Market Feasibility of Advanced Fuels and Vehicles John Eichberger Executive Director, The Fuels Institute jeichberger@fuelsinstitute.org @eichbergerjohn @fuelsinstitute
What is the Fuels Institute? History, Mission, Structure
What is the Fuels Institute? Founded in 2013 by National Association of Convenience Stores Independent, multi-industry research organization focused on fuels and vehicles Goals - Publish non-biased, fact-based research to answer key questions posed by stakeholders concerning market opportunities and challenges Create a forum to facilitate cross-industry collaboration through development of a balanced structure promoting open discussion
Cross-Industry Collaboration Marketing Refining Biofuels Autos Others Ricker s* Phillips 66* Poet Ethanol Products* Toyota* OPIS* Mansfield Oil* Tesoro* ADM* FCA* Kalibrate* Casey General Stores* Flint Hills Resources* ICM* Nissan* Kwik Trip* Marathon* REG, Inc.* General Motors* Sheetz* Alon USA* Gulf Oil* Turiano Strategic Consulting* Kum & Go* Copec CostCo Consumer Energy Alliance* Gilbarco Veeder-Root* Sparq Natural Gas* Wayne Fueling Systems Xerxes VeriFone GreenPrint Midwest Methanol WEX
Association Partners Alliance of Automobile Manufacturers American Coalition for Ethanol CA Fuel Cell Partnership Canadian Independent Petroleum Marketers Association Diesel Technology Forum Fuel Freedom Foundation Growth Energy Methanol Institute NACS NATSO NGV America Outdoor Power Equipment Institute PMCI/RIN Alliance PMAA Renewable Fuels Association SIGMA STI/SPFA Texas Food and Fuel Association
Retail Realities
Small operators dominate the retail landscape Source: NACS, Nielsen TDLinks
Fuel drives sales, but not profit 2015 Sales 2015 Profit Fuel, 69.4% InStore, 30.6% Fuel, 38.7% InStore, 61.3% Source: NACS, CSX
Historically, retailers have low fuel profitability $0.25 $0.20 Retail Gross Margins 9.0% 8.0% 7.0% Cents per Gallon $0.15 $0.10 $0.05 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% % of Retail Price $0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CPG % Retail 0.0% Source: OPIS
Americans will drive more on less. Billion Miles Driven 3600 3400 3200 3000 2800 2600 2400 2200 2016-2035 Miles Driven: +17.1% MPG: +55.8% Miles Traveled and Fuel Economy 36 34 32 30 28 26 24 22 Combined MPG of Registered LDVs 2000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 MPG VMT Source: U.S. EIA 20
Gasoline demand projected to drop 9500 9000 8500 Gasoline Demand What replaces this traffic driver? Thousand Barrels per Day 8000 7500 7000 6500 6000 5500 5000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Source: U.S. EIA
Infrastructure is complex and expensive
Demand has to justify investment Registered LDVs in 2016 FFV, 7.8% Diesel, 2.8% HEV, 1.5% Gasoline, 87.6% PHEV, 0.1% BEV, 0.1% CNG, FCV, 0.0% 0.0% PAGV, 0.1% Source: Navigant Research 96.9% LDVs on road run on gasoline.
Consumers Hold the Keys But are they economically rationale?
Price continues to dominate choice 80% 70% 60% 50% 40% 30% 20% 10% 0% Which factors are important when buying gas? 2013 2014 2015 2016 Price Location Fuel Price $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Source: PSB, NACS
Consumers are economically irrational 80% To save 5 cpg I would $4.00 70% 60% $3.50 $3.00 50% 40% $2.50 $2.00 30% 20% $1.50 $1.00 10% 0% 2014 2015 2016 Pay with Cash Turn Left Across Busy Street Drive 5 Minutes Drive 10 Minutes Fuel Price $0.50 $0.00 Source: PSB, NACS
Behavior triggers change with fuel price $5.50 $5.00 At what retail gasoline price would you. Change Travel Mode Retail Gas Price $4.50 $4.00 $3.50 $3.00 $2.50 Reduce Driving Retail Gas Price $2.00 "Reduce Driving" Price "Change Travel Mode" Price Monthly Retail Price
Consumers seem interested in fuel efficiency 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Most important attributes when shopping for a car Source: Fuels Institute, May 2014
Rank of 92 Purchase Reason Percentage 1 Overall Value for the Money 68% 2 Overall Safety of the Vehicle 67% 3 Braking 66% 4 Front Visibility 66% 5 Price/Deal Offered 63% 8 Overall Durability 61% 9 Overall Driving Performance 60% 10 Warranty Coverage 59% 11 Overall Impression of Reliability 59% 14 Driver Seat Adjustability 55% 15 Fuel Economy/Mileage 54% 67 Overall Environmental Friendliness 35% Source: Strategic Vision - 2014 New Vehicle Experience Study (NVES) But postpurchase, consumers are not as focused on fuel economy.
