The Future of Fuels: An Analysis of Future Energy Trends and Potential Retail Market Opportunities
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The Future of Fuels:
An Analysis of Future Energy Trends and Potential
Retail Market Opportunities
National Association of Convenience Stores
1600 Duke Street | Alexandria, VA 22314
Tel. (703) 518-4272 | nacsonline.com
3 | Future of Fuels: An analysis of Future Energy Trends and Potential Retail Market Opportunities
The Future of Fuels:
An Analysis of Future Energy Trends and Potential
Retail Market Opportunities
Published March 2012
National Association of Convenience Stores
1600 Duke Street | Alexandria, VA 22314
Tel. (703) 518-4272 | nacsonline.com
Copyright ©2012, by NACS
All rights reserved. No part of this publication may be reproduced or
used in any form or by any means — graphic, mechanical or electronic,
including photocopying, taping, recording or information storage and
retrieval systems, without the prior, written permission of the publisher.
4
5
Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Regulatory Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate Average Fuel Economy (CAFE) Standards . . 11
Renewable Fuels Standard . . . . . . . . . . . . . . . . . . . . . 13
Effect on Fuel Retailers . . . . . . . . . . . . . . . . . . . . . . . 14
Liquid Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Diesel Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Ethanol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
E10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
E85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
E15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Mid-Level Ethanol Beyond 15% . . . . . . . . . . . . . 32
Biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Non-Liquid Fuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Compressed Natural Gas/Liquid Natural Gas . . . . . . . 36
Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Hybrid Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . 39
Plug-In Hybrid Vehicles . . . . . . . . . . . . . . . . . . . 42
Vehicle Recharging . . . . . . . . . . . . . . . . . . . . . . . 43
All-Electric Vehicles . . . . . . . . . . . . . . . . . . . . . . 44
Hydrogen Fuel Cell Vehicles . . . . . . . . . . . . . . . . . . . . 44
Associated Costs and Market Opportunities by Energy Type:
Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Associated Costs and Market Opportunities by Energy Type:
CAFE3 Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6
The Future of Fuels: Executive Summary 7
Executive Summary
OVERVIEW
n The convenience and fuel retailing industry n NACS uses the Energy Information Adminis- Administration
sells approximately 80% of the gasoline in tration’s (EIA) 2011 Annual Energy Outlook projections
the nation, generates nearly 70% of its sales to project future trends in fuel demand and forecast a 36%
through the fuel island and services an aver- vehicle inventories. NACS specifically lever- reduction in
age of 277 fuel customers per store per day. ages two analyses based upon the Reference petroleum use
Case (which includes regulations in effect as by 2025 and
n Federal policies have been enacted to change
of 2016, including 35.5 mpg CAFE standard) 65% reduction
the transportation energy economy, to reduce
and CAFE3 (which assumes an annual fuel by the time the
the nation’s reliance on petroleum and for-
economy improvement of 3% beyond 2016). vehicle fleet
eign oil, to expand the use of domestically
turns over.
produced renewable fuels and to enhance
national energy security.
n Corporate Average Fuel Economy standards Reference Case: % of Transportation BTUs
proposed in 2011 set a 54.5 miles per gallon
average by 2025. Administration projections
forecast a 36% reduction in light-duty vehicle
(LDV) petroleum use by 2025 and 65% reduc-
tion by the time the vehicle fleet turns over (in
approximately 2040 to 2045). If successful,
this program will reduce fuel customer trans-
actions from more than 100,000 per year to
approximately 64,000 in 2025 and 35,000 Motor Gasoline Distillate Fuel Oil (diesel) E85 Compressed Natrual Gas
around 2045. Liquefield Petroleum Gases Electricity Liquid Hydrogen
n The Renewable Fuels Standard (RFS) requires
36 billion gallons of renewable fuels be mixed CAFE3 Case: % of Transportation BTUs
into the transportation fuel market by 2022.
When enacted in 2007, this was estimated to
represent 20-25% of the market. With new
CAFE standards, it is possible that this man-
date will represent as much as 40% of the
fuels market.
n RFS and CAFE policies cannot coexist without
substantial changes in the retail and vehicle
Motor Gasoline Distillate Fuel Oil (diesel) E85 Compressed Natrual Gas
markets to accommodate significantly higher
Liquefield Petroleum Gases Electricity Liquid Hydrogen
concentrations of renewable fuels.
8 The Future of Fuels:
Fuels Executive Summary nacsonline.com
KEY FINDINGS
n Diesel fuel is projected to experience n To satisfy the RFS in the future,
n EIA’s projections indicate that liquid
significant growth with light duty ethanol concentrations beyond E10
fuels will remain the overwhelmingly
vehicle sales increasing 284.5% in will have to become a significant
dominant source of transportation
the Reference Case and 936.7% component of the transportation
energy. In 2010, liquid fuels contrib-
in CAFE3. Diesel fuel volumes are energy market. Consequently, E85
uted 97.39% of the BTUs used in
likewise expected to increase 39.2% is projected to increase its market
transportation; in 2035 liquid fuels
and 52.7%, respectively. However, share to contribute 6.95% and
will contribute 96.63% in the Refer-
diesel will continue to represent only 10.90% of 2035 transportation
ence Case and 96.05% in CAFE3.
3.86% and 11.38% of all transpor- BTUs in the Reference Case and
n While finished motor gasoline (which
tation BTUs in 2035. CAFE3, respectively.
includes ethanol) will continue to
n The Renewable Fuels Standard will n Non-liquid fuels are projected to
contribute the most BTUs of all
have a significant effect on the remain niche market contributors.
energy sources, in the Reference
finished motor gasoline market, Natural gas, electricity and hydro-
Case its market share will give way
however, as the 36 billion gallon gen — combined — are expected
to increased volumes of E85 and
mandate will require the average to contribute fewer than 4% of all
diesel. But gasoline still accounts for
blend rate (% ethanol in gasoline) 2035 transportation BTUs in both
88.92% of all transportation BTUs
to increase dramatically, prompting models.
in 2035. In the CAFE3 case, finished
motor gasoline’s market share will new equipment and vehicle calibra-
n Compressed natural gas (CNG) will
continue to give way to E85 and tions. In the Reference Case, the
replace liquefied natural gas (LNG)
diesel but will still represent 77.27% average blend rate is projected to
as the dominant natural gas trans-
of all transportation BTUs. increase to 33.36% ethanol. With
portation fuel, but will still represent
CAFE3, the average blend rate
approximately 7/100th percent of all
reaches 52.42% ethanol.
transportation BTUs in 2035 in both
cases. Likewise, CNG-powered ve-
hicle sales are projected to increase,
Market Share by Vehicle Engine Type in Inventory but they will represent a miniscule
portion of vehicles on the road.
