Retailers seeking expertise on current fuel industry issues, as well as guidance on what the future holds, found plenty to unpack in the fuel-related education sessions at the 2019 NACS Show. The sessions, organized by the Fuels Institute, drew a large number of forward-thinking attendees.
Two sessions focused on alternative fuels—which could be disruptive or an opportunity depending on how you look at them—and a third session focused on the nasty challenge of corrosion. A fourth session on demand destruction was well-attended as declining gasoline sales remain a clear concern for retailers.
“Factors of Demand Destruction”
Knowing that electric vehicles, ridesharing and fuel efficiency are impacting the industry, session attendees were looking to understand if what they hear is just hype and how the market might evolve for fuel retailers during the next 20 years.
Fuels Institute Executive Director John Eichberger helped clarify the data behind today’s headlines, which predict both minimal and extreme effects, along with his view of what to expect.
While the U.S. Energy Information Administration (EIA) indicates car fleet fuel efficiency will improve 49% by 2035 under current regulations, the Trump Administration has proposed the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule to improve efficiency by 11% in the United States. However, auto manufacturing is a global market, and global targets for fuel efficiency will double by the year 2050. It is worth noting that if the SAFE proposal goes into effect, there is nothing to stop a subsequent U.S. president from reversing it.
Electrification headlines often show how large the market is growing—EV sales rose 75% in 2018, for example. Yet as Eichberger stated, EV sales accounted for less than 2% of sales that same year. In addition, the market for EVs is regional, with California accounting for 56%, the next five states averaging 3.5% and the remainder averaging 2% or less.
Coming autonomous vehicles are seen as the disruptive technology that could upend all of this data, and there are wild forecasts indicating a driver-free EV ride-hailing universe in 20 years. Many people distrust the idea of self-driving vehicles, though, and frequent use of ride-hailing services has actually declined in the United States since 2017. At the same time, more people say they are using the services overall. Still, as one presenter noted, in the 1990s a majority of people said that they would not trust online banking—a common practice today.
The bottom line, Eichberger said, is that fuel retailers can expect demand for liquid fuels to drop more than 1% per year through 2035, but that legislation and technology developments could create rapid change.
“EVs: Shifting from Fuel Provider to Energy Provider”
Eichberger moderated another session on how fuel retailers can position themselves to remain a part of their customers’ routines after they switch vehicle powertrains. He pointed out that EV adoption is regional and not expected to have a large impact for years to come, but that the market is growing and retailers should prepare for the change. Chargers at gas stations can make adoption more likely, and partnerships and financial programs are available to enter the business inexpensively.
Glen Stancil, president of eMotive Solutions, explained the various types of EV charging, installation and capital requirements and operating economics, as well as solutions for the challenges. DC fast chargers have fixed operating costs of about $2,475 per month, compared with $30 for gasoline, but the higher operating costs are more than offset by an eight times higher gross margin, based on a maximum throughput of eight cars at 30 minutes per day. However, this model presumes that retailers will charge a gasoline retail equivalent for charging, which is not permitted in 20 states as of August 2019.
When asked about competition from other channels due to the low entry costs, Stancil said customers already have a habit of coming to your store, and they will likely continue to visit to charge their EVs, so retailers should install charging now before mass adoption takes place. But beware: Tesla Model S customers will demand a superior foodservice offer as they wait for their cars to recharge.
Karl Doenges, Internet of Things consultant with FSG Smart Buildings, spoke about how EV charging and smart c-stores have a symbiotic infrastructure that can be grown as innovation advances, and retailers can utilize this shared infrastructure to help collect critical customer data to better compete.
“Successfully Retailing Biofuels”
A biofuels-focused session featured a panel discussing the opportunities, challenges and economics of adding biofuels to diversify the fuel offer, while developing an environmentally responsible reputation.
