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Hot Fuel issue not over – Retailers Object to Hot-Fuel Deal – How can this effect you!

Published in CSP Daily News By-Samantha Oller, Senior Editor/Special Projects Coordinator

KANSAS CITY, Kan. — As a Kansas federal judge prepares to evaluate proposed settlements from long-running litigation involving “hot fuel” this summer, many of the industry’s largest fuel retailers— QuikTrip, Circle K, Kum & Go, Sheetz, Wawa and 7-Eleven, among them—have filed an objection over the terms.

Some Background

In a class-action lawsuit dating back seven years, plaintiffs had charged that more than two dozen fuel retailers were shortchanging customers who purchased “hot fuel”—referring to the fact that the volume of gasoline rises along with its temperature. Consumers were, in effect, paying a full gallon price for less than a gallon of fuel, plaintiffs alleged, because these retailers did not have automatic-temperature-compensation (ATC) devices installed at the pump that would adjust the price based on the fuel volume and did not alert consumers to the fuel’s temperature.

More than two dozen fuel retailers, ranging from major oils to retail chains such as Casey’s General Stores, Sam’s Club and Valero, had settled on the case, although they denied any wrong-doing. Three different settlement groups emerged. Six of the companies, including the major oil companies, agreed to settlements that would put $22.925 million into a fund to reimburse retailers for installing ATC equipment. Four of the defendants, including Casey’s and Valero, agreed to settlements to install ATC pumps at their branded sites over time. And the remaining 18 defendants—including CITGO and Thorntons—agreed to pay into a fund totaling $1.577 million that would help state weights and measures agencies ensure ATC upgrades were done lawfully.
New Objections

But as U.S. District Court Judge Kathryn H. Vratil prepares to review the proposed settlements this June, two objections were filed this week on the terms, according to court documents obtained by CSP Daily News. One of the objections comes from more than a dozen of the industry’s largest petroleum-retail chains; another is led by Theodore Frank, founder of the Center for Class Action Fairness, according to Law.com.
According to the objection filing by the retail chains, one big problem with the settlements is the fact that consumers would get none of the payments. Nearly two-thirds of the settlement money going to fuel wholesalers and retailers.

Both objections also cite the payments going into a fund for weights and measures agencies as especially problematic. Because no states yet approve of ATC for motor-fuel retail sales, the objectors argue that the fund would influence regulators who might be opposed to ATC to change their positions in favor of legislation approving its use to receive the money.
The retailers’ objection filing describes it as “a de factoslush fund that will make payments to state governments if and when states change their laws in accordance with the named plaintiffs’, and plaintiffs’ counsels’, wishes,” and raised constitutional red flags.

Convenience retailers named in the objection include QuikTrip, 7-Eleven (which fought the litigation and won), Circle K, Kum & Go, Murphy Oil, Pilot Travel Centers, Flying J, RaceTrac, Sheetz, Speedway, The Pantry and Wawa. Frank with the Center for Class Action Fairness, a law firm and nonprofit that represents consumers in class-action lawsuits, described the settlement as “uncomfortably close to political bribery.” “It’s a zero-dollar settlement,” Frank told Law.com. “The lawyers are the only people getting paid, and the relief is to require lobbying for a means of selling gasoline that would make consumers worse off.”

A hearing is scheduled for Tuesday, June 9, when Judge Vratil will determine whether to give final approval to the settlements.

Gasoline Supply – Low Retail Prices Driving U.S. Gasoline Demand

January 6, 2015 By Brian Milne, Energy Editor, Schneider Electric

In the U.S., gasoline demand was the strongest in 2014 during the final full week of the year even though historically driving demand is greatest during the summer months, with demand during the fourth quarter averaging 90,000 bpd or 0.9% more at 9.11 million bpd than the June through August average.

In parsing gasoline data from the Energy Information Administration, implied demand, which refers to product supplied to the primary wholesale market, had their two strongest weeks in late December, with the third highest weekly demand rate occurring in late August. Moreover, four of the five weeks with the greatest weekly demand rate in 2014 were in the fourth quarter, arguing that low gasoline prices spur greater driving activity.

