In September 2015, premium gasoline sales hit a level that had not been reached in the previous decade, and accounted for 11.3% of total motor gasoline sales. When gas prices were higher, a lot of people ditched their bigger cars and went with something more fuel efficient. Some of the increase in premium fuels could be a revocation of that trend, however there may be other factors at play. New fuel economy standards in light-duty vehicles (LDV) has been a large driver of this trend, which could signal new trends ahead for the gasoline markets.
In October 2012, the latest version of the Corporate Average Fuel Economy (CAFE) standards were unveiled which set a threshold of 40.3-41.0 miles per gallon for LDVs coming to market between 2017 and 2021. Standards increase for the years 2022 to 2025, requiring 48.7-49.7 miles per gallon. IN an effort to meet these standards, car manufacturers are implementing a wide range of solutions to improve fuel economy.
These solutions include, but are not limited to, weight reduction, conventional engine and transmission efficiency improvements, better aerodynamics, and further development and sale of hybrids and electric vehicles. One significant trend is engine downsizing coupled with turbocharging.
Shrinking the size of the engine and adding a turbocharger can help raise fuel economy while also providing the power of a larger engine. This maintains performance with a smaller and more fuel efficient engine. Turbochargers work by using a turbine driven off the exhaust gas to pressurize the intake air. The pressurized intake air allows a turbocharged engine to produce more power compared with a naturally aspirated engine of the same size.
Due to the fact that turbocharging utilizes more air in the combustion cylinder, there is an increase in cylinder pressure and compression. These increases can lead to a circumstance where fuel combust prematurely in the engine, causing damage.
The octane rating of gasoline is an indicator of its resistance to spontaneous combustion. A turbocharged engine will use a higher octane to help mitigate the effects of premature combustion in the engine. In the past, this has been a large reason why high octane fuels was mostly prevalent in sports cars and luxury vehicles that maximize torque and power.
In 2009, turbocharged engines accounted for 3.3% of new gasoline fueled LDV sales, and has increased to 17.6% in 2014, a 433% increase. This increased use of turbocharged engines reflects the increased fuel economy, a trend that is expected to continue. EIA speculates that turbocharged engines will be in 83% of LDVs by 2025.
As the use of turbocharged engines increases, the requirement for higher octane fuels will expand as well. Engine models that require premium gasoline are designed to operate only on that fuel, and the use of regular gasoline risks damaging the engine. Engine models with premium gasoline recommended will achieve full performance levels using only the higher-octane fuel, but the use of lower-octane fuel will not compromise engine integrity.
Premium gasoline sales are likely to increase as a percent of total gasoline sales with more car models using turbocharged engines and recommending or requiring premium gasoline. This increase of premium fuels and turbocharged engines is a main strategy to comply with increasingly stringent fuel economy standards.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
