OPIS’s Low Carbon Fuel Standard (LCFS) conference was an excellent event. Speakers ran attendees through the ins and outs of LCFS and highlighted the impact it has had on the market. Some of the highlights that are worth noting include:
LCFS is a standard in Oregon, and it is something that Washington will adopt. British Columbia has their version of it already in place. Together, they create a large, similarly regulated market and an interesting experiment in governmental market intervention that other states are watching. The environmental end goal is admirable. The real question is whether the consortium of Western states can create more social benefit than economic cost in the end.
Wednesday, 04 December 2013 00:00
David Zahn, VP of Marketing
With more than 20 billion gallons of fuel under management from leading global oil companies, international retailers, shippers and government entities, FuelQuest has a unique perspective on challenges and opportunities for the coming year. Our top Fuel Market Trends for 2014
outline what we expect to happen over the next 12 months. Here are some of our predictions:
Fuel Prices Will Drop
In 2013, refinery disruptions, geopolitical upheavals, and a surge in the Renewable Identification Number (RIN) market came together to create a perfect storm of events. By summer, these factors culminated in significant spikes in fuel prices. However, this fall saw gas prices plummet to their lowest levels in three years. Nationally, the average price for gasoline bottomed out at about $3.17 in the first half of November. While they have since risen slightly, prices could drop again in December to $3.10 a gallon. We expect prices to continue their current downward spiral into next year. Rising production, lower Renewal Fuel Standard (RFS) mandates, slow economic growth both here and abroad, and easing tensions in the Middle East will help keep prices in check in 2014.
Mergers & Acquisitions Will Continue to Accelerate
In 2012, there was a frenzy of Merger & Acquisition activity within the convenience store industry. Master Limited Partnerships (MLPs) were led by such deals as Energy Transfer Partners’ acquisition of Sunoco’s retail assets, and larger chains grew even bigger through consolidation evidenced by the many large and small purchases made by 7-Eleven and Alimentation Couche-Tard. Deal flows have slowed this year relative to 2012, but demand remains strong. Increased deal activity is fully expected through the rest of this year and on into 2014. A mature motor fuels market, higher operating costs and capital spending requirements, a need for liquidity, and companies committed to the industry and looking to grow are all factors that will continue to drive this climate of growth through acquisition.
Competition from new companies and upscale in-store experiences will force older, existing retailers to upgrade their sites to drive more traffic. Competing at the pump against larger companies and their greater resources will be a concern for smaller retailers. But, technology exists to obtain fuel inventory, supply costs, pricing and even margin details down to the corner store level. This granular visibility lets retail operators – regardless of their size – manage their businesses with timely and accurate data to capitalize on market price swings, driving in-store traffic and beating their competitors with smarter fuel management.
Demand for Predictive Analytics for Fuel Management Will Increase
Since 2002, the number of fuel stations has declined by eight percent due to increasingly strict environmental regulations and shrinking gasoline profit margins, causing competition among the remaining c-store community to increase. For those looking to survive, success largely depends on the margins from gasoline (68 percent of a station’s revenue) and convenience merchandise sales (heavily influenced by fuel volume sold). One way for retailers to break above the noise is to extract value from the huge amounts of transactional information available to them. Automated fuel management solutions offer the insights needed to prepare for unexpected events, plan for surges in demand and take advantage of fuel market fluctuations. In 2014, retailers will see an increased acceptance of predictive analytics solutions as a way to optimize sales, sites, the delivery of fuel, and price.
Complexity in Fuel Tax Laws Will Remain
Similar to last year, states will continue exploring ways to increase tax revenues as the federal fuel tax - pegged at 18.4 cents a gallon since 1993 - no longer raises enough money to pay for federal infrastructure spending. Various states have passed their own laws over the past six months as a way to try and fix the broken system. Others are considering options such as indexing the tax to inflation while taking into account rising fuel efficiency, eliminating the tax entirely and instead linking it to sales tax, or the current hot button issue- using a vehicle miles traveled tax (VMT).
Ultimately, there will not be a single solution that will resolve a state’s need to maintain its infrastructure. Each state will choose some combination of excise taxes indexed to inflation, toll roads, possibly higher vehicle registration fees, or even a portion of sales tax allocated to infrastructure maintenance to cover the funding gap. In addition, increased use of natural gas as a transportation fuel is causing many states to reconsider current rules and rates for natural gas vehicles. These tax changes will impact an already beleaguered retail fuel industry. Any sales erosion at the pump caused by increased taxes will impact inside store profits as consumers look for alternative or more efficient modes of travel. One thing is clear: complexity and fluidity in fuel tax laws will remain.
Challenge or Opportunity? You Decide.
Though the competitive landscape will continue to change and evolving excise taxes will increase in complexity, one thing remains certain for fuel-based businesses in 2014: companies can view these trends as challenges or opportunities. Many leading companies are taking advantage of fuel management automation technology to accurately assess inventory levels, consumption, sourcing options, and tax and environmental compliance. Additionally, they will need to consider automating their tax determination and filing processes to quickly comply with the evolving tax laws and to future-proof themselves to deal with additional forthcoming changes. By doing so, these fuel-based companies are able to compete more effectively in this ever-changing industry.