 

Retail gasoline prices are averaging more than $1 gallon less nationally than a year ago while down $1.40 or 40% from late June when the national average was $3.704 gallon. Slipping below $2.30 gallon on Dec. 29, the U.S. average could drop below $2 gallon during the first quarter.

 

The sharp price decline was spawned by growing oil production that not only has outstripped demand, but has created a growing glut of supply domestically and internationally. US crude imports continue to trend lower while oil product exports remain robust, including for gasoline exports, which averaged 354,000 bpd in December. Some of the crude that was previously shipped to the U.S. is looking for new markets, while tankers are again being used for storage, moored near key shipping ports and loaded with crude as they were during the Great Recession in 2009.

 

The plunge in crude oil prices joined by the abundance of supply has also prompted refiners to process more crude, with U.S. refiner and blender net production spiking over 10 million bpd in late December for the first time, EIA data shows. In late 2014, the EIA said spot gasoline prices, the primary wholesale market with rack postings the secondary wholesale market, are often the world’s lowest during fall and winter in the Midwest and Gulf Coast regional markets.

 

As the inventory bubble moves down the supply chain, the data on implied demand illustrates the change from a “just in time” inventory management strategy adopted by the US industry more than a decade ago and when the bull market in oil was in its early stages to “supply push” management. Akin with the adage “if you build it, they will come” dynamic, the added gasoline supply to the domestic market should continue to pressure gasoline prices in the near term while driving demand for the motor transportation fuel higher.

U.S. Gasoline Demand Gains As Retail Prices Break Below $3 Gallon

November 10, 2014 By Brian Milne, Energy Editor, Schneider Electric

For the first time since late 2010, the U.S. retail gasoline price average for regular grade slipped below $3 gallon, with the Energy Information Administration reporting a $2.99 gallon average on Nov. 3 in its weekly survey.

The average has more downside, with lower wholesale costs still working through the supply chain.

The national average seemed stuck above that psychological barrier, mostly straddling $3.50 gallon in what was viewed as the new normal. Even as U.S. crude production surged to a 28-year high, gasoline prices seemed stubbornly high, with wholesale gasoline values set by the international market and not domestic crude prices. Wholesale gasoline values are linked to Brent crude prices, with Brent reflecting the value of North Sea crudes.

For its part, Brent crude seemed stuck above the century mark amid geopolitical tensions, some of which led to supply disruptions as in the case of Libya. As those tensions eased, albeit they are resurfacing now, and the euro zone economy remained weak, limiting demand, Brent values tumbled below $100 bbl, trading in the mid to low $80s since mid-October.
Working in the background was building U.S. crude supply that was gradually wiggling free from the countryside despite restrictions on exporting those hydrocarbon molecules amid numerous infrastructure developments and by railing crude oil. Pipelines were constructed or repurposed, activity that continues, debottlenecking the supply chain to allow crude to reach the massive refining sector along the U.S. Gulf Coast, while crude was also railed to refineries along the East Coast and, at a slower pace, to the West Coast.

These improvements pushed out U.S. crude imports that are now well below the five-year average rate of 8.7 million bpd at 7.4 million bpd, and continuing to trend lower. Following the letter of the law, condensates—a very light oil that fetches a lower price than heavier grades, have also been exported this summer, bypassing the restriction on US crude exports because the hydrocarbon stream ran through a field stabilizer or other limited processing unit. Alaska North Slope crude has also been exported to South Korea, with the US crude restrictions on exports not valid in the 49th state.

Like a lumbering locomotive, the wave of new U.S. crude supply was loudly moving down the tracks, but its benefits still seemed to be in the distance. That changed when Saudi Arabia announced discounted selling prices for its crude this autumn instead of cutting production, an action the market interpreted as the kingdom’s efforts to maintain market share instead of supporting a higher price. Moreover, some analysts and traders have suggested the discounted prices are aimed at US producers, hoping to slow their output.

Coinciding with the sub $3 gallon average was a pop in implied gasoline demand, which surged 295,000 bpd to 9.162 million bpd during the final week of October—the highest weekly demand rate since the end of August. Gasoline marketers should hold their excitement since one week’s data doesn’t make a trend. However, lower gasoline prices have historically been linked to increased demand.

