The economics of petrol (gas) distribution and electric vehicles

General Questions
#1

Many nations and regions are planning to ban the sale of new ICE vehicles in the next 20 years (as soon as 2030 in the UK for instance). Whenever I read about this it comes with the proviso that ‘used vehicles will continue to be on the roads for decades to come’.

But my question relates to how these used vehicles will be fuelled. I have a theory that petrol is a low margin/high volume product and as such any large decrease in volume will have a marked affect on both availability and price, which would in turn lead to used ICE vehicles being uneconomic to run much earlier than predicted.

My issue is that I don’t have any facts to back this up and I’m not sure where to look, so I thought I’d ask one of the only places I know where I might get a good answer. Does my theory stack up? If so is it possible to estimate the effect?

#2

Without having any numbers on hand, my understanding is that even at high volume, there isn’t much profit in the fuel itself. It’s more to attract people to the shop to buy snacks/tobacco/etc. But of course if you aren’t attracting people anymore, that results in a similar situation.

Keep in mind that while nearly all early adopters of EVs can charge at home, some large number of vehicles cannot be charged at home. I looked this number up at some point and posted it here but I can’t find the post. Anyway, that suggests some future demand for commercial charging stations, but whether current fuel stations can accommodate that demand probably isn’t something we can find a GQ answer for.

The term “death spiral” may apply here? Reduced demand sends stations out of business. Remaining businesses can then justify raising prices, which then pushes more people to EVs, lather rinse repeat. But I suspect we’re deep in speculation territory here so I’ll stop.

Maybe there’s some analogy to the switch from leaded to unleaded fuel? But that didn’t really affect the overall fuel stations model and infrastructure.

#3

Perhaps another analogy might be when the regulations on underground storage tanks were changed? Depending on sales volume, the new rules might make it prohibitive to continue to operate a gas station.

#4

If there is a huge decrease in demand (and decreases will not be sudden) then cost to the gas stations drop. If higher margins are then required to stay in business they merely have prices drop less than costs, increasing margins even as prices drop.

Related … How does the U.K. intend to make up the loss of fuel duty funds? How will the U.S. make up decreased gas tax revenues?

#5

The station I buy gas at is primarily a service station and I think they might be happy at getting rid of the gas business. The owner told me once that it barely breaks even.

#6

A lot of gas stations used to be combined with service stations, but there are much fewer of those today than in decades past. Mostly, I think, that’s because cars require so much less service. A lot of the older stations converted the service station part to convenience stores.

#7

That’s what I thought yes. Beyond the final sale point I was also thinking about the costs of production and transport. Less fuel = less refineries = higher transport costs = less affordable fuel?

Worse than that, because as gas stations go out of business it becomes harder for ICE motorists to find filling stations. Potentially it could be ICE vehicles that end up with a range problem similar to the one EVs have now/had recently.

But yes, this is all speculation. Hopefully someone with detailed knowledge of the industry is available.

#8

This is a entire interesting topic on its own. More later; clients are needy today.

#9

People didn’t have any major problems when ‘natural gas’ filling stations were rare, and many stations didn’t have diesel pumps.

At present I go past 8 stations every day, and I could double that by going 2 blocks out of my way. There’s still a long way to go before they start to become ‘harder to find’ in the city – and if range is problem the ones in the country will be last to close.

#10

Unless you’re using some non-US definition of natural gas that I’m unaware of, this is a bizarre statement. CNG stations are rare everywhere I’ve ever lived, and NGV ownership here in DC is going to be mighty difficult without a home compressor, because the public stations might as well be on the moon.

#11

Washington State charges EVs a flat rate but hefty annual tax. I’m willing to pay it, but it seems to me that it would make more sense to charge all vehicles based on miles driven. We have to renew our registration every year, and it would be easy enough to require a mileage declaration at the same time with a small charger per mile to make generate the approximate revenue as the gas tax.

Electric vehicle owners are currently charged a $150 fee on top of their annual registration to offset the lost revenue the state would have collected from those drivers at the gas pump. The new bill imposes an additional $75 fee on hybrid cars and certain types of electric vehicles. For many EV owners, that brings their annual fees to $225, the highest in the nation.

#12

That is inteesting if you consider that in Europe most countries are subsidizing electric vehicles, both pure electric and hybrid. They not only lose the revenue from petrol taxes, they throw money at the vehicles killing the goose that laid the golden eggs. The solution would be to charge more for electricity charged into vehicles that for electricity used for homes, just as some industries get cheaper electricity than homes, but that would require intelligent charging stations and vehicles that cannot be charged nowhere else. Only that is just what users do not want, and considering the enormous holes the charging grid has would be very contraproductive if you really want EVs to have a breakthrough.
Still I believe the biggest disruption will be for the big companies: Aramco, Royal Dutch Shell, BP, Chevron and so on. Funny how this thread has gone in the other direction.

