A transition in transport and mobility is undoubtedly happening, and gas stations are stuck in the middle of it—whether they like it or not.
Today, there are already over 10 million electric vehicles registered on the roads and according to the International Energy Agency, that number is expected to rise to 145 million by the end of the decade. At the same time, the world is in the midst of a “hydrogen gold rush” with many governments tipping the gas to become the next big thing. And then comes efforts to reduce carbon emissions from traditional fossil fuels by infusing them with biofuels.
These shifts point towards the creation of a transportation system that is sustainable, energy-efficient, and respectful of the environment. But what does that future look like for gas stations across the planet? Are they electric? What about hydrogen and biofuels?
This is certainly the question on many fuel retailers’ minds. And while only time will be able to give us a concrete answer, one thing is for certain: a wait-and-see approach could put you miles behind in this rapidly changing landscape. That’s why it’s important to understand the difference between alternative fuels and how they will impact the transport system as we know it today.
If you’re a fuel retailer looking towards the future, read on to find out more about the different types of alternative fuels which are making up an ever-larger percentage of the transport energy mix.
Gas stations have always had to adapt to survive
Gas stations have always adapted to the trends of the day. In the beginning, combining gas pumps with groceries would have been seen as unusual due to one simple fact: Gas pumps had to be manned.
As gas stations were required by law to have an attendant fill up a customer’s vehicle, few people left their vehicles. Then as the regulatory environment shifted and pumps became self-service, more and more people began to venture into stores, the gas station/convenience store combination became more common than not. As time went on, a range of additional services—from car washes to air and water machines —were introduced. Today, seeing these things together is as normal as anything. In fact, In European and North American economies, the share of operating profits for non-fuel retail is up to 40%–50%.
As convenience continued to be prioritized to match society’s demands and the passenger vehicle grew to dominate how we got from A to B, fuel retail became a cornerstone of the modern economy.
However, the sector has come under increasing pressure due to concerns over sustainability and many fuel retailers are already looking to understand their position in the future of transportation.
A new era for gas stations: alternative fuels
As the energy transition accelerates, it looks like transportation—which accounts for roughly 12 percent of global emissions worldwide—is moving into its main act.
Today the oil and gas industry faces more opposition than ever before. Whether it’s from a public who increasingly consider climate change a global emergency; fallout from numerous cover-ups on the damage of fossil fuels; or outrage over how the oil industry spent billions to control the climate change conversation, the tide is turning for big oil.
To confront this reality, oil and gas companies are beginning to reconsider their position in the decarbonizing world of today and how they want to do business in the future. One key target is EV infrastructure. For example:
- Shell announced it will install 500,000 on-street electric vehicle charging points by 2025.
- BP will increase its network of EV charging points to 70,000 points by 2030.
- Total will increase its EV charging network in Europe to 150,000 charging points by 2025 from 18,000 today.
However, the average citizen rarely interacts with big oil companies unless they’re at the pump. As a result, many are considering how their reputation will fare in this landscape. And for good reason: a recent prediction shows that fuel retail will slowly decline across mature markets—from $87 billion in 2019 to $79 billion in 2030.
For fuel retail owners and managers, that means that their business is at the front line of the conversation about climate change, sustainable transportation, and the future of mobility as a whole whether they like it or not.
The rise of electric mobility
The rise of electric mobility has undeniably been coupled with the need to create a sustainable transportation system. Emissions from road transport—including cars, trucks, lorries, motorcycles, and buses—accounts for nearly 12 percent of global CO2 emissions and the decarbonization of this sector is integral to battle climate change. As such, many are looking to electric mobility to play an integral role in creating a sustainable future.
In line with this, several countries including China, United Kingdom, Sweden, India, Israel, and Germany have proposed expiration dates for the sale of vehicles powered by gasoline. At the same time, seven major vehicle manufacturers have committed to 100 percent EV sales by 2030. As a result, many companies are moving to electrify their fleets—from delivery trucks to heavy-duty distribution vehicles.
For instance, Amazon, UPS, and Ikea are examples of companies that have committed to electrifying a significant portion, if not all, of their delivery fleet. According to a McKinsey & Company report titled Fuel Retail in the Age of New Mobility, “fuel retailers are in a unique position to tap into this market with a lucrative end-to-end offer.”
But perhaps what’s most telling is how consumers feel. Mindsets of millions have also shifted toward electric mobility, with over 45 percent of car customers considering buying an EV. This has led many industry leaders to profess that “the automotive future is electric” and that the tipping point in passenger EV adoption has already occurred.
With all this growth, however, in some parts of the world, there are more EVs on the road than there is adequate infrastructure to serve them. For fuel retailers, this presents a significant opportunity to offer EV charging infrastructure; and many forward-thinking gas stations have already begun investing in EV charging stations.
Hydrogen fuel stations—is it likely?
Hydrogen is pegged to be one of the key tools in the battle against climate change by governments and oil and gas firms alike—but will it become a staple fixture for fuel retailers?
Before we dive into the answer, it’s important to ask the question: what is hydrogen anyway?
What is hydrogen fuel?
Hydrogen is an alternative fuel similar to natural gas in a form that is made with a process called steam reforming. The alternative fuel has been used in transport for years, as rocket fuel and to lift airships like zeppelins.