Gasoline Prices Sink may Drop Below $3 Gallon!

October 13, 2014 By Brian Milne, Energy Editor for Schneider Electric

Gasoline futures traded on the New York Mercantile Exchange are down nearly 30% from their June high to Oct. 10, and possibly more stunning have erased 19.3% of their value in 11 days from the late September high while the U.S. retail average for gasoline is down 1.6% from Sept. 29 to Oct. 6. Get ready for the pace of decline in retail prices to accelerate.

Moreover, the bear market that has laid siege on the crude market has upended expectations that global oil prices would be tethered to near $100 bbl, with the IntercontinentalExchange Brent crude futures contract already sinking below $90 bbl, as Saudi Arabia surprised many in the market. The recipe positions the U.S. retail average to break below $3 gallon, which would be the first time it breached the psychological benchmark since the end of 2010.

Saudi Arabia’s recent decision to slash prices for the crudes it sells instead of cutting production to slow the growing glut of oil supply signaled the de facto leader (due to its unique position as swing producer) of the Organization of the Petroleum Exporting Countries will look to save market share instead of supporting global oil prices near $100 bbl.

The oil market was already under pressure from weakening economies, especially in the euro zone where recession is coming closer to reality, while China’s economy slows. The U.S. economy is stronger than many had expected, but is seen vulnerable to a slower growth pace as other major world economies and trading partners struggle.

Slowing economic growth or outright contraction shrinks global demand for oil, with the Energy Information Administration last week downgrading their outlook for world oil consumption by 83,000 bpd to 91.469 million bpd for this year and by 182,000 bpd in 2015 to 92.706 million bpd.
The slowing demand is coming just as rapid growth in US oil production is being felt globally, having already cut to near zero U.S. imports from West Africa from 2.5 million bpd in January 2008. Extra oil supply from Libya, which ramped up output a sharp 500,000 bpd over the summer to roughly 800,000 to 900,000 bpd, further balloons the glut in oil supply.

The relatively quick change in sentiment also comes as geopolitical threats to the supply of oil ease. In the case of the Ukraine crisis, affected demand has eroded with the adverse implications for the regional markets. Consider speculators held record length in the NYMEX West Texas Intermediate crude futures contract of 458,969 contracts on June 23, and have since cut that position 36% to a 15-month low at 293,683 contracts on Oct. 7.

The NYMEX Reformulated Blendstock for Oxygenate Blending futures contract is down 92.53cts or 29.4% from the 2014 high of $3.1520 gallon registered June 23 to Oct. 10’s $2.2267 gallon nearly four-year low. From September’s $2.7577 gallon high set on the 25th, the contract is down 53.1cts or 19.3%.
EIA’s U.S. retail average for all formulations of regular grade gasoline was $3.299 gallon on Oct. 6, an eight-month low, down 5.5cts or 1.6% from the prior week while down 41.4cts or 11.2% from its annual high of $3.713 gallon reached April 28. The retail average should quickly drop below $3.20 gallon, and continue down from there and challenge $3 gallon.

The NYMEX RBOB futures contract should see some support to slow the downturn from spread trades, with the RBOB crack—RBOB minus WTI or Brent crude futures—at a one-year low. Refiners are now moving units into autumn turnarounds for seasonal maintenance, which cuts the demand for crude and the output of gasoline. This triggers sales of crude futures contracts and buying for RBOB futures contracts.
Lower retail gasoline prices could prompt greater demand for the motor transportation fuel, although the year-on-year growth rate has slipped. EIA data shows gasoline supplied to the primary market 65,000 bpd higher so far this year through October 3 than during the comparable timeframe in 2013, down 6,000 bpd from the previous week’s 71,000 bpd growth rate. In its more recent Short-term Energy Outlook released Oct. 7, EIA maintained its expectations U.S. gasoline demand would decline 20,000 bpd from 2013 to 8.82 million bpd this year. EIA downgraded its 2015 outlook, now expecting the consumption rate to slip 20,000 bpd instead of 10,000 bpd.

