Top 5 Fuel Stories of 2016

CHICAGO -- The year 2016 was bookended by efforts to lift oil prices. Each had a different goal, and only one will (likely) end up successful.

In February, President Obama proposed a $10.25-per-barrel fee on oil that would fund clean transportation. One estimate suggested it could increase gasoline prices by 20 to 25 cents per gallon (CPG).

While that proposal ultimately went nowhere, another force stepped in after several months when oil prices refused to budge above $50. In November, for the first time in eight years, members of the Organization of the Petroleum Exporting Countries (OPEC) and key nonmembers such as Russia and Nigeria agreed to production cuts, totaling more than 1.2 million bpd and timed to begin in January 2017.

The past year saw several energy-related developments that at one point seemed unlikely but then quickly came to pass. Read on for five of the biggest fuel news of 2016: the long shots, sure things and still-developing stories ...

It was only a few years ago that many were reporting on the inevitable and transformational decline in gasoline consumption. While this will still likely come to pass, the timeline may need to be stretched out a bit.

With gasoline prices averaging just north of $2 per gallon for much of 2016, consumers responded with record amounts of driving. Vehicle miles traveled (VMT) have risen each month since April 2014. In 2016, drivers logged more than 2.4 trillion miles during the first nine months of 2016, according to the Federal Highway Administration.

Gasoline consumption rose 3% for the first half of 2016 vs. first-half 2015 to 71.8 billion gallons. This is a half-year record and the sixth consecutive increase for the first six months of any year on record. 

This translated to holiday vehicle travel either breaking records or reaching multiyear highs, including Memorial Day, Independence Day and Thanksgiving. 

Whether this upward trend will continue in 2017 will depend partly on gasoline prices. In its December 2016 Short Term Energy Outlook, the Energy Information Administration (EIA) projected an average retail gasoline price of $2.14 per gallon. For 2017, it expects a $2.30-per-gallon average.

Renewable identification numbers (RINs) have either been a large source of revenue or a cost burden in 2016, depending on whether one is a refiner or blender. That includes many of the c-store industry’s largest chains: Casey’s General Stores, Murphy USA and Circle K.

As the Environmental Protection Agency (EPA) has increased blending volumes under the Renewable Fuel Standard (RFS), obligated parties such as refiners have had to buy RINs by the millions of dollars, cutting into their already-pressured profits. Fuel retailers that blend, meanwhile, have earned millions by selling RINs they have earned to these obligated parties.

The pressure became so great in 2016 that refiners petitioned the EPA to move the point of obligation downstream. A new group representing small retailers emerged later in the year as an ally in this effort.

But in November, the EPA signaled it was not swayed by the petitioners’ arguments and preferred to keep the point of obligation where it is. 

And in a first, fuel retail and biofuel groups joined with the American Petroleum Institute in supporting this decision. 

The future of RIN prices—and the RFS in general—is unclear for 2017. President-elect Trump’s pick for EPA administrator, Oklahoma attorney general Scott Pruitt, is a critic of the renewable-fuels regulation and a staunch fossil-fuels supporter. Trump himself has expressed support of the RFS but is also seen as pro-oil.

E15, the 15% ethanol blend, is still limited to several hundred fueling sites out of 150,000 across the United States, but the entry of a few large chains into offering E15 this year is sure to increase that number quickly. 

In October, Atlanta-based RaceTrac added E15 to its first of more than 120 planned locations, while Thorntons rolled out the fuel blend to more than 40 of its Chicago-area stores. Sheetz expanded its offer in Pennsylvania and Virginia, and Kum & Go planned to have more than 100 E15 locations by the end of 2017. 

Other operators jumping into E15 included Family Express, introducing it to more than 40 pumps in Indiana, and Gate Petroleum.

Meanwhile, HWRT Oil Co. announced plans to offer E15 at four of its terminals in Ilinois, Indiana and Arkansas, making it the first fuel-terminal operator in the United States to provide it preblended.

One key issue that continues to stymie E15’s faster rollout—and may be resolved in 2017—is environmental regulations restricting its use for everything other than flex-fuel vehicles in many markets during the summer. And ethanol opponents including the API are banking on a legislative effort to cap blending volumes of the biofuel.

The entire year of 2016 seemed to be a month-by-month countdown to an October 2017 liability shift for pumps not meeting Europay Mastercard Visa (EMV) data-security standards. Just as news trickled out that fuel retailers such as Wawa, Kroger, Rutter's and Casey’s General Stores were moving on upgrade plans, reports also suggested that many operators had not yet made a move, despite concerns that not upgrading pumps could make them a target for criminals. Their collective hope: that Mastercard and Visa would delay the pump upgrade deadline, just as they did for the inside POS shift.

Their hopes were answered this December with news that Mastercard and Visa would indeed delay the pump liability shift, to October 2020. Why? Marketplace realities. That said, industry experts such as Gray Taylor, executive director of industry technical standards group Conexxus, warned that retailers should not consider this a true delay, but rather “a bit of breathing room to work out the challenges.”

The past year demonstrated how complex and vulnerable the United States’ fueling infrastructure is with a series of incidents that wreaked havoc on supply and prices.

In May, Michigan declared a fuel state of emergency after a crucial pipeline feeding the state underwent emergency repairs, and a Marathon refinery in Detroit shut down temporarily. 

In September, the Colonial Pipeline, which supplies much of the Southeast and East Coast with gasoline and diesel, faced its first shutdown after a leak was discovered at a section in Alabama. Supply outages, long lines at the pump and accusations of price gouging quickly followed.

Then, in a one-two punch, Hurricane Matthew rolled into Florida and up the coast, further battering communities and fuel retailers. It also proved an opportunity for the industry to show its mettle in the face of supply difficulties.

Finally, in October, the pipeline shut down yet again after an explosion, which killed one contract worker and injured several others working on repairs. Despite its violent, tragic start, this second shutdown appeared to have a lesser effect on communities served by the Colonial. However, the two incidents, playing out within two months of one another, raised several questions about the state of the United States' fueling infrastructure and the need to fortify it in the future.