As early as the 1970s, some vehicle manufacturers hailed hydrogen as the future of fuel for all types of transport and since then, many have poured billions into the R&D of hydrogen fuel cells.
However, in the years since, hydrogen fuel cell passenger vehicles have not become commercially viable due to intensive production costs and fierce competition from EVs.
Hydrogen passenger vehicles
In line with green hydrogen’s potential, many vehicle manufacturers have begun developing hydrogen fuel cell vehicles (FCV). Today there are two models of hydrogen passenger vehicles that are commercially available: the Hyundai Nexo and the Toyota Mirai.
Others, like BMW, have hydrogen plans in the works however, many hydrogen projects by Daimler, Honda, and Volkswagen have been killed off due to excessive costs in both production of FCVs and the creation and transport of hydrogen—regardless of the energy source.
So is hydrogen going to be a part of the future for passenger vehicles? To demonstrate an answer to this, Volkswagen put it bluntly: “Everything speaks in favor of the battery, and practically nothing speaks in favor of hydrogen.”
Hydrogen heavy vehicles
Whilst hydrogen-powered passenger vehicles are slowly being sidelined by OEMs in favor of batteries, it’s a different story when it comes to heavy vehicles manufacturers. According to Munich-based automotive consultancy firm Berylls Strategy Advisors, 25 percent of new truck sales in Europe will be electric and a further 10 percent will be hydrogen fuel cell electric vehicles.
For heavy vehicles, which make up around a quarter of all transport emissions, hydrogen can provide a viable alternative to gas-powered internal combustion engines powered with a comparable driver experience.
As David Cullen, a scientist for Oak Ridge National Laboratory says, “Hydrogen fuel cells are ideal for the trucking industry because the refueling time and driving range are comparable to gasoline-powered trucks and travel routes are predictable, which lowers the barrier for developing a fueling infrastructure.”
As a result, the potential of hydrogen in this form of transport means that it may become more common on our roads. However, while fuel cell technology continues to get cheaper and more efficient, the production of green hydrogen continues to lag behind its fossil fuel-dependent counterparts.
Is hydrogen fuel sustainable?
One of the major setbacks for Hydrogen is the discussion about whether or not the energy source is sustainable.
The vast majority of hydrogen production (roughly 95 percent) comes from fossil fuels today. Brown hydrogen, for example, is made from the gasification of coal and grey hydrogen from natural gas—not exactly sustainable resources.
Blue hydrogen is considered a low-emission source of fuel as it captures the carbon dioxide and stores it away, however, the sustainability of this process is debatable. Green hydrogen, on the other hand, is created by using renewable energy and has the potential to be a key driver of the energy transition.
Yet, while green hydrogen has the potential to be a sustainable energy source, it’s unlikely to become sufficiently available until 2033. As a result, hydrogen heavy vehicles may become more common on the roads but unless the production of green hydrogen is ramped up, it's unlikely that they'll overtake electric vehicles to lead the decarbonization of the heavy transportation industry.
What is biofuel and is it renewable?
Biofuels are created from breaking down feedstocks such as vegetable oils and animal fats, transformed into either ethanol or biodiesel, and blended with either traditional gasoline or diesel to create a low-carbon alternative. In the U.S. and Europe, regular gasoline typically contains about 10 percent ethanol (E10) and some vehicles can run on up to 85 percent ethanol (E85).
Biofuels are important solutions in the fight against climate change as they are cost-effective and don’t require a large investment in infrastructure. However, they’re not a silver bullet by any means.
Rather, while biofuels are considered a renewable resource—as they come from bi-products of agriculture feedstocks—and thus a more sustainable alternative to gasoline, they are not carbon-neutral and must be blended with fossil fuels.
For fuel retailers, offering biofuel as an alternative fuel is a good starting point, but it’s not going to set your business up for the transport revolution. However, it’s not an either-or scenario. With the transformation well underway, skipping carbon-neutral alternatives and only offering low-carbon biofuel solutions will simply not be enough to service the needs of tomorrow’s customers.
What will happen to gas stations in the future?
As the transport revolution ramps up speed, fuel retailers will have to make investments before reaping the rewards. With EVs pegged to lead the way and both hydrogen and biofuels on the radar, fuel retailers are at a crossroads. Which direction should they go?
The truth is that while alternative fuels are coming and their development is important to decarbonize the transportation industry, electric mobility is clearly paving the way.
The rise of electric mobility has happened at lightning speed and is unlikely to slow down any time soon. Driven by consumer demand, government regulations, and business commitment and opportunities, we’re likely to see more and more EVs on the roads.
For fuel retailers, this means that while today the EV-charging value pool is negligible, by 2030 it’s estimated to be a whopping $20 billion according to McKinsey & Company. As a result, many fuel retailers are looking into the possibilities of EV charging for their fuel retail business.
There are, however, plenty of other players willing to tap into this revenue stream if fuel retailers decide not to move. This has led to the consulting firm issuing a stark warning to the industry: Fuel retailers will need to “venture beyond their traditional capabilities and act quickly to get ahead of the many different players positioning themselves for success in this rapidly evolving industry”.
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