Consider, too, that gasoline demand during the fourth quarter 2013 looked to have finally gotten its mojo back, repeatedly topping the five-year average as the economy was gaining momentum ahead of the bitter cold weather that gripped much of the nation in the first quarter.
World oil prices could get a bounce as the Islamic State sets its eyes on Baghdad despite weeks of bombings by the US and several allies, deploying guerilla tactics as they make their gains. Nonetheless, led by US production growth in crude oil, at a better-than 28-year high, supply will continue to outpace demand and pressure prices.

Fed Report Shows Debit Card Swipe Fee ‘Ripple Effect on Consumers!

But board has no plans to revise regulations, it says

WASHINGTON — A new report published by the Federal Reserve Board found that the overall average cost for debit-card transactions in 2013 was 4.4 cents per transaction, down from 5 cents in 2011. The report contains summary information on the volume and value, interchange fee revenue, issuer costs and fraud losses related to debit-card transactions in 2013.

Despite this decline, banks continue to charge on average 24 cents per transaction, yielding a profit margin as high as 445%, according to the Merchants Payments Coalition (MPC).

This markup, levied by the banks every time a consumer swipes a debit card, costs retailers and consumers billions of dollars every year, MPC said. It has a “ripple effect” that directly impacts the cost of goods and services as well as merchants’ ability to keep their doors open and expand their businesses, the group claimed.
The Federal Reserve, however, has no plans to revise the regulations surrounding the interchange fees as outlined under the Durbin Amendment of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.
“The board does not plan to propose revisions to the Regulation II interchange fee standard or the fraud-prevention adjustment based on these survey data,” it said.

“If the Fed had followed the law passed by Congress, these outrageous fees would be dramatically reduced,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation (NRF) and chairman of the MPC. “Profit margins this high aren’t tolerated in competitive markets. Main Street businesses and their customers are being fleeced on these swipe fees.”

“The [Durbin] amendment was carefully crafted and its purpose was clearly expressed,” Majority Whip, Senator Richard Durbin (D-Ill.), said. “Unfortunately, the board’s final rulemaking failed to sufficiently follow the text and purpose of the law. Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result.”

Durbin’s comments came in a friend-of-the-court brief filed last week in an NRF lawsuit that claims the 21-cent cap set by the Fed in 2011 goes beyond the “reasonable and proportional” level mandated by Congress under the Durbin Amendment provisions of Dodd-Frank.

A U.S. District Court judge agreed with NRF in 2013 that the cap was too high, but the U.S. Circuit Court of Appeals overturned the ruling this spring, citing “ambiguity” in the 2010 law. NRF this summer asked the Supreme Court to hear the case, and is currently awaiting a decision.
In last week’s brief, Durbin denied that the law was ambiguous, and said the Circuit Court “essentially gave the board a blank check” to include costs that Congress specifically said could not be used to boost debit swipe fees.

Under the Durbin Amendment, the Fed was only allowed to consider the costs of authorizing, clearing and settling each transaction. The Fed initially calculated those costs at an average of 4 cents per transaction and proposed a cap of up to 12 cents. Durbin said the 21-cent level was set after the banking industry “expressed outrage with the board’s draft rulemaking and launched an aggressive lobbying campaign to weaken the draft rule.”

“Congress neither instructed nor empowered the board to impose its own policy judgments and engage in a line-drawing exercise between merchants’ desire for low fees and banks’ desire for high fees,” Durbin said. “Congress tasked the board to follow the law Congress enacted, not to circumvent it at the request of the banking industry.”

BP found Guilty of Gross negligence in 2010 Gulf of Mexico Oil Spill

‘Worst Case’ BP Ruling to Force Billions More in Payouts – Sep 4, 2014

BP Plc (BP/) faces billions more in potential penalties after a judge found it acted with gross negligence in the 2010 Gulf of Mexico oil spill, dealing a blow to the company’s efforts to expand its drilling program as costs rise and production slips.

In a turning point after four years of legal wrangling over responsibility, U.S. District Judge Carl Barbier’s ruling laid the bulk of the blame on BP for the explosion, which killed 11 men and caused the largest offshore oil spill in U.S. history. Acting with gross negligence means BP will be exposed to as much as $18 billion in additional government fines and penalties. The London-based company has spent more than $28 billion on the accident so far.

