Oil to natural gas

Total cost: $5,000 to $15,000-plus. The pieces:

• Utility tap fee to connect to the gas main: $0 to $2,000 if the main is on your street, $2,000 to $10,000-plus if the main has to be extended toward your house. This is the single biggest variable. Call the utility first.
• Service line trenched from the main to your meter: roughly $15 to $50 per foot.
• Gas piping inside the house to the furnace and any other appliances: $350 to $2,000.
• New gas furnace installed: $3,000 to $7,000.
• Decommission and remove the oil tank: $500 to $1,500 for a basement tank, $1,000 to $3,400 for a buried one.

Payback math: in zone 5 with current fuel prices, a homeowner switching from oil to gas saves roughly $1,500 a year on fuel. Total conversion at $10,000 pays back in about 7 years. Faster in cold climates, slower in mild ones.

Oil to propane

Total cost: $4,000 to $15,000. The pieces:

• Remove or decommission the oil tank: $500 to $3,400.
• New propane tank installed: $500 to $2,500 for above-ground, $3,000 to $5,000-plus for buried. Often free if you lease from a propane company (more on the lease trap below).
• New propane furnace: $3,000 to $7,500.
• Gas piping from tank to furnace and any other appliances: $350 to $1,500.

Propane is cheaper to install than gas because there is no utility involvement and no street excavation. Payback vs staying on oil is faster in volatile-oil years but the steady-state savings are smaller than oil-to-gas (oil is only 20 percent more expensive than propane per BTU, vs gas being half).

Propane to natural gas

Total cost: $3,500 to $10,000-plus. The big savings versus starting from oil: no tank removal cost, and many modern propane furnaces can be converted to natural gas with a $100 to $300 orifice kit (check with the manufacturer first; older units cannot). The cost is mostly the utility tap fee plus a possible new furnace.

The oil tank that almost nobody warns you about

If your house has an oil tank in the basement or buried in the yard, and it is more than 25 years old, you have a real liability sitting there. Oil tanks corrode from the inside out as water condenses at the bottom over decades. By the time visible rust shows up outside, the inside is much worse.

A leaking oil tank cleanup costs an average of $8,000 for contained spills and runs to $50,000 to $100,000-plus when oil reaches soil or groundwater, especially if a neighbor's property is affected. Standard homeowners insurance excludes oil-tank pollution. Coverage requires a specific rider (usually called an Escaped Liquid Fuel Endorsement) that costs $50 to $100 per year and pays roughly $50,000 first-party and $200,000 third-party.

If you have an aging oil tank and no rider, the cheapest move is to call your insurance agent and add the endorsement before the next renewal. The second move, if the tank is past 25 years, is to seriously consider switching fuels before the tank fails. The conversion math above starts to make sense even without fuel-cost savings when you weigh in the risk.

Tank removal alone runs $500 to $1,500 for a basement tank, plus $250 to $550 for soil testing if the tank has visible weeping or if it is buried. Many states require soil testing on removal of any underground tank.

The propane tank rules nobody explains

Most homeowners new to propane assume the tank in the yard is theirs. It usually is not. The propane company leases it to you for $50 to $250 per year, often with no upfront cost, which sounds great until you realize you can only buy fuel from that one company. Lease prices run $0.30 to $1.00 per gallon above what you could pay shopping the spot market. On a 600-gallon annual usage, that is $180 to $600 a year extra forever.

Owning the tank costs $800 to $2,500 installed for a 500-gallon above-ground unit, or $3,000 to $5,000-plus for a buried one. Break-even vs leasing usually hits at 5 to 10 years depending on how much fuel you use. A 500-gallon tank fits a 2,000 square foot home using propane just for heat; a 1,000-gallon tank fits larger homes or ones using propane for water heater, range, and clothes dryer too.

Above-ground vs buried: above-ground is cheaper to install and easier to service. Buried preserves the yard, lasts 30 to 40 years vs 20 to 30 for above-ground, and stays warmer in deep cold (which matters in northern climates because propane stops vaporizing efficiently when the tank gets below about -20 degrees).