Engine-Fuel Types 2012 2035 Reference 2035 CAFE3
n Electric drive vehicles will be domi-
Gasoline 90.97% 69.27% 53.11%
nated by traditional hybrids, which
E85 6.19% 19.34% 16.00%
rely on regular gasoline for primary
Diesel 1.65% 4.44% 11.51%
propulsion. These vehicles will se-
Hybrid (Gas/Electric) 1.06% 4.67% 14.51%
cure increasing market share while
Plug-in Hybrid 0.03% 1.55% 3.63%
plug-in or electric-only vehicles are
Electric Only 0.03% 0.63% 0.64%
unlikely to gain much traction except
Natural Gas 0.04% 0.05% 0.04%
in a more aggressive CAFE market.
Introduction Fuel sales are a critical component of the con- Average Fuel Economy (CAFE) standards and the venience and fuel retailing industry’s business. Renewable Fuels Standard (RFS). Both present Through Through 120,000 outlets, the industry sells ap- unique challenges that will render the existing 120,000 proximately 80% of the gasoline consumed each market incompatible with mandated fuel condi- outlets, the year in the United States. (The remaining 20% is tions, a situation that will directly affect retailers. industry sells sold through traditional service stations and hy- To develop a better understanding of the future approximately permarkets such as grocery stores, fleet opera- of fuels retailing, this analysis leverages U.S. 80% of the tions and marinas.) Fuel sales represent nearly Energy Information Administration (EIA) mar- gasoline 70% of a store’s gross sales dollars and gener- ket projections to evaluate the effect of existing consumed each ate 277 customer visits each day on average. policies on the market and the likelihood that year in the Despite the fuel category’s importance and new technologies will change consumer behavior. United States. strength, its future is becoming less clear. Admittedly, evaluating the future is an uncer- National objectives and policies designed to tain process, even when basing the analysis on reduce U.S. reliance on foreign oil, to promote existing federal policies. Leadership changes renewable fuels, to increase fuel efficiency and and decisions are amended, technologies are to transition to non-petroleum-based energy developed, and previous assumptions that were sources are putting increasing pressure on this generally accepted as fact can become irrelevant. category. However, such an evaluation is not without merit. In particular, two policies will have the most With few exceptions, the trajectory of govern- significant effect on fuel retailing: Corporate ment policy is to reduce U.S. reliance on fossil
10 The Future of Fuels nacsonline.com
fuels, enhance energy security and promote and cost-efficient investments — installing
sustainability. Research and development are alternative fuel compatible tanks and dis-
ongoing and, even in the absence of regula- pensers or running conduit under concrete
tions, the variety of energy sources currently for future electric recharging stations — may
under consideration is likely to contribute to prove to be invaluable as the market evolves
the transportation energy sector for decades and consumers begin demanding such ser-
to come, although the rate at which they se- vices. Exercising forethought when making
cure market share may vary significantly. infrastructure changes can help reduce the
To gain competitive advantage, fuel retailers cost of converting to new energy technologies
may want to consider potential future market when the time is right.
developments to position themselves as
market leaders. In many cases, appropriatenacsonline.com The Future of Fuels 11
Regulatory Drivers
The performance of vehicles in the United CORPORATE AVERAGE FUEL
States, and the fuels that power them, is often ECONOMY (CAFE) STANDARDS
determined not by market forces but by govern- Since the 1970s, the federal government has
ment regulation. While pursuing the laudable established fuel economy standards that auto-
goals of ensuring the safety of the nation’s makers must meet every model year. The first
transportation system, reducing harmful emis- standard increased fuel efficiency from a na-
sions from vehicles and energy production tional average of 13 miles per gallon in 1974 to
facilities and enhancing energy security by 27.5 miles per gallon in 1985. CAFE standards
reducing the nation’s reliance on imported fossil remained at this level until the 2007 Energy In-
fuels, leaders in Washington, D.C., have exerted dependence and Security Act directed the Bush
a significant influence over the current inventory administration to set a new standard to achieve
of vehicles and on the cost and availability of at least 35 miles per gallon by 2020. In 2009,
motor fuels. the Obama administration took action to set a
Looking into the future, it is likely that govern- standard that would achieve 35.5 miles per gal-
ment regulations will play an even heavier hand lon by 2016 — four years ahead of the congres-
in determining what consumers drive and what sionally mandated schedule.
energy they purchase to fuel those vehicles. Then, on July 29, 2011, the Obama administra-
tion announced new CAFE standards affecting
model year 2017-2025 vehicles, reaching a com-
bined efficiency of 54.5 miles per gallon.12 The Future of Fuels nacsonline.com
Fuel efficiency requirements for passenger cars The administration projects this new policy will
will increase approximately 4.1% for model reduce U.S. dependence on oil by 2.2 million
years 2017 to 2021 and then 4.3% for model barrels per day in 2025, and by more than 4
years 2022 to 2025. For pick-up trucks and million barrels per day once the fleet turns over
light-duty trucks the standard will increase 2.9% to the new economy standard. The adminis-
and 4.7%, respectively.1 A proposed rule was tration expects the policy will result in a 36%
released on November 16, 2011, and a final rule reduction in light-duty vehicle (LDV) petroleum
is expected in July 2012. demand for transportation in 2025 and a 65%
reduction once the fleet turns over, according to
projections. (In 2010, the fleet turnover rate was
just under 21 years and declining. It is possible
Corporate
Corporate
Fuel
Fuel
EEconomy
conomy
SStandards
tandards
the fleet could turn over to the new standard by
60
55
2040.2)
50
Miles
Per
Gallon
45
40
Assuming the administration’s projections are ac-
35
30
curate, what do the new standards mean for con-
25
20
venience and fuel retailers? Potentially, they could
15
10
usher in a new era in consumer demand charac-
19
19
20
20
20
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
78
88
98
08
18
80
82
84
86
90
92
94
96
00
02
04
06
10
12
14
16
20
22
24
teristics and purchasing practices, forcing retailers
19
Standard
for
Cars
Standard
for
Trucks
Actual
for
Cars
Actual
for
Trucks
to reconsider their go-to-market strategies.
