Future of Fuels
New standards, legislation likely to complicate fuel retailing.
Convenience stores are not just where America shops—they’re where the majority of motorists gas up their vehicles. An estimated 80% offal the fuel purchased in the United States is from a convenience store, and with 77% of all dollar sales in c-stores coming from motor fuels, the industry does a great job of selling the fuels that their customers demand—but the future has many changes ahead.
At the Fuels Institute educational session, John Eichberger, NACS vice president of government relations and the executive director of the newly formed Fuels Institute, shared several key projections for the retail fuels market, policies that are affecting the market and what the industry can do now as its moves into the next generation of fuels.
Eichberger discussed how the fuels and vehicles markets are changing at a much faster pace than ever, primarily due to federal policy. The fuels convenience retailers sell tomorrow will be very different from what they sell today and, unfortunately, the introduction of these new fuels may not be coordinated in a way that benefits retailers or their customers.
Current Political Landscape
In 2007, the renewable-fuels 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 make up 7.5 billion gallons of the market by 2012, the Renewable Fuels Standard(RFS) was revised by Congress 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.
In 2011, the Obama administration finalized new regulations to control greenhouse-gas emissions from vehicle tailpipes. 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.
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. NACS created the Fuels Institute to bring vested stakeholders together to evaluate potential challenges and new opportunities for the market.
The 36-billion gallon RFS (see chart, p. 68) might be impossible to meet, considering the effect on demand of the new fuel economy standards. Eichberger said the Fuels Institute could possibly evaluate conditions in advance and help avoid this type of regulatory conflict in the future.
Eichberger also outlined the challenges from infrastructure limitations. Retail fueling equipment at the pump must be listed by UL as compatible with any fuel being sold. To bring higher ethanol blends to market, he estimated that it will cost nearly $10 billion industry wide just for compatible dispensers. Even withal-approved retrofit kits in place by pump manufacturers such as Gilbarco and Dresser-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 a product consumers aren’t even asking retailers to sell.
The Road Ahead
As new fuels are authorized for the market,retailers clearly face a number of legal challengesbefore they can decide to sell newfuels. NACS is supporting legislation—H.R. 1214, the Domestic Fuels ProtectionAct—that would provide retailers theflexibility and legal protection to moreeffectively offer their customers new fuels.
Retailers will sell what consumers wantto buy, and NACS is working to revisetechnical and regulatory hurdles that limitthe ability of retailers to be responsive totheir customers, Eichberger said. There’salso the issue of educating consumers onwhy they should use E15. Right now, onlythe opponents of E15 are gaining mediaattention, effectively suppressing potentialconsumer demand. So until there is aconcerted effort to explain to consumersthe benefits of E15, the fuel—as well as anyfuture fuels—will have a tough road aheadto achieve market penetration.
New fuels and vehicle compatibility willalso affect which fuels have staying powerin the market. Mid-level ethanol productscontaining more than 15% ethanol can beused only by flexible-fuel vehicles. However,the U.S. Energy Information Administrationprojects that these vehicles will notrepresent even 8% of the light-duty-vehiclemarket over the next 25 years. (See chart onp. 70.) This leaves a very small window ofopportunity for consumers to drive marketdemand for not just FFVs but also higherethanol blends.
The Fuels Institute, established in February2013, is an independent thinktank founded and managed by NACS.It was created to deliver comprehensiveand balanced research and analysisconcerning fuels, vehicles and relatedpolicy issues in order to create a marketin which consumers can safely, convenientlyand affordably purchase the fuelsthey desire.
Fact-based research projects currentlyunder consideration by the FuelsInstitute include future vehicle marketpotential for diesel and natural gas, aswell as an evaluation of the RFS blendwall. These projects will help informboth business owners considering longterminvestment decisions and policymakersconsidering legislation andregulations affecting the market.
In conjunction with NACS, the FuelsInstitute is commissioning monthlysurveys to better understand consumerbehavior, attitudes and preferences. Theresults will help NACS communicate tothe public on price sensitivity and therole of the industry in the U.S. economy;the Fuels Institute will use the informationgathered to identify potentialresearch projects and ensure those projectsare consumer-centric.
Consumer research in March revealed how likely consumers would be to use compressed natural gas as their transportation fuel, assuming the fuel and vehicles were available. The intent was to determine if there is an inherent distrust of natural gas as a transportation fuel. The result was a resounding “No”: 24% of consumers said they were “very likely” to use CNG and another 49% said they were “somewhat likely.”In April, research showed that consumers are less inclined to embrace diesel fuel, with 28% saying they would be “very unlikely” and 31% “somewhat unlikely” to use the product. Further research can help us better understand why, but insights such as these are critical elements of the Fuels Institute’s research agenda.
By examining consumer insights, the Fuels Institute can take this information to policymakers to help educate them about the market. For more information about the Fuels Institute, its agenda, participation opportunities and governing structure, contact John Eichberger [email protected].