Future of Transportation Decoding the Headlines

Transcription

1 Future of Transportation Decoding the Headlines John Eichberger Executive Director,

2 Fuels Institute Board of Advisors Disclaimer: The opinions and views expressed herein do not necessarily state or reflect those of the individuals on the Fuels Institute Board of Directors and the Fuels Institute Board of Advisors, or any contributing organization to the Fuels Institute. They are exclusively those of the speaker..

3 Disruption? What is the compelling consumer benefit of new transportation options?

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5 Electrified vehicles show strong growth rates

6 BEV & PHEV = 1.9% of LDV sales in 2018

7 Fleet Turnover Rate

8 An optimistic EV growth curve through 2035 Even with aggressive sales growth, BEV & PHEV would combine for 10% of vehicles on road in 2035

9 Uncertainties about EV future in U.S. Federal Tax Credit of up to $7,500 Applies only to first 200,000 qualified vehicles sold by corporation Once threshold met, credit phased-out over 12 months Tesla and GM are already being phased-out of eligibility Was deleted by House of Representative s budget in 2017 but survived with Senate inclusion Legislation introduced in 2018 to repeal tax credit (no action) Continuation of additional state tax credits/incentives Zero Emissions Vehicle Programs At least half of all EVs sold in US are sold in CA to satisfy ZEV program requirements SAFE Vehicles proposed rule could vacate CA s ZEV program Highway Trust Fund Fully funded by excises taxes on gasoline and diesel fuel sales EVs do not buy fuel and are seen by some as a threat to funding infrastructure funding

10 It is a global, interconnected market

11 LDV Sales of Leading Global Markets The U.S. is no longer the dominant market in terms of LDV sales Source: Stratas Advisors

12 Mobility as a Service Changes Adoption Curves 2/3 of Gen Y/Z question whether they will need to own a car in the future. Possible vision of the future? May Not Need Car 70% 60% 64% 50% 40% 30% 20% 10% 0% Pre/Boomers Gen Y/Z Source: Deloitte

13 Even if EVs continue to expand market share, internal combustion engines and liquid fuels will still represent a majority of the fleet for decades. How is the ICE evolving to deliver consumer and emissions benefits?

14 ICEs have become much more efficient Class MPG % Change Small Car 6.7% Middle Car 11.5% Large Car 14.3% Luxury Car 4.4% Every class of vehicle has improved efficiency CUV 22.7% SUV 17.7% 20 Van 5.0% Pickup 11.1% 15 Small Car Middle Car Large Car Luxury Car CUV SUV Van Pickup Source: Fuels Institute Vehicle Sales and Fuel Prices, WardsAuto, Fueleconomy.com 14

15 4-Cylinder Engines Dominate Market 60% 50% 40% 30% 35.3% 83% of cars in 2017 have 4 cylinders, up from 56% in % 20% 10% 0% Cyl 4 Cyl 5 Cyl 6 Cyl 8 Cyl 10 Cyl 12 Cyl Electric Rotary Source: WardsAuto 15

16 Turbos Become the Norm A 10% Drop in Lbs = 7% MPG + New Tech Breakthroughs Mazda s SPCCI Nissan s VC-T Direct Injection in Majority Variable Valve Timing 16

17 Optimize fuels and engines with octane Engine Efficiency from Higher Octane Fuel (HOF) HOF enables efficiency increases for all vehicles with SI engines including hybrid electric vehicles HOF Higher Compression Ratio Improved Efficiency Relative efficiency gain Slide information taken from USCAR presentation in Jan 2018 Leone, Anderson, Davis, Iqbal, Reese, Shelby, and Studzinski, "The Effect of Compression Ratio, Fuel Octane Rating, and Ethanol Content on Spark-Ignition Engine Efficiency", Environmental Science & Technology 2015.

18 Efficiency Improvement: Boosted SI Engines Based upon Co-Optima s Merit Function Analysis Demonstrates Importance of RON and S Source: DOE Co-Optimization 18

19 Advocates for HOF Legislation USCAR, comprised of GM, Ford and FCA, advocating for legislation: Establish a 95 RON octane fuel standard Require new vehicles as of a date certain to be restricted to operate only on 95 RON or higher gasoline Argue 95 RON will enable the least expensive option for complying with CAFE through RON is essentially today s 91 AKI, is sold and can be sold in all markets Supported, tentatively, by AFPM and some refiners: Renewable Fuels Standard must sunset Would support HOF to replace RFS Biofuels Industry Opposes Legislation: Oppose elimination of RFS Oppose HOF defined as 95 RON desire higher octane standard to facilitate mid-level blends Retail Associations Open to the idea but with concerns Misfueling prevention will be required Could lead to higher retail fuel prices for consumers

20 Fuels Institute Octane Study Overview Commissioned before legislative initiative focused on 98 RON as the HOF Conducted refinery analysis to estimate potential cost of producing certain HOF (95 RON 102 RON) comprised of E10, E20 or E30 Analyzed regulatory rulemaking necessary to convert market to HOF Evaluated infrastructure compatibility and investments necessary to convert market to HOF Estimated costs of implementing HOF three scenarios with 98 RON produced with E10, E20 or E30 The study does not estimate retail prices, just potential investments to produce and distribute HOF

21 Refinery Screening Cost of Production* Additional refinery production costs, plus purchase of ethanol (Billions of Dollars per Year) 21

22 Refinery Screening Cost of Production* Additional refinery production costs, plus purchase of ethanol (Cents per Gallon) 22

