Challenges Abound With Meeting Future Fuel Demand
What industry faces in meeting demands of RFS, new CAFE standards
CHICAGO -- With 77% of all dollar sales in convenience stores coming from motor fuels, the convenience and fuel retailing industry does a great job of selling the fuels that their customers demand--but the future has many changes coming its way.
At the Fuels Institute educational session at the 2013 NACS State of the Industry Summit, John Eichberger, NACS vice president of government relations and the executive director of the newly formed Fuels Institute, shared several key projections of retail fuels market, policies affecting the market and what the industry can do now as we move into the next generation of fuels.
He shared how the market has changed since 2007, the year of peak gasoline demand, and how total demand has decreased 7.5%. From a federal policy perspective, this change in playing havoc with existing fuel market.
Eichberger outlined two federal policies that will change the existing retail fuels market:
In 2011, the Obama administration finalized new regulations to control greenhouse gas emissions from vehicle tailpipes. These new rules were translated into an estimated effect on required Corporate Average Fuel Economy (CAFE) standards that all vehicles in the United States must meet. The net effect of the policy was to increase the mandated fuel efficiency of the nation’s fleet to 54.7 miles per gallon equivalent for passenger vehicles by model year 2025.
In 2007, the debate shifted to address climate change and not just boost ethanol and biofuels sales. Originally implemented in 2005 with a requirement that renewable fuels would comprise 7.5 billion gallons of the market by 2012, Congress revised the Renewable Fuels Standard (RFS) in 2007 to require a mix of qualified renewable fuels, each delivering a specific reduction in lifetime greenhouse gas emissions, to 36 billion gallons by the year 2022.
(Separately, NACS in a letter has responded to the U.S. House Committee on Energy & Commerce concerning the RFS.)
How these two policies continue to play out will dramatically affect which fuels convenience retailers will be selling in the next 30 years, Eichberger said, noting that NACS created the Fuels Institute to bring vested stakeholders together to address some of the challenges coming our way, such as satisfying the RFS. For one, the RFS calls for 16 billion gallons of commercially viable cellulosic biofuels in the market by 2022--but as of today, this will be impossible to meet.
Eichberger also outlined the challenges with infrastructure limitations. Retailer fueling equipment at the pump must be listed by UL as compatible to sell E10 ethanol blends or greater. To comply, he estimated that it will cost nearly $10 billion industry wide just for dispensers. Even with UL-approved retrofit kits in place by pump manufacturers such as Gilbarco and Wayne, the costs will still be significant at $4 billion--all before breaking concrete to change out underground storage tanks. The price tag could hit $20 billion for product consumers aren’t even asking retailers to sell.
As new fuels are authorized for the market, retailers clearly face a number of legal challenges before they can decide to sell new fuels. NACS is supporting legislation, H.R. 1214, the Domestic Fuels Protection Act, that would provide retailers the flexibility and legal protection to more effectively offer their customers new fuels.
Convenience retailers will sell what consumers want to buy, said Eichberger, adding that NACS is working to revise technical and regulatory hurdles that limit the ability of retailers to be responsive to their customers.