Stay informed on emerging market forces before they catch you off guard.
Editorial Note: This article ran previously in the October 2015 issue of NACS Magazine
By John Eichberger
Petroleum products will remain the dominant source of transportation energy for the next several decades, but up and coming technologies have the potential to erode petroleum’s market share. While the emergence of any challenger continues to be minor, certain developments could change the forecasts a bit more rapidly. It’s important to continuously monitor changes in the market and evaluate any effects on fuel demand, consumer behavior and overall economic conditions. We’ve summarized a few key trends worthy of frequent consideration.
Fuel Economy
In August 2015, the average fuel economy of new vehicles sold was 25.1 miles per gallon. According to the University of Michigan, this was 0.1 mpg lower than July 2015, and could be attributed to an increase in light truck sales. Baum & Associates reports that model year 2014 ended with a combined fleet average of 25.3 mpg, and fuel economy for light trucks was up 4.3% and 1.4% for cars. Federal Corporate Average Fuel Economy (CAFE) standards call for vehicles to reach a target of 54.1 mpg by model year 2025. (The standard is a calculated efficiency equivalency based upon a required reduction in greenhouse gas emissions. The actual fuel economy is expected to be much lower.)
This relentless pursuit of fuel efficiency will deliver greater value to consumers, but at what cost is still a topic of debate. Recently, Bill Fox, chairman of the National Auto Dealers Association, questioned whether consumers would spend the estimated $3,200 per vehicle it will cost to reach the government’s fuel efficiency targets.
CAFE is subject to an interim review in 2017; however, any changes to the policy will depend on who is sitting in the Oval Office following the 2016 election. Because the technologies in service now are rendering a more fuel-efficient fleet, this will ultimately exert downward pressure on fuel demand.
Electric Vehicles
Today, most battery electric vehicles (BEV) have an estimated range of about 80-90 miles per charge. However, perhaps as early as model year 2017, many experts are projecting an average range of 150-200 miles per charge. This could have a significant effect on the marketability of these vehicles and on fuel demand in general.
According to a recent Penn Schoen Berland consumer survey conducted on behalf of the Fuels Institute, the average consumer drives about 212 miles per week, averaging 32 miles per day. Under those conditions, an EV today would likely satisfy the needs of most American drivers. Double the expected mileage per charge, and the technology becomes much more attractive to consumers. At 200 miles per charge, a consumer would only need to plug-in once per week.
Further, the number of EVs in the market continues to grow. According to the Alternative Fuels Data Center, managed by the Department of Energy, there are 11 model year 2015 BEVs commercially available in the United States, and another 14 plug-in hybrid EVs. These numbers are expected to increase and, as the technology becomes more frequently seen by consumers, it will lose its mystery and become a viable option to consider, so keep an eye on these developments.
Octane
Automakers are saddled with a number of regulatory requirements pertaining to fuel economy, emissions and so on. To comply and deliver attractive vehicle options to consumers, each manufacturer is evaluating different technology options. One option many are considering is formulating an engine that will reach optimum performance when running on a specific, high octane fuel. The desired outcome is to deliver a vehicle that achieves greater horsepower, lower emissions and better fuel economy—all key objectives for automakers. Currently, research indicates that a fuel formulation with a Research Octane Number of 97-100 (possibly a 95 AKI) would be required. To achieve this level of octane, the most affordable formulation would likely include ethanol at 25-30% volume. For fuel retailers, this introduces a complicated situation, specifically regarding equipment compatibility and ensuring only vehicles specifically designed to operate on such fuels (i.e., legacy flex-fuel vehicles and newly designed optimized engines) are purchasing the fuel. If the fuel formulation is E25, much of the equipment being manufactured today can be obtained with a UL listing as compatible with E25. Anything beyond E25, however, will require E85 listed equipment.
How this discussion will ultimately play out remains to be seen, but the auto industry is working with several national labs to evaluate which engines and fuels will deliver the greatest bang for the buck. Fortunately, most of these entities are also paying attention to infrastructure challenges.
Gaseous Fuels
When crude oil was $100 per barrel and gasoline was $3.50 per gallon, retailers expressed a lot of interest in the viability of natural gas as a transportation fuel. Since the bottom fell out of the barrel, concern has dwindled, but this doesn’t mean that natural gas is not a viable option. For one, as a transportation fuel it is far less price volatile than oil-based fuels. It is considered by many as a relatively clean option, and it can provide fleet operators long-term cost savings. Promoters of a natural gas market continue to press on for increased market share. Most of the opportunities are currently seen in the medium and heavy-duty vehicle markets, with less eminent expansion expected in light-duty vehicles.
There’s also hydrogen, a technology that presents great opportunity to automakers by delivering zero emissions, high performance and superior fuel efficiency. Fuel cell vehicles can refuel in three to five minutes and deliver more than 300 miles per tank. Roll out is taking place in a collaborative and deliberate manner, which will allow the market to evaluate hydrogen’s viability before investing billions in infrastructure. Although in its infancy, vested hydrogen stakeholders are significant players in the market and will give the initiative some attention even in these early stages.
These emerging forces are each growing at their own pace and subject to market conditions, but consistent monitoring of developments will help you prepare for changes in business conditions going forward.
For more information about the Fuels Institute or how you can get involved, contact John Eichberger, executive director, at [email protected] or(703) 518-7971.
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The Fuels Institute is constantly monitoring and evaluating market developments. To join the conversation and share your insights, contact Director of Operations Donovan Woods ([email protected]) and sign up to receive our new monthly e-newsletter, Fuel for Thought.