23 Experience with Lead Phase-Out = Full Market Conversion Could Take 23+ Years The phase-out of lead is instructive for scenario development: 100% new vehicles (1975) required to have catalytic converters and use UL Took 10 years for UL to grow from 7% to 57% of fuel pool Took 20 years for UL to attain 97% of fuel pool This 100% vehicle market conversion scenario was selected for analysis HOF vehicle market penetration with 100% of all new vehicles sold being HOF PERCENT OF FLEET HOF VEHICLE PENETRATION 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% YEARS AFTER REGULATORY PROMULGATION 23

24 Cost Comparison Across Scenarios Scenarios present trade-offs between production and infrastructure costs (Billions of Dollars) One-Time Infrastructure Upgrade Costs Added Annual Refining Costs $25 $23.6 $25 $20 $20 $19.7 $15 Refinery Pipeline Terminal Retail $15 $10 $6.60 $10 $8.3 $5.7 $5 $3.20 $5 $0 98 RON E10 98 RON E20 98 RON E30 $0 98 RON E10 98 RON E20 98 RON E30 24

25 Net Present Value At year years after regulatory promulgation Scenario Total New Fuel Volume (B gallons) Total Ethanol Volume (B gallons) Refinery Front End Infra Costs ($B) Pipeline Front End Infra Costs ($B) Terminal Front End Infra Costs ($B) Retail Front End Infra Costs ($B) New Fuel Production Costs ($B/year) NPV 5% ($B) E $0.219 $1.65 $1.35 $0 $19.7 $178 E $0.219 $1.65 $1.61 $3.12 $8.3 $78 E $0.219 $1.65 $1.675 $20.0 $5.7 $73 25

26 Total Ethanol Needed in Scenarios Forecast for ethanol demand when all vehicles are HOV, assuming MOGAS demand static at 2016 levels 100% of Gasoline Supply as E20 = 22 Billion Gallons per Year of Ethanol 100% of Gasoline Supply as E30 = 34 Billion Gallons per Year of Ethanol 26

27 Corn ethanol production is strong Historical Statistics 2016 Corn acreage 86.7 million 2016 corn yield bu/acre Corn for ethanol = 35% of corn acres Ethanol production = 2.8 gal/bu gal/year increase ( ) Assumptions Corn acres remain static 86.7 million Corn yield improves 2 bu/acre/year Ethanol efficiency gains gal/year Corn for ethanol modeled in 2 scenarios: 1. Static at 35% of corn acres 2. All new corn yield dedicated to ethanol production Corn yield has grown at an annual average rate of 1.95 bushels/acre since Corn Yield (Bu/acre) 27

28 Bushels for ethanol should increase In both scenarios, corn feedstock for ethanol increases through 2041 (28% and 81%, respectively) Billion Bushels Corn for Ethanol (Scen 1) Corn for Ethanol (Scen 2) 28

29 Ethanol production likely to increase If production efficiency improves at historic norms, production to grow 29% - 96% (depending on corn scenario) Billion Gallons per Year Gallons per Bushel Ethanol Production (Scen 1) Ethanol Production (Scen 2) Ethanol Efficiency (gals/bu) 29

30 Consumer Perceptions

31 Consumers remain sensitive to fuel prices Nearly two-thirds of consumers will turn left or drive five minutes out of their way to save 5 cpg 70% Turn Left Drive 5 Minutes National Average Retail Price for Regular: $ % 63% 61% 60% 55% 50% Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: Fuels Institute, NACS, Penn Schoen Berland 31

32 At retail, Premium averaged 53.8 cpg more The price spread between Regular and Premium ranged from cents per gallon $3.50 $0.60 $3.00 $2.50 $0.55 $2.00 $1.50 $0.50 $1.00 $0.45 $0.50 $0.00 $0.40 Delta Unleaded Price Premium Price Source: OPIS 32

33 Only 2% of consumers clearly understand octane Consumer open replies to question: What is an octane grade as it relates to gasoline? Nothing / Don't Know / No Response Others Additives/chemicals / How much additives are in the gas Cleaner gas / Burns cleaner / Keeps the engine clean Regular / Mid-grade / Premium Anti-knocking / The fuels ability to resist knocking/pinging Purity / How pure the gas is / The higher the octane the purer the gas How powerful/strong the fuel is Other specific things in the gas: Ethanol / Lead / Oxygen, etc. Amount of octane in the gas Combustibility / Burn rate/temperature / The amount of compression The quality / The higher the octane, the better the gas is Performance / The higher the octane the better the fuel performance / Percentage/specific percentages: 78 / 87 / 94, etc. 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: Fuels Institute, Penn Schoen Berland, May

34 Consumers don t know what their car needs But they are resistant to purchasing a vehicle that recommends or requires mid-grade or premium fuel Do you know if there is a recommended octane grade for the vehicle you most commonly drive? How likely are you to purchase a vehicle that requires higher octane (mid-grade or premium) gasoline? Don't Know, 30% Very Unlikely, 21% Very Likely, 14% Less than half know Yes, 48% 56% Unlikely Somewhat Likely, 31% No, 22% Somewhat Unlikely, 35% Source: Fuels Institute, Penn Schoen Berland, May

35 And what about E15?

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38 Closing Thoughts Disruption highly unlikely transportation market evolves slowly Electric vehicles will represent majority of fleet someday Internal combustion engines continue to evolve to be more efficient Advancements in EVs and ICEs need not be mutually exclusive Potential to leverage high octane fuel for greater efficiency E15 has a very bright future, provided seasonal restrictions are resolved

39 Thank you! John Eichberger Executive Director