For a convenience store that services 177 fuel
customers each day, the number of fuel-buying
customers could drop to 155. Extrapolated to
evaluate the annual effect of the new standards,
a convenience store could see 36,500 fewer
customer visits per year by 2025. Once the fleet
turns over to the new efficiency standards, the
overall annual effect of the new standards could
reduce annual customer visits from 101,105 to
around 35,000.
1
EPA/NHTSA proposed rule: “2017 and later model year light-duty vehicle greenhouse gas emissions and corporate
average fuel economy standards.”
2
www.calculatedriskblog.com/2011/09/vehicle-sales-fleet-turnover-ratio.htmlnacsonline.com The Future of Fuels 13
RENEWABLE FUELS STANDARD use of biofuels. The “Renewable Fuels Standard”
The federal government mandates 36 billion table reflects the mandated volumes under the
gallons of renewable fuels (classified into four RFS. The fuel types required are based upon the
different types based upon their relative lifecycle reduction in lifecycle greenhouse gas emissions
greenhouse gas reduction potential3) be blended delivered by each fuel. Renewable fuels, which in-
into fuel by 2022. When this program was clude traditional corn-derived ethanol, are capped
enacted, the mandated volume was expected to at contributing no more than 15 billion gallons
represent approximately 20% to 25% of mo- to the overall RFS. Advanced biofuel is defined as
tor fuels consumption.4 If in fact the new CAFE reducing the lifecycle greenhouse gas emissions
standards do reduce the demand for petroleum by at least 50% below the 2005 emissions profile
by 36% in 2025, then the mandated renewable of gasoline or diesel fuel. A certain volume of the
fuel volume would represent 34.1% to 39.6% of mandated advanced biofuels must be satisfied by
motor fuels consumption.5 cellulosic biofuels, which
The federal Renewable Fuels Standard (RFS), as deliver a 60% reduction in greenhouse gas emis-
revised in the 2007 Energy Independence and sions, or biomass-based diesel.
Security Act, sets annual requirements for the Mandated
volume was
Renewable Fuels Standard expected to
(in billion gallons) represent
Year Renewable Fuels Advanced Biofuel Advanced Biofuel as Advanced Biofuel Total approximately
Cellulosic as Biomass- Renewable
Based Diesel Fuels 20% to 25%
2008 9.0 N/A N/A N/A 9.0 of motor fuels
2009 10.5 0.6 N/A 0.5 11.1
consumption.
2010 12.0 0.95 0.1 0.65 12.95
2011 12.6 1.35 0.25 0.80 13.95
2012 13.2 2.0 0.5 1.0 15.2
2013 13.8 2.75 1.0 16.55
2014 14.4 3.75 1.75 18.15
2015 15.0 5.5 3.0 20.5
2016 15.0 9.0 5.5 24.0
2018 15.0 11.0 7.0 26.0
2019 15.0 13.0 8.5 28.0
2020 15.0 15.0 10.5 30.0
2021 15.0 18.0 13.5 33.0
2022 15.0 21.0 16.0 36.0
3
“Lifecycle greenhouse gas emissions” are defined in statute (P.L 110-140) as “the aggregate quantity of greenhouse gas emis-
sions (including direct emissions and significant indirect emissions such as significant emissions from land use changes)…
related to the full fuel lifecycle, including all stages of fuel and feedstock production and distribution, from feedstock generation
or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumers.”
4
According to EIA, in 2007 total motor gasoline consumed in the United States was 142.349 billion gallons. Assuming an annual
change in motor gasoline consumption of 0-1%, 36 billion gallons of renewable fuels in 2022 would represent 21.8-25.3% of
the market. Although motor gasoline consumption declined in 2008-2010, the RFS was established to replace a certain percent-
age of petroleum demand based on 2007 consumption and projections.
5
Using the same calculations but reducing estimated consumption in 2025 by 36%, the mandated renewable fuels volume will
represent 34.1-39.6% of the market. The actual EIA market projections vary from these numbers, which are based simply upon
broad targets and not from actual economic models used by EIA.14 The Future of Fuels nacsonline.com
Compliance with the mandated volumes is EFFECT ON FUEL RETAILERS
The blend wall achieved by securing an equivalent number of Given these developments and program require-
could force qualified Renewable Identification Numbers ments, how will convenience retailers accom-
Congress to (RINs), 38-character numbers assigned to each modate this type of market, in which nearly half
reconsider the gallon of qualified renewable fuel. Obligated par- of their customers stop visiting their stores and
RFS entirely ties subject to the mandate (i.e., refiners, blend- nearly half of their remaining fuel sales must be
or at least the ers and importers) must obtain enough RINs to renewable fuels? What can convenience retail-
implementa- satisfy their obligated volumes by either blending ers do to generate sufficient customer traffic to
tion schedule. sufficient quantities of qualified renewable fuels compensate for lost gallons? Will they upgrade
CAFE standards or purchasing RINs from others. In this market, their fueling infrastructure to store and sell more
may also come marketers can generate RINs by blending renew- alternative fuels?
under reconsid- able fuels with base gasoline or diesel fuel and It’s important to recognize that current regula-
eration. then selling RINs back to the obligated parties. tory structures may not survive the next 20
The RINs system is intended to create liquidity years. The RFS is under considerable pressure in
in the market and facilitate compliance with the Washington. In 2011, Congress voted on legisla-
RFS. Unfortunately, the market is struggling to tion to repeal the tax credit for ethanol6 and to
accommodate the annually increasing mandated repeal EPA’s decision to authorize the use of E15
volumes with traditional fuel blends (i.e., E10, fuel (neither provision was enacted into law). The
E85, B2). For example, the total volume mandat- blend wall could force Congress to reconsider
ed for 2012 is 15.2 billion gallons (14.2 billion the RFS entirely or at least the implementation
excluding biodiesel). Given that total finished schedule. In addition, the CAFE standards may
gasoline consumption in 2010 was 137.8 billion come under reconsideration if the administra-
gallons, ubiquitous blending of 10% ethanol in tion changes after the 2012 elections or if
every gallon will only satisfy 13.8 billion gallons policymakers seek to reduce industry costs by
of the mandate. revising the standards.
