Complexity of U.S. Fuel Distribution System Will Affect Market Evolution

New Fuels Institute report evaluating the U.S. supply chain demonstrates how the market accommodates diverse fuel specifications and achieves higher rates of biofuels penetration.

December 12, 2016

ALEXANDRIA, Va. – The U.S. liquid fuel distribution system is an efficient and complex network that delivers diverse fuel specifications and biofuels products to consumers throughout the nation. This complexity can present challenges to the evolution of the transportation fuels market. The Fuels Institute has released a new report, prepared by Stratas Advisors, that examines the U.S. fuel supply chain and the challenges that exist for achieving higher adoption rates of biofuels.

With more than 12 million barrels of transportation fuel consumed every day, the United States is one of the largest and most complex fuel-supply chains in the world. The report, “Assessment of the U.S. Fuel Distribution Network,” evaluates the U.S. supply chain’s limitations/weaknesses at each point for accommodating diverse fuel specifications and achieving higher rates of biofuels penetration.

“This report simply and effectively demonstrates the complexity of the liquid fuels distribution system,” said Fuels Institute Executive Director John Eichberger. “The Fuels Institute commissioned the study to ensure that stakeholders who have influence over the evolution of the market have a fundamental understanding about how the market functions today. Equipped with this knowledge, they will be better able to anticipate challenges and consequences from potential adjustments to the market.”

During the past decade, the U.S. transportation fuel market has shifted dramatically, with the country going from one of the world’s largest importers of petroleum products to a net exporter of transportation fuels. Today, the U.S. is close to producing almost as much gasoline as it consumes, and is a net exporter of diesel.

There is an imbalance within the United States, however, between where transportation fuels are produced and where they are consumed. To address this imbalance, pipelines, railroads and barges transport more than 4 million barrels of fuel products between regions per day. In doing so, an intricate system of infrastructure has developed to accommodate multiple fuel specifications (which often vary from region to region) and to satisfy demand for increasing volumes of biofuels. Each segment of the distribution value chain has developed capabilities to efficiently handle these multiple fuel products, but this has increased the complexity and limited the flexibility of the system to accommodate new products.

The report describes the flow of product throughout the system and evaluates the specific considerations affecting operations at bulk storage terminals, product pipelines, barges and railroads, distribution terminals, tanker trucks and motor fuel dispensing facilities. It also looks at the regulations affecting system operations and issues that could influence the expansion of biofuel products in the market.

“As the transportation energy market evolves, new fuels will be evaluated for their ability to deliver greater efficiency, lower emissions and enhanced consumer value,” Eichberger said. “Part of that evaluation must focus on the distribution system. If a new product cannot be efficiently delivered to consumers, it will never be able to deliver its anticipated value. Likewise, if a new product disrupts the system, the impact on consumers could be significant. A first step to avoiding unintended consequences and investing resources on viable and sustainable solutions is to understand the current system. This report delivers that high-level overview essential to such considerations.”