By Joe Petrowski
Engine manufacturers and fuel marketers have always worked closely together, dating back to the days when Henry Ford, the Chrysler brothers and Alfred Sloan designed their engines to use surplus and abundant kerosene and gasoline as the early fuels for motor cars. While there is much hype about alternate fuels, including a rise in diesel passenger cars in the United States similar to Europe, the reality is that 248 million of the current total 253 million vehicles in the United States are gasoline powered. We do have 4.5 million diesel powered vehicles, which is expected to grow to 6 million by 2025 with a rise in passenger diesel and decline in trucks, buses and other commercial vehicles. The important point for fuel marketers is to look ahead at the growth rate and the forces driving the engine modifications.
Those forces are:
- Government regulations and jaw boning
- Price
- Technology
- Culture (demographics, environmental consciousness and “green washing”)
The following table is instructive (in million of vehicles).
Type Today 2025
Gasoline 248 225
Diesel 5 7
Natural Gas 1 5
Hydrogen 0 .2 1
Elec/Hybrid 0 .2 5
Bio 0 .2 1
Total 254.6 244
The number of vehicles most likely will decline over the next decade with an aging population, increased urbanization and ride sharing. New car sales are on a 17 million pace for 2016 down from 18 million year ago, so there are signs that vehicle shrinkage is occurring.
On the electric front, improvement in battery technology and the build out of charging stations drive electric vehicle adoption. In addition, zero emission vehicle (ZEV) regulations are a component of current law in 10 states:
- California
- Oregon
- New Jersey
- New York
- Six New England States
Government fleets, especially buses, are converting to natural gas vehicles (NGVs), hydrogen and electric, and in general small truck and passenger fleets are well suited for natural gas and hydrogen.
The price of hydrogen and natural gas, along with a build out of fueling infrastructure (there are currently 10 new LNG production facilities on the planning board with an eye on Class 6 through 8 trucks), drive (pun intended) that market. Unless gasoline and/or diesel goes under $2/gallon (unlikely), that advantage will not disappear. Tax credits, HOV, parking privileges and other non-price perks are also pushing the trend.
A variety of major manufacturers have already announced plans to produce and market hydrogen and natural gas vehicles, including:
- Toyota (Mirai)
- Hyundai (Tuscon and IX35)
- Chevrolet (Equinox and Sequel)
- Honda (Clarity)
- Mercedes Benz B series F cell car
- Chrysler
- Volkswagen
- BMW
These manufacturers are in current discussions to produce these vehicles in the United States and either pre-sell and fix price the fuel with the vehicle purchase, or through partnerships assist in the build out of stations programmed into the vehicle’s GPS to fuel the cars. With a range of over 300 miles and quick fueling, natural gas vehicles and fuel cell vehicles (hydrogen) will quickly gain acceptance. Many of these vehicles are already in production in Japan, China and Europe (Pakistan leads the world in natural gas vehicles). A further advantage for hydrogen is that several utilities are considering fuel cells as storage and emergency power, and a fuel cell for home energy and power is in late stage development.
While I would repeat the caution voiced by a wise person at the beginning of the auto age—“Don’t sell your horse yet!”—I think these are trends that no fuel marketer can ignore.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution, and a member of the Gulf Board.