BP fell 5.9 percent to 455 pence at the close of trading in London, the most in more than four years.

Related: BP Found Grossly Negligent in 2010 Spill; Fines May Rise

“This opens the window for a worst-case scenario to play out, although this will likely drag out for years,” said Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis. “The legal uncertainty and unrest in Russia are overshadowing the company’s operations in a significant way.”

Barbier found BP’s co-defendants Transocean Ltd. (RIG) and Halliburton Co. (HAL) less responsible for the accident. The judge did not rule today on how much oil was spilled, a key factor in determining the scope of additional fines. The millions of barrels of crude dumped into the Gulf of Mexico harmed wildlife and fouled hundreds of miles of beaches and coastal wetlands.

BP said it “strongly disagrees” with the ruling and would appeal immediately.

Evidence Insufficient

“The finding that it was grossly negligent with respect to the accident and that its activities at the Macondo well amounted to willful misconduct is not supported by the evidence at trial,” the company said in a statement.

Both Transocean and Halliburton fell less than 1 percent at 12:19 p.m. in New York trading.

“BP’s conduct was reckless,” Barbier wrote in a decision today in New Orleans federal court. “Transocean’s conduct was negligent. Halliburton’s conduct was negligent.”

The ruling leaves BP further weakened at a time when the search for crude resources grows riskier and more expensive. Asset sales from Ohio to Pakistan already have shrunk the company as it seeks to pay for the oil spill, which halted deep-water drilling for months and forced explorers to foot the bill for additional safety measures to access oil miles beneath the ocean’s surface. More disposals are probable.

Takeover Pressure

Once one of the biggest and most powerful oil companies in the world, BP faces years more of uncertainty that will put continued pressure on shares and may open the company to takeover pressure from larger rivals such as Royal Dutch Shell Plc or Exxon Mobil Corp.

Today’s ruling defines the scope of the ultimate payouts, which will be determined after a trial scheduled to begin in January 2015 in New Orleans. If Barbier agrees with the government’s spill estimate of 4.2 million barrels, the payout could ultimately be as high as $18 billion based on federal guidelines for pollution fines. If he sides with BP’s estimate that only 2.45 million barrels spilled, it would reach $10.5 billion.

Barbier has discretion in how the fines are ultimately decided.

“During the penalty proceedings, BP will seek to show that its conduct merits a penalty that is less than the applicable maximum after application of the statutory factors,” BP said in its statement.

BP also may be subject to unspecified punitive damages from lawsuits. Legal appeals may prolong the outcome for more than a decade — Exxon paid the final punitive damages from the 1989 Valdez spill off Alaska 20 years after the incident.

Blame Share

Barbier laid 67 percent of responsibility for the deadly disaster squarely on BP’s doorstep. The judge found co-defendant Transocean, owner of the drilling rig, was 30 percent responsible. Halliburton, which also worked on the well, was just 3 percent to blame. Earlier this week, Halliburton said it had agreed to settle most of the lawsuits stemming from its role in the spill for $1.1 billion.

BP had lost more than $3 billion in market value this year as the value of its stake in Russian producer OAO Rosneft (ROSN) has plunged on concerns that conflict between Russia and Ukraine could break out into full-scale war.

“The federal government has extracted more than a pound of flesh in many cases, such as in the aftermath of the financial crisis, but the extraordinary amounts of those fines haven’t reversed the damage that was done,” said Robert Mittelstaedt, dean emeritus of Arizona State University’s W.P. Carey School of Business. “It’s only made them weaker institutions.”

Drilling Impact

Equipment failures and questions about lapses in oversight led to an overhaul of federal regulation governing U.S. offshore safety. The agencies controlling deep-water drilling were reorganized, with new rules put in place to strengthen requirements for equipment, inspections and accident response.

New drilling in the deepest waters of the Gulf of Mexico was shut down for almost a year and permitting of new projects slowed under more stringent federal reviews.

