market feasibility of advanced fuels and vehicles presentations...kwik trip* marathon* reg, inc.*...
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Market Feasibility of Advanced Fuels and Vehicles
John EichbergerExecutive Director, The Fuels Institute
@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 CollaborationMarketing 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* Consumer Energy Alliance*
Kwik Trip* Marathon* REG, Inc.* General Motors* GilbarcoVeeder-Root*
Sheetz* Sparq Natural Gas*
Alon USA* Wayne Fueling Systems
Gulf Oil* Xerxes
Turiano Strategic Consulting* VeriFone
Kum & Go* GreenPrint
Copec Midwest Methanol
CostCo 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
InStore, 30.6%
Fuel, 69.4%
2015 Sales
InStore, 61.3%
Fuel, 38.7%
2015 Profit
Source: NACS, CSX
Historically, retailers have low fuel profitability
0.0%
1.0%
2.0%
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9.0%
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% of R
etail PriceC
ents
per
Gal
lon
Retail Gross Margins
CPG % Retail
Source: OPIS
Americans will drive more…on less.
Source: U.S. EIA
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24
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36
2000
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Com
bined MP
G of R
egistered LDV
sB
illio
n M
iles
Driv
en
Miles Traveled and Fuel Economy
MPG VMT
2016-2035Miles Driven: +17.1%
MPG: +55.8%
Gasoline demand projected to drop
Source: U.S. EIA
5000
5500
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6500
7000
7500
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8500
9000
9500
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Thou
sand
Bar
rels
per
Day
Gasoline DemandWhat replaces this
traffic driver?
Infrastructure is complex and expensive
Demand has to justify investment
Gasoline, 87.6%
FFV, 7.8%
Diesel, 2.8%
HEV, 1.5%
PHEV, 0.1%BEV, 0.1%
FCV, 0.0%
CNG, 0.0%
PAGV, 0.1%
Registered LDVs in 2016
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
$0.00
$0.50
$1.00
$1.50
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$2.50
$3.00
$3.50
$4.00
0%
10%
20%
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50%
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2013 2014 2015 2016
Which factors are important when buying gas?
Price Location Fuel Price
Source: PSB, NACS
Consumers are economically irrational
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
0%
10%
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2014 2015 2016
To save 5 cpg I would…
Pay with Cash Turn Left Across Busy Street Drive 5 Minutes Drive 10 Minutes Fuel Price
Source: PSB, NACS
Behavior triggers change with fuel price
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
Ret
ail G
as P
rice
At what retail gasoline price would you….
"Reduce Driving" Price "Change Travel Mode" Price Monthly Retail Price
Change Travel Mode
Reduce Driving
Retail Gas Price
Consumers seem interested in fuel efficiency…
0%
10%
20%
30%
40%
50%
60%
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80%
90%
Most important attributes when shopping for a car…
Source: Fuels Institute, May 2014
But post-purchase,
consumers are not as
focused on fuel economy.
Rank of 92 Purchase Reason Percentage1 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)
Who is the new consumer?
Source: Fuels Institute
91.4% 89.1%86.4%
81.5%
95.7% 93.3% 92.5%88.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1982 1992 2002 2012
Perc
ent o
f Age
Gro
up w
ith D
river
s Li
cens
es
20 - 29 30 - 39
Gen-Z will dictate future
course of market
Trends Don’t Inspire Retail Investment in New Options
What did Americans buy in 2015?
Diesel, 2.78%
Electric, 0.41%
Gasoline, 94.37%
Hybrid, 2.17%
Plug In, 0.25%
Source: WardsAuto
99.3% powered by liquid fuel
What have they bought this year?
Diesel, 2.63%
Electric, 0.34%
Gasoline, 94.83%
Hybrid, 1.84%
Plug In, 0.35%
99.3% powered by liquid fuel
Source: WardsAuto
Vehicle sales indicate trends
83.35%
83.34%
2.82%
3.21%
9.58%
1.24%
2.38%
3.23% 3.84%
1.06%
4.84%
75% 80% 85% 90% 95% 100%
2017
2019
2021
2023
2025
Light Duty Vehicle Sales
Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV
Source: Navigant Research, Fuels Institute
LIQUID FUEL VEHICLES
But the fleet changes slowly
86.78%
83.48%
2.85%
2.95%
8.29%
7.58%
1.62%
2.62% 1.47% 1.78%
75% 80% 85% 90% 95% 100%
2017
2019
2021
2023
2025
Registered Light Duty Vehicles
Gasoline Diesel FFV HEV PHEV BEV FCV CNG PAGV
Source: Navigant Research, Fuels Institute
LIQUID FUEL VEHICLES
EIA projects liquid to
dominate
Non-liquid transport energy < 5% in 2040.
So what about new forms of liquid fuel?
Would consumers select a higher octane product if available?
Performance of premium at retail
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Jan-
13M
ar-1
3M
ay-1
3Ju
l-13
Sep-
13N
ov-1
3Ja
n-14
Mar
-14
May
-14
Jul-1
4Se
p-14
Nov
-14
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5
Pre
miu
m G
allo
ns
Pric
e/G
allo
n
Avg Fuel Price Premium Gallons
90
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Reg Premium Linear (Reg) Linear (Premium)
Premium Grew 2x Faster Than Reg Gallons
Gas Price Drops… Premium Gallons Rise?
Source: NACS CSX
Consumers don’t know what octane is.
36
148 7 7 5 4 3 3 2
10
To the best of your knowledge, what is an “octane grade” as it relates to gasoline?(Coded open-ends, Split Sample A)
Source: PSB, Fuels Institute
Only about half of fuel consumers know if their car has a recommended octane grade
48%
22%
30%
Do you know if there is a recommended octane grade for the vehicle you most commonly drive? Showing % All
Gender 62% of Men 33% of Women
Age 35% of 18-34 45% of 35-49 58% of 50+
Yes
No
Don’t Know
Source: PSB, Fuels Institute
Most likely car buyers say they would be unlikely to consider getting a vehicle that required high-octane fuel
14% 31% 35% 21%Very likely Somewhat likely Somewhat unlikely Very unlikely
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?
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
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Early Mid Late
Source: Navigant Research, Fuels Institute
First year vehicle sales needed if launched in:• 2018: 629,000• 2020: 1.3 million• 2022: 3.8 million
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.
