Refining industry experts say fuel efficiency standards and the political landscape pose a long-term threat to gasoline demand both in the U.S. and globally, with most agreeing that U.S. gasoline demand will decline in the long term amid improvements in fuel efficiency and penetration of electric vehicles.
The U.S. refining industry is exploring raising octane standards in the nation's gasoline supply as a means to curb the decline of the internal combustion engine and to secure long-term domestic demand for its products, but the fuel specification change would be fraught with technical, logistical and regulatory challenges.
"Regulations have become more stringent. We're seeing various states and countries favor certain technologies rather than optimizing the full options base and balancing fuel economy efforts," General Motors Co. vice president of global propulsion systems Dan Nicholson said March 12 during the American Fuel and Petrochemical Manufacturers annual meeting in New Orleans. "Societal trends like urbanization and sustainability are changing the ways customers think about and interact with automobiles."
AFPM president and CEO Chet Thompson remarked that there are proposals in Germany, France, the UK, Norway, India, China and California that would phase out or eliminate the internal combustion engine.
"As far-fetched as these measures sound, it would be a big mistake for us to ignore them, or to not treat them as real," he said.
First put into place following the OPEC crisis in the 1970s, the corporate average fuel economy, or CAFE, standard is one method U.S. regulators have used to boost the fuel efficiency of the U.S. vehicle fleet. The standard captures the fuel economy of driving each car produced for sale in the U.S. the same number of miles.
Flint Hills Resources, LLC executive vice president and CFO Tony Sementelli said during a March 13 panel discussion that there's a gap between what existing technologies will do with regard to improving fuel efficiency and the CAFE mandates regulators have laid out.
"[Auto manufacturers] tend to have already chosen the lower-cost [solutions] already," he said. "So what we see is the continuing increasing cost of the internal combustion engine vehicle at a time when society and disruption is bringing down the cost of the battery-electric vehicle."
Nicholson said while he thought the more stringent CAFE standards are technically achievable, he expects consumer preferences will make it more challenging for automobile manufacturers to meet.
"The 2010 [regulations] were put into place when fuel prices were more like $4 per gallon. At half that price, consumers are tough to convince," he said.
Sementelli said automobile manufacturers are at a crossroads: They could keep making expensive investments in more expensive internal combustion engine technology, or they could sell more battery-electric vehicles to meet the CAFE standards.
"As you get into higher-cost technologies, you get closer to BEV parity," he said. "And given the societal pressures on CO2, it's very easy for the auto guys to decide, 'well, let's go to an electric footprint.'"
Sementelli cautioned that pushing the automotive industry to produce more electric vehicles could accelerate the timeline over which electric vehicles become cost-competitive: "Economies of scale becomes a big deal. … The cost curve will begin to bend faster."
Sementelli said at the equivalent of 700,000 electric vehicles produced and sold per year, the gap between what current technology will achieve and the mandates regulators have laid out is "not an immaterial amount."
"Although in the calculus of the CAFE, electric vehicles have a certain amount of gasoline per mile driven, in practical reality we aren't selling gasoline to electric vehicles," he said.
Another way forward
Refining industry experts proposed that the automotive and refining community work together to improve the fuel efficiency of the fuel base by boosting octane and then tuning the motor vehicle pool to burn that fuel through the rollout of higher-compression engines.
The research octane number, or RON, is a measure of gasoline's anti-knock, or resistance to detonation. Burning low-octane gasoline can ruin engines that are not designed to burn it.
Bob Anderson, the senior fuels policy advisor at Chevron USA Inc., said between 94 RON and 96 RON,which is roughly equivalent to premium gasoline on current U.S. pumps that are labeled with a different measure of octane, is where the cost to reduce emissions and improve efficiency is lowest for both automotive and fuel manufacturers.
Sementelli said 95 RON gasoline would meet roughly one-third of future CAFE reduction required under current regulations for which the automobile industry had not yet developed technological solutions.
CAFE standards are under their mid-term review, and if the Trump administration makes them less stringent, Sementelli said increased octane and engine tuning could meet up to 100% of future CAFE reductions, depending on how much CAFE targets are relaxed.
Sementelli said that the gap between what current technology will achieve and the mandates regulators have laid out is "not an immaterial amount" at the equivalent of 700,000 electric vehicles produced and sold per year.
Challenges loom
The short timeline and the number of parties involved, not to mention lingering questions stakeholders are trying to wrap their heads around, raise questions about whether the country will be able to pivot to a higher octane standard.
"All of our members want to make sure we understand the potential implications of going down this route," Thompson said. "This wouldn't be an insignificant move. There would be a lot of investment required."
"95 RON is interesting to us because it doesn't specify where the octane comes from," Thompson said, meaning that refiners and blenders could boost octane without adding ethanol to the gasoline blend. Thompson was adamant: "It would be unacceptable to our industry to have [both] an octane standard and a [renewable fuels] standard."
Nicholson said General Motors hopes to move to the new standard for the 2023 model year, which is four years from now.
"We need some lead time to change compression ratios, to redesign engines, to recalibrate them," he said.
Meanwhile, along with additional refinery capacity to boost octane, the whole gasoline supply chain may require an overhaul.
"When you think about this, you have to think about potential impacts to pipelines, to terminals, to retail stations, making changes to how you label pumps," Marathon Petroleum Corp. product quality and emerging technologies manager Fred Wallace said on March 13. "It becomes quite a big issue when you consider that there [are] around 150,000 to 155,000 gas stations in the country that all need to be compliant, with a good 60% of those owned by independent business people."
Wallace said the U.S. vehicle fleet turns over roughly every 20 or 25 years.
"That works out great because … [refiners] can stage [their] investment over longer periods of time," he said. "[But on the downstream side] you have to frontload the investment so the fuel is available day one."
Wallace said the simplest solution would be to replace existing premium fuel with the new high-octane fuel. Other options include adding a fourth grade of gasoline or making E15, or gasoline blended to 15% ethanol, available.
The latter two options complicate logistics.
"You're looking at moving different [blendstocks] through the [supply chain], which may highly constrain the terminal system and pipelines," Wallace said. "How do you move all this stuff through the distribution system?"
Finally, Wallace said educating consumers to prevent misfueling poses a challenge.
"Think of a 16 year-old boy or girl driving to the gas station," he said. "How do you make it idiot proof so they put the right fuel in the right vehicle? … [The U.S. Federal Trade Commission] regulates what it says on the pumps, so we have to figure out … what would you have to get changed so we can sell this fuel."
