Forecasting the Future of Alternative Fuels

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Forecasting the Future of Alternative Fuels

By Angela Hanson, Convenience Store News - 12/12/2016

WELCOME, N.C. — The future looks bright for alternative fuels, but to capitalize on the available opportunities, suppliers and retailers alike need to keep a close eye on market conditions and consumer demands. This was just one of the issues discussed at the third-annual Convenience Store News Alternative Fuels Summit, held Dec. 6-7 and sponsored by Growth Energy.

Convenience store retailers from around the country that offer alternative fuels attended the event, which included tours of the Richard Childress Racing Museum and NASCAR Sprint Cup Shop.

Following a period of negative growth in fuel demand, the past four years have seen an increase in demand, and gross margins per gallon are also up, speaker Van Tarver, former CEO of Kroger Convenience Stores, said during his keynote presentation on the future of fuels.

He cited research from Lundberg that projects demand growth for the foreseeable future — barring severe recession or extreme crude oil price increases — due to job growth, an expanded motorist pool, and rising sales of trucks, vans and SUVs.

However, other factors could cut down on demand, such as lifestyle changes by millennials who practice ride-sharing, downtown living and telecommuting; senior citizens cutting back on driving; pump price increases; and moves by the Energy Information Administration.

"Which assumptions are right, and what is the future?" Tarver asked, adding that his take is that everyone in the industry must stay flexible and monitor the market, where customers are going, and what they want.

Discussing specific alternatives to traditional gasoline, Tarver stated that:

  • Compressed natural gas (CNG) and hydrogen face major equipment challenges.
  • Electric vehicles are not likely to be a game changer for at least 10 years due to price, range, recharge time and other factors.
  • E15 is more likely to do well as it is profitable and many consumers see using it as a way to save money and do something better for the environment.

Well over 4,000 outlets in the United States are already selling E15. "You see some companies that are visionaries in this industry," he noted. 

E15 in Convenience

Expanding on the topic of E15, Mike O'Brien, vice president of market development for Growth Energy, provided attendees of the CSNews Alternative Fuels Summit with an update on the adoption of E15 in the convenience channel. The fuel blend contains 15 percent ethanol and 85 percent gasoline.

In addition to hundreds of single-store owners, several larger chains have become early innovators in selling higher blends of ethanol fuel. Among them, he said, are Kum & Go, Sheetz, Mapco, Murphy USA, Thorntons, RaceTrac Petroleum, and Family Express.

As of December 2016, more than 4,000 E85/E15 dispensers were installed in 28 states, and O'Brien said he expects a minimum of 1,000 retailer sites selling E15 to be in place by May 2017. Currently, most of the sites selling E15 are located in a large swath of the central United States, from the upper Midwest to the South.

There are several reasons why innovative retailers are adding E15, according to O'Brien. "E15 is usually about 3 cents to 10 cents a gallon less expensive than regular gas," he explained. He also noted that some retailers are benefitting from trading RINs (also known as renewable identification numbers) under the Environmental Protection Agency's Renewable Fuel Standard.

Consumer concerns about engine failure from using higher ethanol blends have diminished greatly as E15 use has grown. Consumers "have driven more than 500 million miles on E15 without a single reported incident," O'Brien pointed out.

Growth Energy, a trade association composed of ethanol makers, has helped educate the consumer about ethanol. "Our research shows that the more consumers know about ethanol, the more favorably they view it," he said.

One best-practice education example is hiring "brand ambassadors" to work at the fuel dispensers and tell customers it's OK to use E15 and E85, which is a blend of between 70 percent and 85 percent ethanol, and the remainder gasoline. Retailers like Murphy USA and Kum & Go have experienced sales increases of between 88 percent and 93 percent in ethanol sales from utilizing these ambassadors, according to O'Brien.

Other retailers have drawn attention to the environmentally "clean" aspect of E15 while also helping a good cause. In October, Sheetz, Murphy USA, Protec and Minnoco participated in a "Pink Out" promotion in which 2 cents for every gallon of E15 sold was donated to breast cancer research.

Look in the January issue of Convenience Store News for more coverage of the 2016 Alternative Fuels Summit.