NAG Burning Issue: Understanding Alternative Fuels

Moderator Suzanne Murray, partner, Haynes and Boone, Lead Counsel for the Small Retailers Coalition; and speakers Stanley Roberts, president and CEO, Capital Oil; Wendy Chronister, president and CEO, Chronister Oil Co.; and John Eichberger, executive director, The Fuels Institute.

Will electric vehicles achieve market saturation? Experts tackle the future of fuel.

By Erin Rigik Del Conte, Senior Editor

Day 3 of the National Advisory Group (NAG) Conference kicked off with an educational session entitled, “Competing on Fuel: Understanding Alternative Fuels, RIN’s and Declining Gallon Sales.”

Moderator Suzanne Murray, partner, Haynes and Boone, Lead Counsel for the Small Retailers Coalition; and speakers Stanley Roberts, president and CEO, Capital Oil; Wendy Chronister, president and CEO, Chronister Oil Co.; and John Eichberger, executive director, The Fuels Institute, tackled these hot issues within the convenience store industry.

Murray began with an overview of the renewable fuels standard (RFS) and RINs (Renewable Identification Number, or a serial number assigned to a batch of biofuel to track its production, use and trading.)

The RFS is a national policy requiring a certain volume of renewable fuel to replace or reduce the quality of petroleum-based transportation fuel, heating oil or jet fuel. Compliance is achieved by blending renewable fuels into transportation fuel, or by obtaining credits (RINs) to meet U.S. Environmental Protection Agency (EPA)-specified Renewable Volume Obligation (RVOs). The standards are converted into a percentage and obligated parties must demonstrate compliance annually. Obligated parties must obtain sufficient RINs to demonstrate compliance with the annual standard.

“RINS are the currency of the RFS program,” she pointed out.

RINs
“I think RINs is the biggest challenge I’ve ever faced and most marketers in the country face the same thing,” said Roberts. He noted marketers that are blending and receiving RINs are not breaking the law, and while he might not agree with it personally, “They’re doing something maybe anyone would do given the opportunity.”

He noted that store counts are going down and fewer companies are holding stores because EPA has created a program with RINs that penalizes up to 75% of marketing companies that are distributing and marketing ethanol-branded product in the nation. “Most people think this is not what EPA intended. I believe EPA didn’t intend to allow some to purchase unregulated gas and sell RINs for a profit. They should have to use the RIN as it was intended, not as a profit item.”

“EPA can move without Congressional consent and can move the point of obligation to the right to level playing field of all retailers while still meeting the goals Congress set out,” he said. “I’m calling on the EPA to listen to the majority and fix the problem.”

 Chronister shared a different perspective. Her company is located in Springfield, Ill., and the stores are branded QIK-N-EZ. “The challenge we face is there are no new customers where we live. All we can do is take someone else’s market. We are volume driven on the fuel side…and we are a blender of record.”

She acknowledged that one recipe doesn’t fit all convenience store chains when it comes to fuel.

“The current RFS has created supply options. We blend, we separate the RIN and that’s created an opportunity for us. That might not look the same for people who have different supply options,” she said.

QIK-N-EZ has sold E85 for 20 years, and was the second in the country to sell E15. Those sales grew. She noted that to her, the question goes beyond RFS to considering what opportunities are going to be there going forward. “What will drive customers to our locations next? I think it’s short-sided to just think about fuel.”

Electric Vehicle Predictions
Eichberger weighed in with trends and factors set to impact the liquid fuels market.

While talk abounds that electric vehicles are infiltrating the market, the move toward saturation is not going to happen anywhere near as fast as many would like to predict. He pointed to news that France and the UK have moved to ban the sale of new gas vehicles by 2040. But Eichberger pointed out that combined, France and the UK only make up about one-tenth of the U.S. market. And they’re still planning to allow flex vehicles, which can still take gasoline.

He explained that consumers are not economically reactive. While many would compare electric car disruption to smartphone disruptions, a $30,000 car is a much different purchase than a $600 smartphone. “People don’t just throw away cars because something new and shiny comes around,” he said.

“Electric vehicles will take off, but I think it’s going to be a footnote in our market analysis until 2030,” Eichberger said. In 2030, the price of electric vehicles will be lower, and the cars will be able to be charged more easily and hold a charge longer.

Those who are children today will never know a world where electric vehicles did not exist, and they’ll be ready to buy around the time electronic vehicles are ready and affordable.

Even still, saturation won’t be immediate. Eichberger explained that if every car sold starting on Jan 1, 2017 had been equipped with something new, such as a blinking orange light. It would take until 2030 to have a blinking orange light on the vast majority of cars—and that’s if every car sold contained the blinking orange light. Compare that to the situation with electric vehicles, which make up only 1% of the market. How long will it take to completely infiltrate the car market? “It’s going to take decades,” Eichberger said.

Gas demand is expected to go down by 19% from 2017-2030, due to fuel efficiency requirements.

To comply with efficiency standards, automakers are working to create improved internal combustion engines, optimized fuel and engine designs as well as the electrification of vehicles.

“If they can improve the engine to run on high–octane fuel, that slows down electrification,” he said.

In closing, Eichberger predicted that liquid fuels will continue to dominate for decades. While the cards are stacked against liquid fuels, the market will transition slowly. Regulatory pressures threaten the current market. Flexibility in the market and working with others to maximize the effectiveness of liquid fuels is essential.

In absence of improved performance, electrification will happen much faster than expected.

The big question? “How do we position the industry to be ready for when customers don’t need to fill up their cars as often?”

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