The Future Of Fuels

Will fuel alternatives grab market share from traditional petroleum?

The opportunity is there. Fuel alternatives, which today primarily consist of natural gas, ethanol and electric, have begun to appear for sale at gas stations throughout the country. But will they put a serious dent in traditional petroleum's market share?

There are a few factors that will either propel or prevent alternative fuel sales from moving forward. Topping that list is the price difference of fuel alternatives compared to traditional petroleum.

If 2012 is any indication, fuel prices are sure to be a rollercoaster ride. Record high prices were reached at the pump in the first quarter of this year, followed by an unexpected swoon in the second quarter, and then record prices again in the third quarter.

Retailers can expect the volatility to continue, according to Ryan Mossman, vice president and general manager of the fuel center for FuelQuest. "Geopolitical factors, including uncertainty in Europe, have been a massive mover — both positively and negatively — in the price of fuel," he noted.

Despite this uncertainty, Mossman believes traditional petroleum will remain dominant for years to come. At the same time, he foresees the use of alternative fuels increasing in the coming years.

Which fuel alternative holds the most promise? A July survey of CSNews Online readers revealed that 48 percent of the respondents believe natural gas holds the most promise for the convenience retail industry. Electric vehicles came in second, garnering 27 percent of the vote.

The results of the 2012Convenience Store News Motor Fuels Study (see page 94) show some similar findings. Convenience store retailers were asked which alternative fuels they sell now and what they plan to sell in five years. Just 1.7 percent of respondents said they sell natural gas now, but 21.9 percent plan to sell it in 2017, an increase of more than tenfold.

Electric also could have a solid future (see page 86). Nearly 3 percent of c-store retailers have electric vehicle charging stations now, but that figure is expected to jump to 12.5 percent in five years, the CSNews Motor Fuels Study showed.

Conversely, the waters may be muddier regarding ethanol. More than 38 percent of retailers offer ethanol at the pump now, but that number is expected to decline to 25 percent by 2017, according to the study. Industry insiders we spoke to said rising ethanol prices may be the major factor behind the expected decline (see page 80).

Mossman and Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), both told CSNews they believe natural gas has the best future among fuel alternatives. However, Mossman noted that as natural gas becomes more prevalent, demand for traditional petroleum could drop, causing its price to come down along with it.

Clearly, there are still a lot of questions about alternative fuels. In this Future of Fuels special section, we take an in-depth look at the positives and negatives of natural gas, electric and ethanol to determine what the future may hold.

Editor's Note: Biodiesel is not covered in this section because although it is a quality fuel alternative, many experts maintain that it is simply not yet cost effective for consumers.