Since deep-water drilling in the U.S. resumed in 2011, BP and its peers have returned to the Gulf of Mexico, where the company is seeking to drill deeper and at higher pressures than before. Gulf oil output rose to 1.3 million barrels a day in May, the highest level since 2011, according to the U.S. Energy Information Administration.

Asset Sales

Before today, BP’s stock had fallen 26 percent since the spill, compared with a 44 percent rise over the same period for Exxon and 34 percent climb for Royal Dutch Shell. Former Chief Executive Officer Tony Hayward was ousted and the company’s dividend was halted after the spill.

Incoming CEO Robert Dudley embarked on a wide-ranging asset sale campaign to raise money and streamline the company. Sales included oil fields in Alaska, natural gas developments in Vietnam and refineries in Texas and California.

The company has set aside $43 billion to pay for cleanup costs and fines. It has about $28 billion in cash hoarded to pay potential costs, enough to ward off questions about its viability in the short term, said Fadel Gheit, an analyst with Oppenheimer & Co. in New York.

“Not only does the company want to get this albatross off their shoulder, they also want to make up for this disaster to shareholders by buying back stock and reducing debt,” said Gheit, who rates the shares the equivalent of a buy.

BP Debt

Even before meeting the cost of any pollution fines BP is more indebted than its competitors. The London-based company has a ratio of debt to earnings before interest, tax depreciation, and amortization of 1.67, compared with 0.9 at Royal Dutch Shell, the largest European oil company, and 0.39 at Exxon.

The cost of insuring BP debt against default is the highest among the largest European and U.S. oil producers by market value.

Investors’ continued wariness can be seen in the income they demand for owning shares. BP’s dividend yield of 4.8 percent is higher than Shell’s 4.6 percent, Chevron Corp.’s 3.1 percent and Exxon’s 2.6 percent.

To contact the reporters on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net; Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

Decline in Gas Consumption puts Retailers in a Fight for Survival

July 22 2014

Gasoline consumption peaked in 2007. It’s estimated to bottom out in 2035. By that time, the United States could consume about 2 million fewer barrels per day (BPD), or 84 million fewer gallons per day, according to the Energy Information Administration (EIA).

The government agency predicts that gasoline demand will plummet 24% from 2012 to 2040.

What is causing this plunge in projected forecourt demand? First the structural part: tougher Corporate Average Fuel Economy (CAFÉ) standards that require automakers to essentially double the average fuel economy of the U.S. vehicle fleet in little more than a decade. Then there is the demographic demand vise: aging baby boomers driving less, and millennials who are driving later—if at all.

Now factor the average fill-up—let’s say 10 gallons—into that 84-milliongallon- per-day decline. This means potentially 8.4 million fewer visits per day to a gas pump. Spread that across all U.S. gas stations—or roughly 126,000 fueling sites, according to NACS—and the industry could see an average of 66 fewer fill-ups per day per store by 2035.

This is roughly a 17% drop from the current industry average.

Meanwhile, as demand slips, the c-store industry continues to add more fueling sites. In 2013, that total of 126,000, according to NACS, reflects a more than 21% increase over the past decade.

Something—or rather, someone—has got to give.

“It means more people in a price war over a shrinking pie,” says Walter Zimmermann, senior technical analyst for United-ICAP, Jersey City, N.J., who helped frame this calculation. “This industry is at the crosshairs of so many turbulent issues. To succeed here, you will have to reinvent yourself.”

“With declining fuel demand from demographic changes, [and] more efficient vehicles, there has to be a decline in the number of retail c-stores; it can’t just keep growing,” says David Nelson, founder and president of Finance & Resource Management Consultants Inc., a retail study-group facilitator, and professor of economics at Western Washington University in Bellingham, Wash.

“Some of these sites have got to leave the industry and move to non-petroleum uses,” he continues. “You can’t keep building more and more facilities with declining demand and have the economics work out for people.”

It is not Judgment Day yet. According to NACS’ same-firm sample, fuel gallons inched up 0.9% in 2013. Nelson’s own study-group same-firm sample shows more fuel sold per retail location in the 12 months ending January 2014 than the 12 months ending January 2013. But from his standpoint, this is not evidence of revived demand, but rather a small blip against a backdrop of long-term decline.