Doug Berven, vice president of corporate affairs at Poet Ethanol Products, discussed opportunities for ethanol blends, in particular E15, as original equipment manufacturers (OEMs) have not raised the warranty level of new vehicles to E25 (other than flex-fuel vehicles, meaning E85). Retailers offering E15 at more than 9,300 sites nationwide sell 200% to 300% more gasoline than a typical gasoline station (although these retailers are larger companies that already sell more than average). The margins on E15 are higher than E10, and since most retailers price it below E10, it accounts for up to 22% to 51% of the gasoline product mix, generating more gross profit.
Berven also touched on best marketing practices for success. Because customers generally don’t understand ethanol blends, retailers should consider marketing these fuels using terms they do understand: octane levels. By marketing E15 as 88 octane, the consumer sees it just as another octane-level gasoline. Also, by dispensing it through the same hose, the 22% to 51% of retailers’ product mix is achieved, as opposed to only 3% to 12% if dispensed through a separate hose.
Selling biodiesel requires minimal infrastructure changes, according to Jake Comer, fuel pricing manager for Casey’s General Stores, making it an attractive and more profitable decision. However, he indicated that Casey’s does not carry it at all sites, only where it is cost-effective due to increased quality control issues. Casey’s also offers E15 and E85, but again only where it is feasible based on the volume, customers, competitors and supply.
Jeff Dzierzanowski, new business development manager at Source North America, spoke about the various equipment needed to retrofit a site, which affects decisions about whether to offer these biofuels. He advised retailers to put in the infrastructure when building new sites to take advantage of the cost savings.
“Managing Corrosion”
Corrosion remains an ongoing issue, mainly relating to the adoption of ultra-low-sulphur diesel (ULSD), as well as biodiesel blends, according Amanda Appelbaum, director of research at the Fuels Institute. Appelbaum shared that the Fuels Institute, in conjunction with the Fuel Quality Council, is working on a project to provide cost-effective recommendations on how to deal with the issue based on volume equipment and ability.
The simplest way to understand corrosion in diesel tanks is to know that microbes living in the fuel give off acid as part of the digestion process, according to Diane Sinosky, director of fuel quality innovation at Veeder Root. Before ULSD, the sulfur would kill these microbes. Biodiesel, especially higher blends, can provide food for the microbes. But at the end of the day, the microbes require water, so eliminating water is how to deal with the issue. Complicating matters, the water enters into the product at multiple points from the refinery to the underground storage tank (UST), meaning it is up to retailers to protect their equipment.
While an individual operator can perform visual tests and refuse deliveries, solving part of the problem, larger retailers require a real-time solution, according to Paul Beu, senior petroleum systems technical advisor at Wawa Inc. The company is testing two different filtering systems at 15 sites that continuously siphon from the bottom of the UST, removing most of the water and sediment, and he indicated that the process works extremely well.
There also are physical and equipment aspects that are key to managing corrosion, said Keith Spiker, fuel system manager at QuikTrip. These include proper surface grading to prevent stormwater from crossing the tank field, elevating the pavement slightly at fill and vapor ports and slightly sloping the tank toward the fill-end for water at new sites. Spiker also shared a unique process he has been testing with success: installing a slow-speed fan on top of the canopy to circulate air through the dispenser sumps, which also provides the same benefits as using desiccant without requiring replacement.
What is the cost of not addressing corrosion? A $200,000 diesel UST system ages up to five times faster as a result of corrosion, costing as much as $10,000 per year, and a reduction in flow reduces throughput that can cost $50,000 per dispenser per year in sales. Beu shared a more frightening example: If emergency shear valves on fuel-supply lines beneath the dispenser fail due to corrosion and the dispenser is hit by a vehicle, the result could be a forecourt fire at best … or a major explosion at worst.
Retailers are working together to solve the corrosion problem, Beu and Spiker said, because there is no competitive edge when it comes to safety and quality.
The Path Ahead
As all things are possible, retailers must pay attention to trends and prepare in advance for all fuel-related contingencies, even if they don’t have to act on them today.
For more information about the Fuels Institute and access to free white papers and research reports, visit www.fuelsinstitute.org. NACS releases regular consumer research on fuels and produces an annual fuels report. You can dive into the details by visiting the Fuels Resource Center at www.convenience.org/Fuels.
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