Lifespan and resale

Gas and propane furnaces last 15 to 20 years on a normal maintenance schedule (one annual tune-up). Oil furnaces last 15 to 25 years but only with religious service: oil burns dirtier, leaves more soot in the heat exchanger and chimney, and a skipped annual service can shorten lifespan dramatically.

Resale value tracks the same pattern. Real estate agents report that converting from oil to natural gas typically adds about 4 percent to home sale price in markets where oil is seen as a liability (most of the Northeast). Propane is neutral on resale. Gas is the universal default and broadens the buyer pool because most buyers expect to see it.

The 80 vs 96 AFUE payback calculator handles the separate question of how high-efficiency to spend up for once you have picked a fuel. The furnace sizing calculator sizes the unit for your house, and the HVAC replacement cost calculator estimates the full installed price in your zip code.

The fourth option for homeowners with no gas line

Modern cold-climate heat pumps now hold heating capacity down to about 5 degrees outdoor, and the best models work usefully down to -15. For a homeowner with no gas at the street, the decision is no longer just oil vs propane. A heat pump can replace the furnace entirely, runs on electricity (which most homes already have), and gets federal and state rebates that make the install competitive with conversion to propane. The math depends on local electricity rates, climate zone, and whether you have ductwork. The cold-climate heat pump guide walks through which models hold capacity in your climate and what the rebate landscape looks like. Worth running the numbers before defaulting to another fossil-fuel install.

Common questions

Is propane cheaper than oil to heat a house?

Per gallon, yes. Per BTU of usable heat, also yes, but only by about 20 percent at current US average prices. Propane runs about $30.70 per million BTU delivered, oil about $37.90. The gap is smaller than most homeowners expect. Switching from oil to propane saves real money over time but the payback period is longer than switching from oil to gas.

Is it worth replacing a 20-year-old oil furnace?

Yes, almost always. A 20-year-old oil furnace is at or past the end of its design life, the heat exchanger is at risk of cracking (which is a carbon monoxide problem, not just an efficiency problem), and the oil tank attached to it is probably the same age. This is the right time to re-run the fuel-source decision from scratch rather than just dropping in another oil unit. Conversion to gas or propane usually pays back in 7 to 12 years.

Can I convert my oil furnace to propane?

Not in place. The burner assembly, fuel lines, and venting requirements are different enough that a true conversion requires replacing the furnace. The one piece of equipment that sometimes converts in place is a propane furnace to natural gas (with a $100 to $300 orifice kit) or vice versa, on modern units only.

How much does it cost to switch from oil to natural gas?

Total $5,000 to $15,000-plus. The single biggest variable is the utility tap fee. If the gas main runs along your street, the tap is often $0 to $2,000 and the total project lands at $5,000 to $10,000. If the utility has to extend the main, the tap alone can hit $10,000 and the total project runs $15,000 to $25,000-plus. Call the utility before doing any other math.

Do I need a chimney for a propane furnace?

Modern high-efficiency propane furnaces (90 percent AFUE and up) vent through a PVC pipe in a sidewall, not the chimney. Older 80 percent units still need a metal flue, often through an existing chimney. The same rule applies to gas furnaces. Oil furnaces always need a Class A metal chimney or stainless liner because the flue gas is hotter and dirtier.

Does converting from oil to gas increase home value?

Yes, in most markets. Real estate data shows about a 4 percent sale price lift on average, with bigger gains in markets where oil heat is seen as a negative (most of the Northeast). Buyers in those markets often write the cost of conversion into their offer, so leaving the oil system in place costs more on the sale than the actual conversion would.

Why is heating oil so expensive in the Northeast?

Two reasons. First, Northeast heating oil is mostly imported from refineries overseas because the local pipeline network was built around gasoline and diesel, not heating oil. Second, demand is concentrated in five months of the year and concentrated in one region, so supply tightens quickly during cold snaps. Oil prices in the Northeast routinely run 10 to 40 cents per gallon above the national average.

If your existing furnace is acting up but you are not sure whether it is worth a repair, the furnace blowing cold air diagnostic walks through what might be wrong. For the choice between forced-air furnaces and water-based boilers (different system, same fuels), the boiler vs furnace comparison covers that decision.