The U.S. Energy Information Administration’s
Clearly, a substantial volume of fuel will have
(EIA) Annual Energy Outlook 20117 seeks to
to be blended with greater than 10% ethanol
project the market developments that will occur
to meet the standard. This is referred to as
as a result of the recently announced CAFE stan-
the blend wall — the volume beyond which the
dards. The Annual Energy Outlook uses a base-
market cannot satisfy the mandate with E10 and
line projection that assumes full implementation
E85 alone. It has given rise to debate concern-
of CAFE standards that were set to take effect in
ing the use of mid-level ethanol blends, like E15
2016 (35.5 mpg), and then extrapolates two
and E25, topics addressed later in this paper.
6
Congress did not extend the volumetric ethanol blenders tax credit (VEETC) at the end of 2011. Consequently, the 45 cents per
gallon tax credit for each gallon of ethanol blended into the fuel supply was eliminated.
7
Except where noted, EIA’s Annual Energy Outlook data used in this report was derived from the online Interactive Table Viewer at
www.eia.gov/oiaf/aeo/tablebrowser/nacsonline.com The Future of Fuels 15
Market Share by Vehicle Engine Type in Inventory
Engine-Fuel Types 2012 2035 Reference 2035 CAFE3
Gasoline 90.97% 69.27% 53.11%
E85 6.19% 19.34% 16.00%
Diesel 1.65% 4.44% 11.51%
Hybrid (Gas/Electric) 1.06% 4.67% 14.51%
Plug-in Hybrid 0.03% 1.55% 3.63%
Electric Only 0.03% 0.63% 0.64%
Natural Gas 0.04% 0.05% 0.04%
projections based upon an annual increase of options may affect your market in the near and
3% in fuel economy (CAFE3) and another based long-term futures can be the difference between
upon a 6% increase (CAFE6). 8
saying goodbye to 65,000 customers each year
According to EIA’s projections, in 2025 the or providing them an alternative to keep them
market share of vehicles powered by gasoline coming back.
engines will drop significantly from 90.97% in When EIA performed its analysis, details of the
2012, while the market share of E85-capable new CAFE standards had not yet been released.
flexible fuel vehicles, diesel engines and hybrid Today, we know that the projected improvement
vehicles will increase to varying degrees. (See in fuel efficiency is less than 5% for passenger
“Market Share of Vehicle Engine Type in Inven- vehicles, but approximately only 3.5% for light
tory” table above.) duty trucks in the early years of the program. For
The Annual Energy Outlook report seeks to evalu- purposes of this analysis, NACS has chosen to
ate the various strategies that may be employed use the more conservative projections provided
by the automobile manufacturers to reach the by CAFE3 (3% annual increase in fuel economy).
Utilizing the more conservative model also will
fuel efficiency standards set by the administra-
help accommodate for potential non-compliance
tion. The market potential for each strategy is
or relaxation of the standards in the event of a
very different, the consumer reach varies greatly
political shift in direction in Washington.
and the relative effect on the convenience indus-
try can be very broad. Understanding how these
8
EIA’s 2011 Annual Energy Outlook was published before the administration released details of revised CAFE standards for 2017-
2025 model year vehicles.16
nacsonline.com The Future of Fuels 17
Liquid Fuels
The convenience channel is advantageously Both the EIA Annual Energy Outlook Reference
positioned to sell liquid motor fuels via existing and CAFE3 cases project growth for the liquid
infrastructure. Through more than 120,000 retail fuel market, as well as continued dominance in
outlets, this industry can service the motoring the transportation sector. The most significant
public efficiently whenever and wherever neces- difference is found in the total BTUs9 used in the
sary. Continuing to rely upon liquid motor fuels transportation sector as CAFE standards drive
is a sensible approach that matches well with increased efficiency. (See “Liquid Fuel Projec-
the automobile industry’s optimized production tions” table below.)
facilities — but which liquid fuels will be in future
demand remains an uncertain question.
Liquid Fuel Projections
2035 Reference 2035 CAFE3
Liquid Volume Change +17.15% +3.61%
Total Transportation BTUs Change +17.22% +1.61%
% Market Share 96.63% 96.05%
9
BTU = British Thermal Units, a standard measure of energy content.18 The Future of Fuels nacsonline.com
Total Liquid Fuel Consumption
Liquid Fuel Market Share
Although there are significant pressures on the that overall BTU consumption will increase by
market to introduce alternative energy sources to 17.22% while the contribution of BTUs through
power the transportation sector, EIA projects that liquid fuels will still represent 96.63% of that
liquid fuel volumes will continue to increase. 10
total. By contrast, in the CAFE3 model, total BTU
consumption increases by only 1.61%, but the
However, as a percent of total transportation en-
liquid fuel contribution remains 96.05%.
ergy provided for light-, medium- and heavy-duty
vehicles, liquid fuels will continue to contribute These projections indicate that overall energy
the vast majority of power to the transportation consumption in the transportation sector will
sector.11 In 2010, liquid fuels contributed increase in both models, but at a far slower rate
97.39% of the transportation BTUs in the United in CAFE3. Meanwhile, liquid fuels will remain the
States. In 2035, the reference case projects primary source of energy in both projections.
10
Data for this chart was taken directly from the Annual Energy Outlook, Figure 20: Total liquid fuels consumption by light-duty
vehicles in three cases, 2005-2035.
11
For EIA liquid fuel projections, NACS is using the Annual Energy Outlook projections for motor gasoline (including biofuels
blendstock), E85 and diesel fuel.nacsonline.com The Future of Fuels 19
GASOLINE
Gasoline is the most prolific fuel used for trans-
portation in the United States. In 2010, the na-
tion consumed 137.8 billion gallons of finished
motor gasoline. (When reporting finished motor
gasoline volumes, EIA data includes the ethanol
component of E10. Therefore, to fully understand
the demands for refined pure gasoline, it would
be necessary to subtract the volume of etha-
the peak consumption of 142.3 billion gallons
nol from the finished motor gasoline volumes
in 2007. From 2000-2010, gasoline consump-
reported by the EIA. For purposes of this report,
tion increased by a total of 5.85%.
finished motor gasoline will be treated as the
current fuel specification found in local retail The Reference Case projects that in 2035
establishments, compatible with all vehicles and finished motor gasoline consumption will be
all retail equipment.) 2.88% above 2010. However, in the CAFE3 mod-
el, finished motor gasoline will drop 25.17%
In 2010 finished motor gasoline represented
below 2010.
