#1 Biggest Trend in the US fuel industry is the long term decline of our gasoline demand. This anticipated decline is to the tune of some 30 billion gallons of fuel expected to impact all areas of the industry across the board. Sounds like quite a bit, right? The average fuel marketer accounts for just about 30 million gallons a year. The shortfall as expected could potentially be the demise of 1,000 distributors if not more. The fuel industry as a whole, whether speaking of refineries, distribution or even the retail level have all grown a steady 1% annually, for several decades. A reversal in the gasoline market where we are forced to contemplate shrinking demands could really cause a renovation if you will of the entire market as we know it.
Two trends that seem to support this theory are that many refiners continue to seek export opportunities as a failsafe to their future success. In the ability to continue on a profitable path the distributors will be forced to consolidate and continue to lower their costs. Fuel retailing will remain an important category but most likely won’t be a product that is the sole reason a store exists.
Big Box Retailers, drugstores, and even grocery stores continue to add gasoline as a product line. Convenience stores, also far from conventional, often have larger food footprints than they do fuel. At least from a gross profit perspective anyway. As fuel economies continue to double, these product line views and retail gasoline will continue to be the norm rather than the exception.
#2 trend is the increasing specialization of petroleum marketing companies. Twenty years ago there were no less than 12,000 distributors, today there are about 4,000. Consolidation while not discussed began several years ago and continues to be a central theme for the industry while we have all watched. To really wrap your mind around these numbers you could equate that to one distributor a day over the past 15 years either being acquired or absorbed by another.
The continuing trend that has allowed for growth in petroleum distribution are largely or even entirely focused on one product line. A prime example would be to look at Petro Choice. They have brought large amounts of private equity into the industry.With that money they consolidated their lubricant business and invested in their own lubricant distribution company so they became a much more advanced service provider to the industrial, automotive and even fleet customer.
Mansfield has consolidated their commercial fuel company while continuing to work with firms focused on both lubricants and their retail fuel markets. Along the same mind set Guttman diversified their long term lubricants business to focus more on their core fuels market and even TAC Energy sold off their terminals to become more focused on their fuel marketing.
The point here being that this trend of specializing is in direct result of the demand trend. With the demand for the largest product category, gasoline, declining every other product category will definitely be impacted.
The #3 trend and possibly the biggest game changer yet would be that of the exploding US Crude Oil and Natural Gas production. One might ask how a fundamental change in primary supplier of our key commodity could affect our downstream. Simple, new larger producers like Continental Resourcescan’t export crude oil and continue to offer big discounts and record crack spreads to downstream refiners which really keeps them disconnected from the end user. As our production here in the US continues to grow and our own domestic refining expands, change is surely coming.