And not everywhere and everyone would be hit by that same 17% decline in gallons. In some markets, notably energy-boom states, demand is positively rocketing. For big-box and new-era retailers, gallons overall continue to grow. But for everyone else, in most of the states without 2% unemployment and record income growth, it’s set to be a street fight over a shrinking share of gallons.

“The industry is due for right-sizing,” says Scott Barrett, vice president of client success for Kalibrate Technologies, Florham Park, N.J., which provides fuel market analysis services. “As demand falls, the product offer changes, and traditional gas stations and nozzles will disappear from the marketplace.

“The folks winning are those who can weather the storm of the demand drop and find other ways to improve profitability, whether it is food offers, an enhanced c-store offer or a more broad fuel market offer.”

“Volume as we knew it peaked 10 years ago,” says Mike Thornbrugh, spokesperson for QuikTrip Corp., Tulsa, Okla., referring to overall market demand. “That and more and more pipes of business are entering the market as we’re entering their market. It’s old-fashioned slug-it-out retail. We plan on lasting 15 rounds.”

QuikTrip, with nearly 700 sites in 11 states, has honed its Generation 3 stores for this environment; the sites are designed to drive inside and outside sales partly by making the lot easier to maneuver.

“The old traditional convenience-store-vs.-convenience-store model is over,” says Thornbrugh. “We’re competing against everybody and everybody is competing against us. The next five to 10 years will be interesting to see who is going to remain standing and who is not.”

For Santa Clara, Calif.-based Robinson Oil Corp., California gasoline demand peaked in 2006, a year before much of the rest of the country. The chain has 34 Rotten Robbie sites throughout the state, which over the past seven years has seen an 8% drop in gasoline volumes. And according to some estimates, it could see a drop of a billion gallons by 2020 because of government policy and consumer migration to more fuel-efficient vehicles.

“As volumes decline, the question is: Can they decline less at your stores than competitors’ stores?” says Tom Robinson, CEO and president. “You can do that by spending money on stores, trying to upgrade programs, trying to upgrade your offering, trying to use technology as a way to build connections or relationships with consumers.”

“I don’t think there’s a single thing we’re going to do that’s going to be that [magic] bullet,” Robinson continues. “All of the above is a way that companies are going to survive and prosper.”

Kentucky Town Now Selling Gas!

July 22, 2014

Somerset StationFollowing years of residents’ complaints over local gas prices, the Kentucky city of Somerset has opened up its own pumps to the public. After much anticipation on the part of motorists—and hand wringing by local gas retailers—the city of Somerset, Ky. opened its new fuel pumps to the public Saturday, July 19.

Somerset is thought to be the only municipality in the country to sell its own gas.

John Minton, who represents Somerset’s Ward 8, has been pushing a city-operated fueling site for the last three years. The infrastructure was in place because it’s the same facility that fuels the city’s vehicles, school buses. Since Somerset is now converting its fleet to compressed natural gas, revamping the fuel center to accommodate private vehicles seemed in the cards.

Kicking the idea of providing motorists city gas around for nearly three years, the councilman said the fuel center program was the last viable option to help stabilize fuel costs in their town.

“Every holiday, every weekend, I’ve seen gasoline jump here 30, 40, 50 cents on the gallon just over night, for no reason, and our neighboring towns—until the last two or three weeks—you could drive anywhere in a 50-mile radius and buy gas cheaper than you could in Somerset,” said Minton, a Somerset councilman since 1994.

However, the city’s attempt to shift the balance of gas prices back in its favor has been met by heavy criticism from local retailers.

“What is this going to do as far as throwing a monkey wrench in a naturally occurring competitive landscape that is now going to be thrown off kilter by an entrant that doesn’t have to play be the same rules as everybody else,” asked Ted Mason, executive director of the Kentucky Grocers Association and Kentucky Association of Convenience Stores. “I think that’s the huge concern. As you know, the margins in fuels are so thin and you by the time you pay credit card interchange (fees), by the time you make some money of your gasoline you’re doing well. I think there’s a lot of concern from people who do have substantial investments—whether you have a single convenience store in the Somerset area or the larger chains; everyone is concerned about this precedent occurring.”