53% of all finished petroleum products con-
sumed. This volume was down nearly 3.2% from
Gasoline Consumption 2000-201020 The Future of Fuels nacsonline.com
Gasoline Sales Projections
Reference Case CAFE3
An important variable in determining future sales. However, in the CAFE3 model annual sales
demand of a particular fuel is the future vehicle are projected to decrease 6.5% by 2035 and
market. EIA projects future vehicles sales and represent only 43.7% of sales. This data indi-
breaks these down by engine type. In 2009, tra- cates that while the gasoline internal combustion
ditional gasoline vehicles represented 77.2% of engine is not in danger of extinction in the next
new vehicle sales. According to EIA’s Reference 30 years, it will find itself competing fiercely
Case, annual sales of light-duty gasoline inter- with a variety of new vehicles for the consumer’s
nal combustion engine vehicles should increase attention.
54.8% by 2035 and still represent 66.4% of
Gasoline Vehicle Salesnacsonline.com The Future of Fuels 21
The projected continued reliance on gasoline — gasoline gallons were then divided into the RFS
albeit at different rates — would not have any mandated volumes to derive the necessary aver-
discernible effect on consumers or retail infra- age blend rate.
structure were it not for the RFS. Given the pro-
While some variables are not included, the sim-
jected growth rates of finished motor gasoline
plistic trajectory in the chart is clear — in the
and the mandated volumes of the RFS, it is pos-
very near future, retailers will have to sell and
sible to estimate how much renewable fuels will
consumers will have to purchase fuels that con-
be required in each gallon of finished gasoline.
tain substantially more than 10% ethanol. Given
The chart below, “Required Blend Rate of Renew- current compatibility standards and vehicle
ables in Finished Motor Gasoline,” presents the specifications, such a development will require
required blend rate, or the average percentage new equipment at retail and new vehicles on
of renewable fuels necessary to be blended in the road. Recent regulatory decisions by EPA on
each gallon of finished motor gasoline. Because approved uses of mid-level ethanol fuels such as
finished motor gasoline projections include E15 also introduce a variety of legal and practi-
the renewable fuels blended with gasoline, to cal complications for retailers and consumers.
accurately project the blend rate certain ad-
Although the future may remain dominated by
justments have been made. For illustration, we
liquid fuels, the federal mandate for renewable
assume the market for renewable fuels will meet
fuels combined with increased fuel efficiency
the mandated volumes of the RFS. To determine
requirements of the vehicle fleet will lead to a
the actual gallons of gasoline consumed, the
market in which finished motor gasoline will be
mandated volume of renewable fuels intended to
required to contain, on average, 33% renewable
be blended into gasoline (i.e., RFS volumes less
fuels in the Reference Case and more than 52%
biodiesel mandates) were deducted from the fin-
renewable fuels in the CAFE3 model.
ished motor gasoline projections. The projected
Required Blend Rate of Renewables in Finished Motor Gasoline22 The Future of Fuels nacsonline.com
ly 3.5% of all BTUs contributed by diesel fuel to
transportation energy. When commercial light
trucks are included in the mix, the two catego-
ries represent 7.8% of diesel BTU consumption.
For most convenience stores not servicing over-
the-road trucks, buses or other miscellaneous
diesel-powered vehicles, this represents the
entire diesel fuel market from 2008-2010.
However, given the improved fuel economy of-
DIESEL FUEL fered by diesel-powered engines compared to
In 2010, the nation consumed 49.2 billion gal- gasoline (about 30% to 35% more miles per
lons of diesel fuel. This represented 18.9% of all gallon, according to the Department of Energy),
finished petroleum products consumed. Since it is expected that automobile manufacturers
2000, diesel sales have increased significantly, might rely more heavily upon diesel-powered
peaking in 2007 at 53.1 billion gallons and post- consumer vehicles to help satisfy their obliga-
ing an average consumption increase of 2.39%. tions under the new CAFE standards. EIA
Despite a significant change in the regulatory projects that in the Reference Case, annual
composition of diesel fuel that reduced sulfur sales of diesel-powered light duty vehicles will
(starting in 2006) by 97% to accommodate increase more than 500% by 2035, expand-
cleaner burning engines, over the past 10 years ing market share of new sales from 1.75% to
total consumption is up 25.4%. 5.46%. However, in the CAFE3 model, diesel
And what about the diversity of vehicles that vehicle sales are projected to increase even more
operate on diesel? According to DOE, from 2008- aggressively, posting a 1,300% increase in sales
2010, light duty vehicles consumed approximate- and driving market share up to 13.5%.
Diesel Fuel Consumption 2000-2010nacsonline.com The Future of Fuels 23
Light-Duty Diesel Vehicle Sales
Diesel Fuel Sales Projections
Consequently, EIA predicts a strong demand in Increased sales of diesel vehicles will have an ef-
the future for diesel fuel. From 2010 to 2035 die- fect on the market. In 2011, diesel vehicles cost
sel demand is projected to increase 39.2% in the consumers much more than gasoline vehicles,
Reference Case. Similar to the vehicle market, and since 2005 diesel fuel has been more expen-
however, the CAFE3 model projects a stronger sive per gallon than regular unleaded gasoline.
