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:
- It is clear that the market is educating itself still on LCFS. Compliance regulations are still evolving, and there was good dialog on where to make improvements. Mike Waugh, the Chief of the California Transportation Fuels Branch and the first morning’s keynote speaker, was an open book on where he and his staff are focused in terms of improving existing regulations. Cost containment mechanisms, credits for mass transit, and provisions for low-emission refineries were on the short list for consideration and recommendation.
- Method 1 Carbon Intensity (CI) pathways are quite narrowly defined – maybe too narrowly defined. Regulations mandate that all pathway inputs into finished products must contribute to the CI calculation. This makes sense as the entire supply chain ultimately impacts carbon contribution into the environment, but specificity of the pathways within Method 1 have created a backlog of new pathway requests – approximately 130. These requests fall under an area called Method 2 in which companies must apply for new pathways to receiving a CI calculation and eventual Method 1 status (designates full participation in the program – credits are not guaranteed if under Method 2). Given the multitude of biofuel sources, this backlog of new pathways will grow. Some discussion occurred where categories or groups that have Method 1 approval may alleviate this issue – a position supported by Lisa Mortenson, CEO of biodiesel producer Community Fuels.
- The California Independent Oil Marketers Association (CIOMA) clearly is against LCFS and wants to call a “time out” to examine the regulation more closely. Jay McKeeman, the VP of Governmental Affairs, pulled no punches in attacking LCFS for causing jobber confusion in terms of inherited obligations when blending below the rack. Jay claimed this was a disincentive to blending. Jay also raised the specter of fraud, which Mike Waugh refuted as his staff have seen little evidence of it to date. Jay even suggested that LCFS will cause fuel shortages similar to ones seen in late 2011; he posited that suppliers may export unbranded fuel if compliance costs cause other markets to become more profitable. As a neutral bystander, I can say there were legitimate concerns raised. In particular, I also worry that achieving a 10% reduction in CI levels by 2020 may further isolate California from the rest of the United States and provide little slack when supply and demand disruptions occur. A number of points were more speculative though and had the likely intent of inciting FUD (fear, uncertainty, and doubt); the goal being to blunt the growth and possible spread of LCFS.
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.
Tuesday, 15 October 2013 10:12
David Zahn, VP of Marketing
Each year, NACS does not disappoint. Energy drinks and snacks were everywhere and attention-getting creativity abounded with folks like Monster having BMX riders perform on a bike ramp installed in their booth. On the technology side that is PEI, fuel automation was a major theme. Representatives from retailers across the US as well as Brazil, Chile, Honduras, China, and other countries were interested in the latest dispensers including Wayne's Ovation 2, which they announced at NACS. The new Ovation combines style and function, which generated significant buzz at the show. OPW was equally impressive as it showcased its ATGs and other forecourt hardware. Their recent acquisitions of Fiberlite and KPS were big moves in the market and retailers were eager to learn more. A relative newcomer to the US market, Leighton O'Brien, had one of the busiest booths at the show. They were featuring their line and tank testing services for both pre- and post-bury. With 90% of all new tank installations having some sort of leak, Leighton O'Brien's precision testing came across as a must-have service.
Not lost in the mix, fuel management automation continues to take center stage for retailers – particularly ones that are buffeted by a volatile wholesale fuel market or rising competition in their markets. Gaining an upper hand on volatility and competition means taking control over fuel management activities with automation. Greater automation ultimately translates into lower fuel costs and greater security of supply. With heterogeneity as the dominant model in terms of forecourt hardware across a network of sites, software is the unifying approach to gaining that control and achieving the level of cost-saving automation that companies like FuelQuest customer's Costco, 7-11, and Wawa have been able to achieve.
Tuesday, 15 October 2013 00:00
The North American fuel tax system is complex. In addition to the ever evolving tax rates and rules that vary by jurisdiction, there are new types of fuels and new forms of taxation that are emerging and require different tax approaches.
Do you know what the future holds for tax legislation? In the "Future of Tax Regulations" panel recorded at FuelQuest's annual GRAIL conference, tax industry experts including Ashley Scheele, Senior Tax Manager at Deloitte Tax LLP, Kelly S. Mathews, President at Kelly S. Mathews LLP, Richard Little, Senior Tax Manager at Deloitte Tax LLP, and Leonard Finegold, Senior Director State Transaction Tax at Waste Management, Inc., discuss what changes are coming as tax laws continue to evolve, how they might affect you, and how to better prepare for them.
This video series includes discussions around topics such as:
Renewable Fuel Changes: How are companies addressing them?
In a state of the union address earlier this year President Obama emphasized his support for biodiesel and renewable fuels. In this video, Leonard Finegold talks about the changes that are coming, why companies like Waste Management are committed to using clean fuels, and what benefits companies can realize through adopting them.
What paths are states taking in response to renewable fuel emergence?
Do you know how states are addressing the renewable fuel emergence? In this video Kelly Mathews, Leonard Finegold, and Ashley Scheele discuss the three main paths that states are taking to address this issue, why tax decision makers need to be at the forefront of these changes, and what incentives are available for adopting renewable fuels.
Forms of taxation for alternative fuels
What changes should we anticipate as states recognize that alternative fuel usage is taking hold in the market? Not all fuel taxes are created equal and some states offer various incentives to increase the adoption of alternative fuels. In this video, Kelly Mathews, Ashley Scheele, and Richard Little discuss state and federal tax types that could apply, compliance challenges, , and how states may address these.
Vehicle-miles-traveled (VMT) tax
Our tax panel experts express their opinion on the possible implementation of the vehicle-miles traveled tax. This discussion includes why this tax is considered a “behavior modification” tax, examples on its application, challenges of a vehicle-miles-traveled tax scenario, and why companies could find it beneficial.
You can view these videos here
Blogs We Like
Connect with the Authors
Most Popular Tags