Economic and Political Effects on the U.S. Retail Fuel Market - Rick Long - UNITI Expo 2018
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Economic and Political Effects
on the U.S. Retail Fuel Market
Rick Long
Executive Vice President & General Counsel
Petroleum Equipment Institute
UNITI Expo 2018 May 15, 2018
PEI: The Basics
• Founded in 1951
• 1,600 members
in 80 countries
PEI: Membership Categories
• Manufacturers
• Distributors
• Service & Construction
• Affiliates
• Operations & Engineering
Personnel
PEI’s Mission • To be the leading authority for fuel- and fluid-handling equipment
How We Live Out That Mission
• Publications
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at the NACS Show
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• www.pei.org
• YouTube Channel
• Recommended
Practices
PEI Recommended Practices
(www.pei.org/rp)
• 15 titles today
• UST systems
• AST systems
• Marina fueling
• Aviation fueling
• CNG fueling
• Coming soon
• Tank decommissioning and removal
• LNG fueling systems
The U.S. Retail Fueling Market
• 260 million vehicles to fuel
• 39 million fuel transactions
each day
• 24 million by credit card
• 155,000 convenience stores
• 79% (122,500) sell fuel
• These stores account for 80% of
all fuel sold in the U.S.
E10 Is the Dominant Liquid Fuel
• 10% ethanol
• Authorized in 1991
• Accounts for 95% of all vehicle
fuel sales
• $2.85 per gallon average retail price
• Retailer makes about 5 cents
per gallon
The U.S. Economy Is Booming
• Unemployment
• Down from 4.9% to 3.9%
• Lowest level in 18 years
• 3 million new jobs
The U.S. Economy Is Booming
• Stock Market
• Up 30% since President
Trump’s electionThe U.S. Economy Is Booming
• Gross Domestic Product (GDP)
• Growing at 3% annual rate
• 2% average growth from 2009 to 2016The U.S. Economy Is Booming
• Taxes are down
• Top personal tax rate: from 39.6% to 37%
• Top corporate tax rate: from 35% to 21%
• New accelerated depreciation rules are
spurring capital investmentThe Key Political Players
• President • Scott Pruitt • U.S. Congress
Donald J. Trump U.S. Environmental • House: 240 Republicans and
195 Democrats
Protection Agency • Senate: 51 Republicans and
(EPA) Administrator 49 DemocratsThree Wildcards
1. President Trump’s legal
and political issues
2. Scott Pruitt’s challenges
3. November 2018 electionsMy Assumptions • Pres. Trump will survive • Scott Pruitt may not survive • But EPA policy directions will continue • At least one house of Congress will remain with the Republicans
Overall Administration Priorities
• Lower taxes
• Fewer environmental
regulations
• Other business-friendly
policiesMajor U.S. Fuel Market Questions
• Underground storage tank
(UST) regulations
• Higher ethanol fuel blends
• The future of electric vehiclesUnderground Storage Tank Regulations
UST Regulatory Framework
• U.S. EPA Office of Underground
Storage Tanks (OUST)
• States also play a key role
• State Program Approval (SPA) process
• State rules must be “no less protective” of the
environment than the federal rulesEPA and SPA States
Federal EPA Rule
State Program
Approval (SPA)2015 Federal UST Regulations
• First overhaul since 1988
• Added inspection, testing and operator
training requirements
• Many requirements take effect Oct. 2018
• Result: distributors, contractors and
manufacturers are very busy right nowThe UST Regulatory Future
• EPA OUST is not a primary target of
the new administration
• No indication of UST policy rollbacks
• But some budgetary pressuresETHANOL
E15: The Next Big Thing?
• Compatibility issues
• Legal limitations on
year-round saleThe E15 Story
• 10-cent per gallon average savings
• Slightly less energy
• Most vehicles on the road
• EPA: 2001 and newer model years
• Flex-fuel vehicles
• Warrantied for 89% of all 2018
model-year vehiclesE15 Compatibility
• 40 CFR 280.32: UST systems must be compatible
with the substance stored
• 2011 EPA Guidance: Compatibility of UST systems
with ethanol blends greater than 10 percent:
• Tank or internal lining • Submersible turbine pumps
• Piping • Sealants, fittings, gaskets, o-rings,
• Line leak detector bushings, couplings and boots
• Flexible connectors • Containment sumps
• Drop tube • Release detection equipment
• Spill & overfill • Fill and riser caps
prevention equipment • Shear valvesE15 Compatibility (cont.)