market for diesel fuel with a projected increase
of 52.7% by 2035.24 The Future of Fuels nacsonline.com
An increased reliance on diesel fuel, however,
could have repercussions for the entire economy. Average Retail Prices12
From June 2010 to June 2011, the United States
Year Gasoline Diesel
exported an average of 739,000 barrels of diesel
fuel and imported essentially none. In 2010, do- 2000 $1.523 $1.491
2001 $1.460 $1.401
mestic net production of on-road diesel fuel was 2002 $1.386 $1.319
3.4 million barrels per day. 2003 $1.603 $1.509
2004 $1.895 $1.810
The U.S. refinery production infrastructure is 2005 $2.314 $2.402
2006 $2.618 $2.705
optimized to produce gasoline. The chart, 2007 $2.843 $2.885
“Percent Refinery Yield, Gasoline and Diesel Fuel,” 2008 $3.299 $3.803
2009 $2.406 $2.467
demonstrates that more than 45% of refinery 2010 $2.835 $2.992
production is gasoline, while diesel fuel represents
about 27%.13 If additional diesel-powered vehicles
are sold and diesel demand increases, the produc- Further affecting consumers and retailers could
tion numbers must also change. In the past 10 be the relative cost of the products. The inter-
years, diesel fuel production has increased 19.0% national market is more heavily reliant on diesel
while gasoline production has declined 1%. Ad- fuel consumption than the United States, thereby
ditional changes in the structure of the refining creating a market for the United States to export
system could be required to satisfy projected diesel its diesel fuel production. If additional demand
fuel demands. for diesel fuel forces the United States to com-
Percent Refinery Yield, Gasoline and Diesel Fuel
12
EIA “Weekly Retail Gasoline and Diesel Prices,” www.eia.gov/dnav/pet/pet_pri_gnd_dcus_nus_a.htm
13
EIA Refinery Yield: www.eia.gov/dnav/pet/pet_pnp_pct_dc_nus_pct_m.htmnacsonline.com The Future of Fuels 25
pete on the international market for diesel fuel,
consumers may see elevated prices at the pump
in real terms, and when compared to gasoline
prices. This could undermine EIA projections for
broader consumer acceptance of diesel fuel. A
higher purchase price combined with escalating
diesel fuel prices (compared to gasoline) could
dissuade consumers from switching their pur-
chasing decisions. Furthermore, a shift in refin-
ery operations to increase diesel fuel production
ETHANOL
could put additional strain on gasoline supplies, In 2010,
As the dominant renewable fuel in the nation,
which could similarly put upward pressure on the nation
ethanol continues to play a more prominent role
gasoline prices. The overall affect could be an consumed a
in the marketplace. In 2010, the nation con-
increased cost to consumers, whether they drive total of 13.189
sumed 13.2 billion gallons of ethanol, represent-
gasoline or diesel-powered vehicles. billion gallons
ing 9.6% of the finished gasoline consumed in
For retailers, the equipment necessary to sell of ethanol,
the nation. The structure of the RFS puts a cap
gasoline and diesel fuel is the same. So a shift to most of which
on the use of traditional, corn-derived ethanol at
greater reliance on diesel fuel would not impose was blended
15 billion gallons, a volume that will be met in
significant changes on the retail marketplace. with gasoline
2015. Additional volumes of renewable fuels will
But currently, fewer than 50% of convenience as E10.
have to be provided by cellulosic ethanol or other
stores offer diesel fuel, and this would most types of advanced biofuels as defined in the RFS.
likely have to change. Some retailers may find it
This poses a significant problem for the RFS be-
difficult to add diesel to their operations, espe-
cause there are currently no commercially viable
cially if they operate a system with only two un-
gallons of cellulosic ethanol, or any other type
derground storage tanks. These facilities may not
advanced biofuels and 8.65 million gallons of
have the physical space to add a third tank to
cellulosic biofuels — targets unlikely to be met.
offer diesel fuel and they may not want to swap
This failure of the cellulosic ethanol industry to
one of their two gasoline tanks to offer diesel
produce enough advanced biofuels to satisfy the
fuel, since doing so would reduce their gasoline
RFS is a serious problem. Barring a production
offer to only one octane grade. These are indi-
efficiency breakthrough, this component of the
vidual issues that may add cost to the retailer,
RFS could fall apart.
but overall the compatibility of the systems and
the fuel does not represent any challenges to the
industry.26 The Future of Fuels nacsonline.com
There is one feature of the RFS that could esca- E10
late the commercial viability of existing produc- The typical ratio for ethanol blended into gaso-
tion processes: renewable identification numbers line is 10%. EPA considers E10 “substantially
(RINs), the credits obligated parties must obtain similar” to gasoline and imposes no restrictions
to satisfy their renewable mandates. As the for its use; it is authorized for use in any engine
scarcity of actual gallons of advanced biofu- formulated to operate on pure gasoline. With
els increases, the value of advanced RINs also the implementation of the RFS, the use of E10
increases and the break-even threshold for the in the United States has increased dramatically.
small and developing advanced biofuels produc- In 2010, the nation consumed a total of 13.2
tion market becomes easier to achieve. In such a billion gallons of ethanol, most of which was
scenario, the regulatory costs of non-compliance blended with gasoline as E10.
could render a viable market for the burgeoning
Although E10 is almost ubiquitous in the United
yet expensive cellulosic ethanol market.
States, using 10% ethanol in every gallon of
From a retailer perspective the primary issue is gasoline sold will not satisfy the RFS. In 2010,
accommodating the mandated volumes; regard- the nation consumed 137.8 billion gallons of
less of the feedstock used to produce it, ethanol finished motor gasoline, of which 13.189 billion
acts like ethanol. Whether the fuel is cellulosic or gallons was ethanol. This meant the average
corn-derived, certain compatibility and market concentration of ethanol in each gallon was
requirements for storing and selling the product 10.6%.14 In 2013, the mandated volume of
do not change. renewable fuels is 13.8 billion gallons. As dis-
cussed in the gasoline section of this report, the
Most importantly, mandated volumes for renew-
RFS-mandated volumes, when compared with
able fuels and cellulosic ethanol have created
EIA gasoline consumption projections, creates a
what is commonly referred to as the “blend
scenario in which ethanol blending must increas-
wall,” the point at which the market will be un-
ingly exceed 10% on average.
able to increase blending ethanol into gasoline.
This is prompting real consideration of how
ethanol is used in the marketplace, and how
blend ratios can be increased to accommodate
the increasing mandated volumes.
14
Blend rate equation: finished motor gasoline (137.8) – ethanol (13.189) = total gasoline (124.611). Ethanol (13.189)/total
gasoline (124.611) = average blend rate (10.6%).nacsonline.com The Future of Fuels 27
Another way of viewing the situation is to evalu- ance with the RFS-mandated volumes, dropping
ate how much of the RFS that E10 can satisfy from 97.3% of the RFS volumes in 2010 to
going forward. This will provide insight into how 29.2% and 18.6% in the Reference and CAFE3
much the market may have to rely on other re- models, respectively. In essence, additional
newable fuel blends. The chart, “RFS % as E10,” renewable fuel formulations will be necessary to
using the blend rate equation, shows that E10 satisfy the RFS.
contributes a decreasing percentage to compli-
Required Blend Rate of Renewables in Finished Motor Gasoline
RFS % as E10
RFS % as E1028 The Future of Fuels nacsonline.com
E85
According to ASTM (formerly known as the Amer- was 9.33 million. Total light-duty vehicles in the
ican Society for Testing and Materials), which United States at the end of 2010 were 227.5
establishes technical standards for motor fuels, million, yielding a FFV market share of 3.6%. EIA
E85 is a fuel that contains gasoline and 51% to projects sales of FFVs will increase by an annual
83%15 ethanol. Lower blend ratios are used in rate of 7.3% in the Reference Case with annual
the winter months to address cold weather start- sales climbing 523% over this time period. How-
ing issues presented by higher ethanol volumes. ever, in CAFE3 the annual increase is only 4.6%
The use of E85 is restricted only to flexible fuel with total sales climb of 232%.
