As Convenience Store Decisions looks back on the past 25 years, customer demand will dictate the next 25 years in the fuel market.
By John Eichberger, Executive Director, The Fuels Institute.
What fuel will replace gasoline as the dominant energy source for personal transportation? The Magic Eight Ball says to ask again later, much later. In fact, gasoline is projected to remain the market leader for the next 30–50 years. However, other fuels will slowly cut into its market share.
According to “Tomorrow’s Vehicles,” a report released last fall by the Fuels Institute, the market share of light duty vehicles (LDV) powered by gasoline could in fact drop from 93.2% in 2012 to perhaps as low as 82.6% in 2023—a 10% drop in just 10 years. Further, the U.S. Energy Information Administration (EIA) forecasts gasoline consumption to drop 24% by 2040.
In the near term, most of the demand switch will be driven by diesel engines and flex fuel vehicles (FFVs). The Fuels Institute forecasts diesel vehicles could increase market share from 2% to as much as 7.2% by 2023 and EIA projects diesel demand to increase 26%. Meanwhile, while the number of FFVs could double to reach 9.3% of the market by 2023, the impact on gasoline demand should be minimal as EIA forecasts E85 sales to increase to approximately 3.4 billion gallons by 2040, or just 3% of the projected gasoline market.
Diesel and E85 are products with very similar consumer qualities to gasoline, so it makes sense they could impact the gasoline market, but what about the other alternatives?
Consumers Hold the Keys
Consumers will make the ultimate decision—they buy cars and they buy fuel. In survey after survey, we have found that the number one factor in their decision making process is money.
Consumers told the Fuels Institute that fuel economy and the cost of the vehicle were the most important factors when deciding which vehicle to purchase. And they repeatedly tell NACS (National Association of Convenience Stores) that they shop for fuel primarily by price and are willing to inconvenience themselves to save money at the pump.
The bottom line is consumers will make the ultimate decision concerning which technologies will shape the future. Auto companies and government agencies can promote their favorites, but until the consumer decides that a new fuel and vehicle will satisfy their transportation needs and, most importantly, benefit their budgets, it is unlikely any specific technology will dethrone liquid hydrocarbons.
So how do the most popular emerging technologies currently stack up to consumer needs?
Natural gas: Compressed natural gas (CNG) is favorable from a fuel perspective—it is being sold at retail for approximately half the price of a gasoline gallon equivalent. However, converting a vehicle to operate on CNG can cost $6,000 or more, which is a big disincentive for consumers. Fleets, however, seem more inclined to make the investment in vehicles and represent early growth opportunities. The forecast growth for CNG for the light duty fleet is slow for the next 10 years, but economics could accelerate the growth in the following years.
Electricity: Cost is not the limiting factor with electric vehicles (EV), as vehicle costs are coming down with the introduction of more competing models. Further, residential recharging is considered more affordable than buying fuel at retail. However, EVs are not projected to gain significant market share (less than 1.5% by 2040 according to EIA). Range anxiety and slow recharge capabilities are the primary limiting factors, and a breakthrough in battery technology does not seem eminent. While this is a category to watch, retailers need not fret—yet.
Fuel Cells: The amount of money invested by auto companies in fuel cell vehicles renders this new technology one to watch. Vehicle costs are coming down and the cost of hydrogen will come down as well. Infrastructure roll out is being coordinated by the U.S. Department of Energy and the strategy seems sound for a new market, but expense and complexity must yet be overcome. It is far too early to gauge consumer acceptance, but the efforts being made make this a potentially viable long term option.