Change is Coming: Five Predictions for the Fuel Industry in 2018
Article by John Beaty
In 2017, the fuel industry was ripe with change. Oil prices continued on an upward trajectory, hovering between US$50 and US$60 a barrel, well above the US$30 (or under) pricing of 2016.
In addition, mergers and acquisitions were on the rise, indicating that the market is on an upward trajectory. Overall, the fuel industry forecast is looking bullish for 2018, but an increase in alternatives, infrastructure needs and environmental pressures will bring additional capital expenditures, changes and even potential expenses. The coming year will be ripe with activity, and here are five predictions for 2018.
The Rise of Alternatives
Electric car sales skyrocketed in 2017. Total sales were up 47 percent, and this increase is already beginning to affect alternative fuels. Retailers are determining where and how to install charging stations, there is a push to develop technology to charge vehicles faster, and the offset in tax revenue from fuel to power still remains a conundrum.
While this may seem like uncharted terrain, this is strikingly similar to the widespread adoption of ethanol ten years ago, albeit on a lower scale. Likewise, there was a large adoption of CNG in heavy vehicle operators as they replaced diesel in large trucks.
In 2018, as companies look to replace more traditional fossil fuels, newer alternative fuels will become mainstream, and look for fuel companies to capitalise on the alternatives opportunity. However, while there may be current tax benefits because legislation simply hasn’t caught up, it is important for companies to stay abreast of these changes throughout the year.
Solidification of Infrastructure
From pipelines to refineries, storage tanks to terminals, the oil and gas industry infrastructure has always heavily relied on steel for its infrastructure. However, steel erodes and, as it ages, it becomes more corrosive. Over time, corrosion can lead to an increase in spills.
Given the heightened awareness regarding environmental protection, in the coming year, the fuel industry will evaluate and bolster the weakest points, resulting in additional capital expenditures to meet infrastructure needs.
In addition, a large part of fuel revenue in the United States is earmarked for national infrastructure maintenance, such as roads, bridges and highways, and that infrastructure desperately needs more investment. With the rise in alternative fuels, the United States is still in the process of determining which adjustments must be made to offset revenue from traditional fuel sales.
In 2018, expect new excise tax legislation to emerge on alternatives in order to address infrastructure needs, and companies to adjust strategies accordingly.
The Need for Speed
Technology and ecommerce have spurred creative development that has improved supply chain operations for ride share companies, direct delivery of fuel and even fuel order apps which service cars while consumers are at work. While these advancements certainly make things easier for organisations and even the end-user, these new methods have an impact on the traditional revenue model that supports the economy.
Currently, many states are struggling to identify, collect, inspect, audit and regulate on a much broader scale than before. While these changes are based upon traditional fuel, the advancement of alternative fuels, such as power and CNG, will add yet another multiplier to this already complex model in 2018.
An Upswing of M&As
M&A will always be an element of the fuel industry. As one company adopts new methods and excels in the ever-changing environment, others will lag behind, creating the opportunity for companies to make acquisitions in order to improve strength.
However, one thing that has become overwhelming clear in the past few years: technology is a game-changer which has enabled smaller, scrappier companies to overtake established, more traditional large companies. This is similar to the disruption which online shopping brought to the brick and mortar retail industry, but the difference is that fuel will always require infrastructure that can deliver on a large scale.
For example, during the initial investment in wind turbines, the electricity infrastructure grid was not prepared for large scale wind farms but, in recent years, the infrastructure is finally catching up to those investments.
In 2018, expect mergers and acquisitions to push the fuel industry in new ways and look for organizations to make strategic acquisitions based on infrastructure needs.
Environmental Taxation Shifts
This year has already brought increased adoption of environmental taxes or fees related to operating a vehicle. Typically, these fees are designed to offset harmful effects on the environment at the end-user level. But, with the increased need to capture offset fuel revenue and heightened attention and requirements for the environment when it relates to hydrocarbons, in 2018, more states will begin to adopt additional fee structures.
Currently, these initiatives are operating at the state level but, in Europe and around the globe, heavily congested cities are imposing significant fees to reduce traffic and vehicle use. In the coming year, expect some of these fees to make their way to major US hubs, potentially impacting margins.
While there is hope for an upswing in the fuel market in 2018, taxation and legislative changes and other factors have the potential to impact significantly both traditional fuel and alternatives. It is increasingly important that providers stay abreast of these changes in order to remain compliant.
In this industry, one thing is certain: changes will come, but now it’s a matter of being prepared.