Opening Up the Umbrella to Consumers

Where they’re going next and what they really want from fuels and vehicles were focal points of Fuels Institute event.

May 04, 2015

NEW ORLEANS – The Fuels Institute’s Spring Meeting in New Orleans last week provided a forum for transportation and fuel industry stakeholders to talk about opportunities in today’s market, as well as how to better prepare for and respond to consumer demand.

“We all come from different backgrounds with different experiences,” said Fuels Institute Chairman Jay Ricker, “That’s what makes this meeting so valuable.” Rather than discuss a specific fuel or technology, the agenda focused on consumers and their potential for determining the vehicles and fuels that will have the most impact on the market.

Kicking off a discussion on the vehicle market and regulatory issues, Julie Becker, vice president of environmental affairs at the Alliance of Automobile Manufacturers, talked about fuel economy as a consumer choice for vehicle purchases. She noted that U.S. auto sales are the highest they’ve been in eight years, with 16.4 million vehicles sold in 2014. Light duty trucks significantly contributed to last year’s sales compared to cars (53% versus 47%) and are tracking around 11% so far this year while car sales are down 1%.

Thanks to increased fuel efficiency, consumers have more choice today when they walk onto dealer lots. Becker said that automakers have increased high-mileage vehicle choice by 685% in nine years, adding that vehicles today achieve more than 30 miles per gallon. By 2025, the U.S. EPA’s goal, as part of the Corporate Average Fuel Economy (CAFE) standards, is for vehicles to achieve 54.5 miles per gallon.

Citing the EPA’s model year 2013 greenhouse gas compliance report, Becker noted that for the second consecutive model year, the automotive industry outperformed the national greenhouse gas emissions standards by a wide margin. However, this progress is actually keeping automakers up at night, she said, because EPA’s goal is based on key assumptions about technology effectiveness, technology costs, fuel prices and consumer preferences. 

Even though automakers are adopting new technologies to meet future CAFE requirements, meeting government goals depend on consumer willingness to invest in these new technologies. So far, noted Becker, consumer demand for alternative powertrains is low and in a freefall.

Brad Roach, senior marketing director and economist at Tesoro Companies Inc., gave insights into which fuels and vehicle technologies have the potential to impact the market, and the role the United States will play for future demand.

Although the number of refineries in the United States has decreased – there are less than 150 today – refining capacity has been very strong. Roach said that the U.S. has been a net importer of gasoline since 1975, but the balance has shifted in the last five years. The U.S. has been exporting oil in the form of products, a change due to capacity becoming available at refineries, increased demand from Latin American countries and lower operating costs at refineries.

Roached described how refiners are “reshaping the barrel” from the 1980s to today, where regulations, product specifications, and supply and demand have shifted a primarily conventional gasoline barrel to include alternative fuels, ultra low sulfur diesel and oxygenate blend gasoline. In terms of fleet, he commented that conventional gasoline is the dominate transportation fuel, with gasoline-based hybrids becoming more prominent in the coming decades.

As for which vehicles consumers will drive, Roach shared that the bigger question may be whether they will be driving at all. Millennials aren’t getting a driver’s license right when they hit 16 and are driving less and waiting much longer to drive than previous generations. He suggested that fuel today is competing for household budgets, where consumers would likely choose paying the cable bill over putting gas in the car.

Look for more coverage of the Fuels Institute Spring Meeting in the upcoming June issue of NACS Magazine. For more information about the Fuels Institute and its research visit fuelsinstitute.org.

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