What Must an Operator Do to Upgrade to E15?
1. Notify authority having jurisdiction
2. Demonstrate compatibility
a. Listing
b. Statement of compatibility
c. “Another method”
3. Maintain records showing compatibility
4. Maintain leak detection
performance recordsE15 Compatibility: Where We Stand Now • Lots of listings and statements of compatibility • No real issues for new store construction • More difficult to convert existing stations
E15: Year-Round Sales
• The Clean Air Act
• Regulates evaporative emissions of vehicles
• Fuel volatility is the key to emissions
• Reid Vapor Pressure (RVP) measures volatility
• The higher the number, the greater the volatility
• Volatile fuels evaporate more quickly in
warm weatherE15: Year-Round Sales
• Clean Air Act allows an RVP
of 9 from June 1 to Sept. 15
• E15 has an RVP of 10
• Result: E15 cannot be sold
legally in most of the US
during the summerE15: Year-Round Sales
• EPA can issue RVP waivers
• President Trump has signaled he may do so
for E15
• This would accelerate sale of E15
• Unlikely until 2019, at the earliestELECTRIC
Talk. Talk. Talk.
• The #1 question from PEI members:
• Whether, when, how, how quickly EVs will
achieve critical mass.
• Lots of unknowns
• Lots of opinions
• So, let’s look at some factsEVs are getting better
• Tesla Model 3
• Price Point:
$35,000–$53,000
• Range: 220–310 miles
• 400,000 preordersEVs are getting better
• BMW i3
• Price Point:
$45,000–$53,000
• Range: 114–150 milesEVs are getting better
• Nissan Leaf
• Price Point: $29,000
• Range: 151 milesEVs are getting better
• Jaguar I-Pace
• Price Point: $75,000
• Range: 220 milesMore EVs Are Being Sold
200,000
160,000
120,000
80,000
40,000
0 2011 2012 2013 2014 2015 2016 2017
Total U.S. Electric Vehicle SalesMore Models Are On the Market 2014 3 2015 8 2016 22 2017 43 2018 50
EV Incentives are Growing • Federal: $7500 income tax credit • Survived recent budget battle • Utilities: rebates and lowered rates • State and local: • Income tax credits • Vehicle purchase rebates • Charging equipment rebates and credits • Vehicle sales tax reductions • Free parking
On the Other Hand
• Washington has changed
• Gas prices are low
• Other vehicle technologies
will improve as well
• Today’s EV charging
model is a messOn the Other Hand
• Powerful lobbies oppose EVs
• Corn growing (ethanol) interests
• Petroleum organizations
• Current administration unlikely
to increase EV incentives
• States are not uniformFuel Economy Standards
Are At Risk
• Corporate Average Fuel Economy (CAFE) Basics
• Launched in 1975
• Goals
• Increase fuel economy
• Reduce greenhouse gas emissions
• CAFE standards gradually increase from 36.5 mpg today to
54.5 mpg by 2025
• One effect: Encourages vehicle manufacturers
to add EVs to their fleetsCAFE Standards Are At Risk • Economic Drivers • Gas prices are down • SUV and truck sales are up • Hitting future targets is a challenge • Political Drivers • Current administration has concluded the 2022-2025 standards are too high • California, D.C. and 16 other states have filed suit to stop any rollback • Unclear where this will go
It Takes a Long Time
to Turn the Nation’s Fleet
• Normal People
• New car ownership: 6 years
• Car lifetime: 11.4 years
• Me
• My 1998 Toyota Avalon:
20 years2017 Vehicle Sales
• Total light duty
vehicles: 17,340,700
• Electric vehicles:
199,826
• EV sales percentage:
1.15%2025 Vehicle Sales (projected) EV 4.84% Source: Fuels Institute
2025 Registered Vehicles (projected)
Diesel 2.95%
FFV 7.58%
HEV 2.62% Gasoline
Gasoline
83.46%
83.34%
PHEV 1.47%
EV 1.78%
Other 0.12%
Source: Fuels InstituteLong Term EV Sales Projections
60% BNEF EPS
Vehicle Sales
40%
20%
EIA
0%
2020 2030 2040 2050
Bloomberg New Energy Finance,
Energy Policy Simulator
U.S. Energy Information AdministrationIt’s Going
to Be an Interesting
Few Years!Thank You!
Rick Long
rlong@pei.orgYou can also read