Who is the new consumer? Percent of Age Group with Drivers Licenses 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 95.7% 93.3% 91.4% 92.5% 89.1% 88.5% 86.4% 81.5% 1982 1992 2002 2012 20-29 30-39 Source: Fuels Institute
Gen-Z will dictate future course of market
Trends Don t Inspire Retail Investment in New Options
What did Americans buy in 2015? 99.3% powered by liquid fuel Hybrid, 2.17% Gasoline, 94.37% Plug In, 0.25% Diesel, 2.78% Electric, 0.41% Source: WardsAuto
What have they bought this year? 99.3% powered by liquid fuel Hybrid, 1.84% Gasoline, 94.83% Plug In, 0.35% Diesel, 2.63% Electric, 0.34% Source: WardsAuto
Vehicle sales indicate trends Light Duty Vehicle Sales 2025 83.34% 3.21% 1.24% 3.23% 3.84% 4.84% 2023 2021 LIQUID FUEL VEHICLES 2019 2017 83.35% 2.82% 9.58% 2.38% 1.06% 75% 80% 85% 90% 95% 100% Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV Source: Navigant Research, Fuels Institute
But the fleet changes slowly Registered Light Duty Vehicles 2025 83.48% 2.95% 7.58% 2.62% 1.47% 1.78% 2023 LIQUID FUEL VEHICLES 2021 2019 2017 86.78% 2.85% 8.29% 1.62% 75% 80% 85% 90% 95% 100% Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV Source: Navigant Research, Fuels Institute
Non-liquid transport energy < 5% in 2040. EIA projects liquid to dominate
So what about new forms of liquid fuel? Would consumers select a higher octane product if available?
Performance of premium at retail $4.50 $4.00 Gas Price Drops Premium Gallons Rise? 15,000 14,000 140 135 130 Premium Grew 2x Faster Than Reg Gallons Price/Gallon $3.50 $3.00 $2.50 $2.00 13,000 12,000 11,000 10,000 9,000 Premium Gallons 125 120 115 110 105 100 $1.50 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 8,000 95 90 Avg Fuel Price Premium Gallons Source: NACS CSX Reg Premium Linear (Reg) Linear (Premium)
Consumers don t know what octane is. To the best of your knowledge, what is an octane grade as it relates to gasoline? (Coded open-ends, Split Sample A) 36 14 8 7 7 5 4 3 3 2 10 Source: PSB, Fuels Institute
Only about half of fuel consumers know if their car has a recommended octane grade Do you know if there is a recommended octane grade for the vehicle you most commonly drive? Showing % All Don t Know 30% No Yes 48% 22% Gender 62% of Men 33% of Women Age 35% of 18-34 45% of 35-49 58% of 50+ Source: PSB, Fuels Institute
Most likely car buyers say they would be unlikely to consider getting a vehicle that required high-octane fuel Among the 44% of fuel consumers that say they are likely to purchase a vehicle in the next two years: How likely are you to purchase a vehicle that requires higher octane (mid-grade or premium) gasoline? 14% 31% 35% 21% Very likely Somewhat likely Somewhat unlikely Very unlikely Why do you say that? (Coded open-ends, showing top 3) Cost of gas (62%) Vehicles requiring high-octane are expensive (6%) The type of car I want takes regular (4%) Source: PSB, Fuels Institute
When would retailers be convinced there is a market for a new fuel?
Adoption curve to hit 20% market by 2025 First year vehicle sales needed if launched in: 2018: 629,000 2020: 1.3 million 2022: 3.8 million 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 Early Mid Late 4,000,000 2,000,000-2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Source: Navigant Research, Fuels Institute
Must not forget The ideal is a great place to start, but may not be market feasible The best vehicle and best fuel means nothing if the consumer cannot access it or does not want to pay for it New fuels either need to fit into the existing infrastructure or a transition strategy must be developed to accommodate the new fuel New fuels either need to be backwards compatible with the existing fleet or a longer-term transition period must be orchestrated Consumers need to be either educated and convinced to buy the new fuel, or the transition to a new fuel must be seamless There is so much more involved than finding the right technical mix.
Questions? John Eichberger jeichberger@fuelsinstitute.org 703-518-7971 @eichbergerjohn @fuelsinstitute.org