vehicles (FFVs), which are designed to adjust the
Sales of E85 have been slow in the United
oxygen intake requirements of the engine based
States. Since 2005, E85 sales have increased
upon the volume of ethanol present in the fuel.
from 52.8 million gallons to 98.9 million, a
These vehicles can operate on any concentration
growth rate of 87.3% over five years but still
between E0 and E85.
representing less than one-tenth of 1% of the
According to EIA, the number of FFVs produced gasoline sold in the nation. EIA projects growth
in 2005 was 735,693. By 2009, estimated pro- rates of 26% and 28% annually in the Refer-
duction was 1.049 million, an increase in annual ence and CAFE3 models. However, even with this
production of 43%. EIA estimates that the total increase in consumption, E85 will still represent
number of FFVs on the road at the end of 2010 only 3.2% of the liquid fuels market in 2035 in
the Reference Case and 4.3% in CAFE3.
Flex Fuel Vehicle Sales
15
ASTM D5798 – 11– Standard Specification for Ethanol Fuel Blends for Flexible Fuel Automotive Spark Ignition Enginesnacsonline.com The Future of Fuels 29
E85 Sales
RFS % by E85
There are two primary reasons adoption of E85 retailers are hesitant to invest in E85 infrastruc-
is slow. First, because ethanol contains less ture, which can be costly. Most tanks and dis-
energy than gasoline, E85 is estimated to deliver pensers are legally certified to sell no more than
between 25% to 30% fewer miles per gallon. 10% ethanol16 and replacing these systems can
Consumers therefore demand that E85 be of- cost more than $100,000. Consequently, E85 fa-
fered at a discount to gasoline to compensate cility expansion has been slow. As of September
for the loss of mileage and to offset the inconve- 30, 2011, there were only 2,454 E85 retail facili-
nience of having to refuel more frequently. This ties in the nation, or 1.5% of all fuel facilities.
is difficult for many retailers to do.
Several government grants and tax credit pro-
Second, the potential market of customers grams17 have assisted retailers with installation
(3.6% of vehicles) is limited and those consum- costs, but these typically only cover a certain
ers are not required to buy E85. Consequently, percentage of renovation costs. In addition, it
16
Legal consequences can be associated with using non-certified equipment. Visit www.nacsonline.com/renewablefuels for more
information
17
Infrastructure tax credits and incentives can be accessed online: www.afdc.energy.gov/afdc/30 The Future of Fuels nacsonline.com
is unlikely federal support programs will extend model year vehicles, marine engines, off-road
beyond their current expiration dates. engines and small equipment engines. EPA based
its decisions on vehicle testing conducted in
Despite the small contribution E85 will make to
cooperation with the Department of Energy. The
the overall fuel supply, if the EIA projections are
decisions are being challenged in the courts by
true then E85 has the potential to contribute
refiners and automobile manufactures who dis-
significantly to RFS compliance. When calculat-
agree with the testing protocol and the results.
ing the effect of E85 on the market, EIA uses a
weighted average and assumes every gallon of EPA followed its decision with a final rule estab-
E85 contains 74% ethanol on average. lishing procedures for preventing the misfueling
of non-approved vehicles and engines with E15.
Based upon this assumption, the volume of
The rule requires that all retailers of E15 must
renewable fuels contributing to compliance with
affix a specific label either on or adjacent to the
the RFS and sold as E85 can be plotted. The EIA
fuel selector alerting the consumer that the fuel
Reference Case projects a 26.7% contribution
was approved for only certain engines and that
to RFS compliance through E85 sales while the
other uses are prohibited by federal law.
CAFE3 model projects a 33.8% contribution.
Of course, the market limitations on sales and For retailers, E15 presents a variety of chal-
consumer acceptance of E85 must play into the lenges. First, while there are more vehicles on
future market demands, but significant potential the road legally approved to use E15 than E85,
exists for E85 to play a role in future compliance. the universe of approved engines remains less
than complete. It is estimated that 60%18 of
If the EIA projections are accurate, E10 and E85
vehicles on the road are model year 2001 and
have the combined potential to satisfy 52.3%-
newer and are thus legally allowed to operate on
55.9% of the RFS-mandated volumes in 2035.
E15. However, automobile manufacturers do not
This means other alternatives must come to
support EPA’s decision and advise in their own-
market to deliver the remaining 40-50% of man-
ers’ manuals against using any fuel in excess of
dated renewable volume.
10% ethanol in non-FFVs. In addition, for newer
E15 vehicles still under warranty, use of E15 may
The combination of E10 and E85 is unlikely to constitute a violation of the warranty terms.
satisfy the mandated volumes of the RFS. In Consequently, the potential market demand for
response, in 2011 EPA issued two rules partially E15 remains uncertain.Second, most equipment
approving a request by Growth Energy (a trade is only listed as compatible with up to 10% etha-
association representing ethanol producers) to nol. Consequently, the costs to legally offer E15
authorize the use of E15. EPA’s decisions allow could be significant and include replacement of
the use of E15 in vehicles manufactured in model dispensers, underground storage tanks, lines
year 2001 and later, but prohibit its use in prior and connected equipment.19
18
www.afdc.energy.gov/afdc/technology_bulletin_1210.html
19
Visit www.nacsonline.com/renewablefuelsnacsonline.com The Future of Fuels 31
Finally, despite compliance with the labeling modate E15 and, if so, would likely amend their
requirements issued by EPA, a retailer could owner’s manuals and warranties. The problems
still be held liable for misfueling. A retailer who associated with non-road engines, however, are
does not prevent a consumer from introducing likely to remain for the foreseeable future.