#13

I think you’re right on that- it’s generally how that would work. My concern is that at some point, petroleum-fueled vehicles will become the province of the economically disadvantaged, and high gas prices will just make that worse. Will we see subsidies for EVs in the medium run to hopefully increase the used-car market so that this doesn’t really happen down the road? Or will we see long run subsidies to directly replace petroleum vehicles for the economically disadvantaged?

#14

In a way, the current subsidies on new electric vehicles also depress the price of used EVs. If a vehicle’s official retail price is 50 kilobucks and there’s a 10-kilobuck subsidy, then nobody is going to be willing to pay 45 kilobucks for the same car on the used market. So the subsidy applies downward pressure on the price of the car even when it gets resold.

There are other aspects of the EV transition that may be difficult on poorer people. For instance, right now you can pay cash for gasoline, but the charging networks I’ve seen require a credit card. There’s the correlation with home ownership: there’s a difference between charging the car overnight in the driveway of your bungalow in the suburbs vs finding a way to charge it close to your rented apartment in the dense parts of town where you park in the street. Also, as the electric vehicle market evolves, you may see some older / cheaper models go the way of the Betamax, with no easy way to charge them on the highway (see the Black Mirror episode “Nosedive”).

#15

Raise income taxes one percent? Or maybe bump sales taxes a bit. After all, most goods (or the supplies to make them) are transported over the road before sale. I don’t see why only drivers should be taxed to pay for roads. Non drivers benefit from them too, just like the childless benefit from (and pay for) public education. We don’t need to be clever here, if gas taxes dry up, just make up the difference by raising other taxes.

#16

One way to estimate it would be to look at how expensive fuel was and what the distribution rate was in the past when there were fewer gasoline-powered vehicles. That’s not going to be exactly the same, but it’s going to be a good rough approximation. There are currently ~280m vehicles in the US. If there were only 1m ICE vehicles after many years of no new ones being produced, go look at what the fuel distribution system looked like in 1913. There were enough gas stations to travel across the country by car then.

I am not convinced this is going to be a major issue. Sure, fuel distribution is a high volume low-margin business now, but that’s because huge demand makes for high volume, and high volume commodity businesses are essentially low-margin by market laws. You can’t charge a huge markup on gas because there’s another gas station down the street with just as good product that will undercut you.

At some point if the volume drops enough, then margins will increase to make it a viable business. There are lots of types of petroleum distillates that have orders of magnitude less use than gasoline, but they still get made and distributed.

Gasoline is pretty portable and relatively non-perishable. Even if the nearest gas station to someone is tens of miles away, people with the few remaining ICE cars can do things like fill up jerry cans when they go to avoid having to waste too much fuel in refueling runs. It will be more expensive, but the remaining vehicles will be mostly hobby show cars and specialized vehicles, and people are willing to keep those things running long past the point where it’s economical for standard usage.

Motor Vehicle registrations by year: https://www.fhwa.dot.gov/ohim/summary95/mv200.pdf

#17

Supermarkets have the lion’s share of fuel sales in the UK. I doubt that they would worry to much if the pumps ran dry. I saw, only last week, that my local supermarket is installing EV charging points.

The Uk government collects a huge amount of tax revenue from fuel sales: 60p from 110p on every litre -around £27.5 billion each year. That will be hard to make up. 1p added to income tax would raise around £7 billion.

Current opinion seems to be heading towards some kind of mileage tax. This is seen as fair, in that drivers would pay in direct proportion to their time driving - it could also be skewed to deter people from driving in rush hours.

#18

Heard an interesting bit the other day about how the big companies are positioning themselves. US side is focused on core competencies - getting more efficient at what they do. Exxon and Chevron leading that approach. European side has been diversifying into alternative energy fields more. BP for example selling off some of the oil business and investing in wind farms.

#19

As to a death spiral of costs, the aviation gasoline market might be instructive.

Compared to car gasoline, avgas sales quantity is a drop in the bucket. Vendors are few and far between. Sales quantity is also barely 10% of what it was back in the heyday of lightplane aviation, the mid 1960s-early 1970s. IOW, Avgas is very deep into a mature death spiral.

It costs about US$5.50 to $6 per gallon in areas where car gasoline sells for $2.25-$2.50.

We can ballpark conclude that severe market shrinkage might double the price of car gasoline. It (probably) won’t do too much more. What I don’t know is how much of each of those prices is tax. It may be that the delta on pre-tax prices is closer to 4x than 2x.

Bottom line: death spiral pricing will be a factor in nudging poorer consumers away from gasoline powered cars, but it won’t be like gasoline costs $100/gallon. Unless some government agency chooses to tax gasoline in that way.

#20

of course, if you run an oil-burner, you can run it on vegetable oil at a pinch.

FRY POWER: How to Convert Your Car to Run on Vegetable Oil (inhabitat.com)%20that%20have%20not%20been)