ACAPMA estimates that the End-Stream segment of the Australia fuel industry (i.e. fuel wholesale and fuel retail businesses) operates from assets valued at more than $28B and employs more than 70,000 Australians.

These numbers suggest that this segment of the Australian fuel industry is currently a significant contributor to the Australian economy – a fact often lost on politicians who constantly attack the industry solely for political benefit.

Maintenance of this economic contribution in the future, however, will be dependent on our ability to adapt to market disruption.

In recent years, we have all watched industries like the Taxi industry and Retail industry struggle with market disruption – driven largely by the combined effects of vehicle technology, changing consumer preferences and emergence of the share economy (i.e. where consumers prefer to access products and services as opposed to owning them).

The fact that such changes have not yet occurred in the Australian fuel market provides no reason for complacency.

“The ‘long tail’ nature of our assets suggests that we must closely monitor changes in the market and then be prepared to invest on the cusp of the change – but at a rate that does not get ahead of the demand curve”, said ACAPMA CEO Mark McKenzie.

So, what is happening in our market at present?

Well one indicator of the rate of change can be derived via an examination retail fuel demand, as per an analysis recently completed by ACAPMA (using information provided by Australian Government agencies and research bodies such as the Australian Bureau of Statistics)

“The first point to note is that retail demand for motor spirit (aggregate of all grades) has been relatively flat – averaging just 0.2% year on year growth over the past 5 years”, said Mark.

Retail demand for diesel continues to grow at more than 9% per year, while demand for LPG has declined by an average of 10.6% per year.

In terms of individual petrol products, the analysis of five-year retail sales (See Figure 1) revealed that annual sales of:

  • E10 have grown by an average of 0.9% p.a.
  • RULP and 95RON have fallen by an average of 0.7% p.a. and 1.5% p.a.
  • 98 RON have grown by an average of 5.3% p.a.

Figure 1: Retail sales of fuel products over the last 5 years has been largely flat or declining except for diesel and 98RON petrol

“The growth of 98RON – the most expensive of the petrol products sold by Australian fuel retailer– is very interesting given that our industry is being constantly criticised for charging high prices in the face of an alleged acute consumer sensitivity to price”, said ACAPMA CEO Mark McKenzie

The finding is, however, consistent with the findings of ACAPMA’s 2017 Monitor of Fuel Consumer Attitudes that revealed that less than 50% of consumers were truly ‘price sensitive’ – with the remainder nominating convenience of physical location and diversity of convenience offerings as being equally significant considerations in their choice of service stations.

“Two other factors are, however, likely to be contributing the growth in sales of 98 Premium petrol experienced in the last five years, namely: changes in biofuel mandates in NSW and QLD and improvements in the fuel efficiency of the national vehicle fleet”, said Mark

In terms of the biofuel mandates, the forced sale of E10 on the forecourt in NSW and QLD markets has resulted in some fuel retailers replacing the middle-priced product (i.e. 95RON) with E10. As a result, previous buyers of 95RON appear to have chosen to purchase the higher priced 98RON rather than choose 91RON or E10.

“Ironically, the actions of both of these governments appear to have inadvertently increased fuel prices for consumers in both of these States”, said Mark

Improvements in vehicle fuel efficiency suggest, however, that the other factor may be that consumers are travelling further per litre of fuel – and are therefore able to maintain their weekly household spend on fuel despite paying a higher unit price for fuel product.

This proposition appears to be support by an analysis of data provided by the Australian Bureau of Statistics (ABS Motor Vehicle Census).

The ABS data reveals that the average fuel consumption of the national light vehicle fleet has decreased from an average of 11.9litre per 100km in 2000 to 10.6 litres per 100km in 2008 – a drop in average fuel consumption of 11%, with much of it realised with the sale of more fuel-efficient vehicles in the last 8 years (See Figure 2).

Figure 2: the efficiency of the national light vehicle fleet is improving and will likely improve further in coming years

“It is worth noting that the Australian Government is currently considering the introduction of new national fuel efficiency standards which will likely accelerate this improvement in national vehicle fuel efficiency in future years, placing further downward pressure on retail demand for petrol in Australia”, said Mark

“The improvements in average fleet fuel efficiency are not, however, occurring because annual sales of electric vehicles (EV’s) have grown in overall significance”, said Mark.

While advocates of EV’s point to the fact that sales of EV’s have increased by 88% in the last 5 years, these sales have been off a very small base.

Fully electric vehicles – as opposed to petrol-electric hybrid vehicles – accounted for just 0.01% of the national vehicle fleet as at January 2018 (See Figure 3).

Figure 3: EV sales are growing at a fast rate (88%) but off a very small base (0.01% of all vehicles)

In fact, to meet the Australian Government’s target of 1 Million EVs (7% of the national passenger fleet)by 2030, sales of EV’s will need to increase 100-fold from 2020 onwards.

“Achievement of this goal will be challenging, suggesting that we need to watch the development of fully electric vehicles but not over-react to it, said Mark

“All in all, our analysis of the past 5 years suggests that the outlook for retail fuel demand (especially petrol) in the near term is likely to be flat and trending slightly downward – with continued improvements in vehicle fuel efficiency likely to offset any growth in demand created by net growth in total vehicle numbers”, said Mark

This trend in the Australian consumer market appears to be wholly in line with the experience of other developed international economies such as North America and Europe, where fuel retailers have sought to diversity their offerings to continue to grow annual revenues in the face of rising costs.

At present, fuel sales account for an average of 76% of annual revenues (69% petrol and 7% diesel) earned by Australian fuel retail businesses  -albeit that there is significant variance between individual retail networks.

“The immediate challenge for fuel retailers therefore lays in managing ongoing cost increases (i.e. wages, lease costs and utility costs) and generating new sources of revenue, in the face of likely flat demand for fuel products in the future,” said Mark”