CHICAGO -- Whether the issue has been biofuel blending, retail margins or vehicle fuel economy, this year has demonstrated how little control convenience-stores retailers have over their largest category by sales: fuels. And, in fact, how much of its fate depends on who is in the White House.
Here are five headlines that have made the first half of 2018 a tumultuous regulatory and profit ride for fuel retailers ...
Photo courtesy of djedzura.
1. Refinery blending
In 2018, the U.S. Environmental Protection Agency (EPA) under administrator Scott Pruitt has ramped up so-called “small refinery exemptions,” biofuel blending waivers meant to relieve small refineries facing financial hardship from their obligations under the Renewable Fuels Standard. Most controversial—besides the quantity of exemptions granted and the lack of transparency over the recipients—is that some of the recipients have been large, multibillion-dollar refiners such as HollyFrontier and Andeavor.
In June, ethanol industry groups sued the EPA over the exemptions, charging that they were being done in secret, in excess and to the point that the 1.6 billion gallons in blending so far waived is destroying ethanol demand in the United States.
Photo courtesy of WClarke.
2. E15 waiver
One area of agreement between ethanol industry groups and the EPA seems to be the worthiness of a Reid vapor pressure (RVP) waiver for E15 in the summer, which would allow the 15% ethanol-gasoline blend to be sold throughout the year. This past spring, fuel retailers pleaded the case for E15 to President Trump. And in May, the White House announced that Trump, legislators and regulators seemed to agree in principle with the decision to allow year-round sales.
What hasn’t happened yet: any of the regulatory or legislative steps required to provide the waiver for E15. The month of June began with no movement to lift the summer ban, which stretches from June 1 to Sept. 15, when E15 can be sold only to drivers of flex-fuel vehicles in most markets.
3. Higher gasoline prices, lower margins
Gasoline prices hit their highest point in more than three years as the U.S. weekly average for regular-grade rose toward the pivotal $3 mark this spring. Providing the pressure: geopolitical tensions after the United States exited the Iran nuclear deal, and the weight of the Organization of the Petroleum Exporting Countries’ (OPEC’s) production cuts, among other factors.
The result is retail margins have been squeezed as retailers attempt to minimize passing on their own wholesale cost increases. Raymond James reported that the national average margin on regular unleaded fell to a 16-month low in April, 19% below year-ago levels.
Photo courtesy of Tewy.
4. Octane push
In April, the three biggest automakers—General Motors, Ford and Fiat Chrysler—testified before Congress in support of a 95 RON standard for gasoline. RON, or research octane number, is one of two octane measurements that average out to a fuel's anti-knock index (AKI), a measurement of its knock resistance.
As they seek to hit higher fuel-economy targets, these automakers have set their sights on a new generation of more efficient, turbocharged engines that run on higher-octane gasoline. They have settled on a national 95 RON standard not only for the fuel-economy gains and greenhouse-gas emission cuts possible, but also the relatively modest, 5-cent-per-gallon increase in production costs.
The automakers envision that this new fuel blend would gradually dominate the forecourt as more turbocharged vehicles hit the road after 2023—a timeline that could stretch out over a decade.
Photo courtesy of Bobak.
5. Fuel economy
“Not appropriate”: That was the conclusion of Pruitt’s EPA after a midterm evaluation of the emissions and Corporate Average Fuel Economy (CAFE) standards set during the Obama administration that would require doubling the nationwide vehicle fleet average mileage to 54.5 miles per gallon for cars and light-duty trucks by 2025.
In 2017, just before President Barack Obama left office, the EPA announced that it planned to leave the standards in place. But after automakers lobbied the Trump administration, complaining that the standards do not reflect the effect of lower gas prices on consumers’ vehicle choices, they found it was very receptive to their argument.
“The Obama administration’s determination was wrong,” Pruitt said in an April statement. “Obama’s EPA cut the midterm evaluation process short with politically charged expediency, made assumptions about the standards that didn’t comport with reality and set the standards too high.”
This month, the EPA and National Highway Traffic Safety Administration (NHTSA) are poised to release their proposal for a new target, which is widely expected to be a freeze of the standards in 2020.
Photo courtesy of Max Pixel.