E15 into a non-approved engine could be fined
MID-LEVEL ETHANOL BEYOND 15%
by EPA for violating the Clean Air Act, with fines
E15 faces significant hurdles as it attempts to
up to $37,500 per violation. If EPA chooses to
establish a foothold in the market. However, even
not enforce against the retailer, the private right
if it replaced E10 as the dominant fuel in the
of action provision in the Act could empower a
market, it would be insufficient to satisfy RFS
citizen to file a suit against the retailer. Fur-
requirements. Using the same calculations and
ther, a consumer could seek to hold the retailer
assumptions to calculate the contribution of E15
responsible for voiding the engine’s warranty or
to the RFS as were used to calculate E10 and
for damaging the engine. Under current law, the
E85, if E15 were blended into every gallon sold
retailer could be sued and exposed to potential
(which is not possible), it would satisfy 43.7%
long-term, retroactive liability if the fuel is ever
and 27.8% of the RFS in 2035 in the Reference
determined to be defective.
and CAFE3 cases, respectively. Because of mar-
Legislation under consideration in Congress ket and vehicle restrictions on the use of E15,
would resolve many of these challenges by it is clear that its contribution to the RFS will be
authorizing an alternative method for determin- significantly less than this hypothetical potential.
ing the compatibility of equipment, thereby
Representatives of the automobile and small-
potentially mitigating the cost of converting a
engine manufacturing industries have advocated
station to legally sell E15. The legislation would
for a higher blend authorization for engines
also remove retailer legal liability for misfueling,
produced after a certain date, thereby provid-
provided he is in full compliance with the label-
ing them with sufficient lead time to change the
ing requirements. Versions of the legislation also
specifications of their equipment to accommo-
would remove the threat of defective product
date the additional ethanol. At the end of 2011,
liability.
no specific proposals had been presented.
If the legislation is enacted into law, the mar-
ket dynamics for E15 could begin to improve.
Given that EPA’s regulations apply to all newly
produced vehicles, the population of potential
consumers is constantly expanding. In addition,
the automobile manufacturers may adjust their
production specifications to specifically accom-32 The Future of Fuels nacsonline.com
RFS % as E15
Blending higher volumes of ethanol into motor Therein lies some of the uncertainty — will the
gasoline will be required in the long term. The RFS remain in effect to achieve full implementa-
Reference and CAFE3 projections for gasoline, tion? Political pressures are building and the
E10 and E85 clearly point to a renewable fuels future is far from clear, but if current regulatory
market that falls short of the RFS mandated conditions prevail, retailers must be prepared to
volumes in the next 20-plus years. A percentage sell fuels containing more than 10% ethanol in
of fuel volume blended at E15 or beyond must the near future.
enter the market if the RFS is to be successfully
implemented.nacsonline.com The Future of Fuels 33
BIODIESEL
The projected growth potential for diesel fuel
should carry with it additional marketing op-
portunities for biodiesel, a renewable replace-
ment for traditional diesel fuel. It can be used in
certain alternative engines in a 100% concentra-
tion (referenced as B100), but is most commonly
used in the market as B2 to B5 (2% to 5% bio-
blend). Similar to E10, biodiesel in concentra-
tions below 5% is considered substantially simi- product produced from recycled oils (such as
lar to diesel fuel. In fact, ASTM considers diesel kitchen grease). These tax credits, however, ex- Looking for-
fuel containing a biodiesel component of 5% pired at the end of 2011 along with the VEETC ward, EIA proj-
or less to be the same as standard diesel fuel. (Volumetric Ethanol Excise Tax Credit).
ects steady but
Consequently, no labeling or other notification
Regardless, biodiesel will remain a compo- limited growth
requirements are associated with B5 or lower
nent of the market, if for no other reason than for biodiesel.
concentrations. In addition, there are no special
the federal government mandates it. The RFS
handling requirements for biodiesel concentra-
mandates an increasing volume of biomass-
tions at this level. Once retailers begin consider-
based diesel be blended into the market, but
ing concentrations greater than 5%, additional
caps the mandate at 1 billion gallons in 2012.
equipment and vehicle compatibility issues may
After 2012, the biodiesel mandate is left to the
become a limiting factor.
discretion of EPA but cannot fall below 1 billion
Biodiesel has enjoyed strong political support gallons. The domestic market for biodiesel is
and has benefited from a $1.00-per-gallon limited, partially due to the limited market for
tax credit for bio-based diesel (such as that diesel fuel. Consequently, from 2007 to 2010,
produced from soybeans, the most common the United States exported 25% to 53% of its
feedstock) and a $1.50-per-gallon tax credit for domestic biodiesel production.
Biodiesel Consumption34 The Future of Fuels nacsonline.com
Biodiesel consumption has increased over the Looking forward, EIA projects steady but limited
past 10 years, growing from 10 million gallons growth for biodiesel. Although liquid gallons of
in 2001 to 222 million in 2010, reaching its biodiesel will still represent only about 1% of
peak in 2007 at 358 million gallons. The market the liquid transportation energy provided, BTUs
experienced difficulties in 2010 when the tax provided by biodiesel are projected to increase
credit expired. In anticipation of a retroactive ap- 525% and 575% by 2035 in the Reference and
plication of the credit once renewed, producers CAFE3 models, respectively. As a percent of the
continued to operate and price as if the credit transportation energy sector, biodiesel is pro-
was active. The extended delay in reauthorization jected to contribute 1.0% and 1.1% in the two
of the credit caused several producers to go out cases. Consequently, its role in the market will
of business and, as of 2011, the market had not remain limited.
yet recovered.
Biodiesel Projectionsnacsonline.com The Future of Fuels 35
Non-Liquid Fuels
Much of the recent political attention on energy in the northeast and other regions, would cre-
policy has focused on alternative fuels and engine ate very strong regulatory and, by consequence,
technologies. Debates concerning the future of economic pressures to bring new technologies to
natural gas-powered vehicles, electric vehicles market. The primary incentive is to reduce the use
and the much anticipated hydrogen fuel cell, have of petroleum-based products, but the standards
dominated the discussion. However, EIA’s projec- being applied in California disadvantage fuels
tions indicate that these technologies — even as such as corn-derived ethanol and strongly incen-
a cohesive group — will likely represent no more tivize the use of electric vehicles.
than a small niche of the transportation sector.
Meanwhile, a national public relations campaign
If liquid fuels are projected in 2035 to represent has teamed up with legislation in Congress to
96.63% and 96.05% of total transportation BTUs help the nation tap into its vast natural gas re-
in the Reference and CAFE3 cases respectively, sources to develop a transportation sector market
then the combined contribution of all other fuel for this clean burning fuel.
types will be less than 4%.
Such activities are occurring at the same time
That said, projections are uncertain; policies or researchers are spending billions of dollars to
technology breakthroughs can have a significant develop better performing, higher capacity batter-
influence on the overall market potential of these ies for electric vehicles and mobile hydrogen fuel
alternative technologies. For example, implemen- cells. Technology breakthroughs are possible and,
tation of a low carbon fuel standard (LCFS) in if commercially viable, could dramatically change
California, and consideration of similar policies the future of transportation energy. In addition,You can also read
