Industry Stays Focused on Efficiency as Fuel Costs Rise
April 13, 2012
In a Stifel Nicolaus
conference call, Pilot Flying J
Executive Vice President Mark Hazelwood and TravelCenters of America
and Petro Stopping Centers
CEO Tom O'Brien said oil prices are and will continue to be "volatile."
"There will be extreme volatility form a geopolitical standpoint," Hazelwood said. "No one knows what or if or when something will happen in Iran, but the rumor is probably worse than what the fact will be."
O'Brien said the U.S. is in a pretty good spot as far as fuel goes because our supply is in adequate position. "We have a tremendous amount of refining capacity in this country," he said. "Today we're running at around 84% capacity. In '04 or '05, they were running at 96% or 97%."
In the long term, Hazelwood said, demand will be generated in developing countries such as India and China. "Diesel is leaving the country because other countries are willing to pay more for it," he said.Fuel efficiency
Although shippers have made great strides in supply chain redesign, Hazelwood said, they will continue to do so because of rising fuel costs.
"Walmart takes air out of its pillows and gets 1,500 less loads per basis," Hazelwood said. "We used to ship mp3 players in boxes the size of a couch, and now they shrink-wrap it." Average mpg has gotten somewhat better, he said. "We haven't increased it 20%, but we may have increased it by 3% to 5%."
In order to get that 3% to 5%, he said, fleets running most EPA-2010 engines pay for it with diesel exhaust fluid, which also has a cost associated with it.
O'Brien said although we've come a long way in fuel efficiency, he sees fleets continuing to strive for better. "Trucking companies' focus today is the ability to get more miles out of every truck. They're struggling with the shortage of drivers and they're struggling with the regulation of those drivers. I don't see anybody saying, 'We're done, we've run the course on fuel efficiency.'"Natural gas
Rising fuel prices have also increased interest in natural gas. Both O'Brien and Hazelwood said right now, there aren't large natural gas engines that are adequate for long haul.
"The most aggressive estimate I've seen for that size of natural gas engine is three to five years from now," O'Brien said. "But, given enough demand and enough of our customers concluding for themselves that natural gas is the way to go, we'll be there to provide it."
Hazelwood said TravelCenters of America, working with Clean Energy Fuels, already has three locations, and will have about 30 by the end of the year. The product will be liquified natural gas rather than compressed natural gas, Hazelwood said. "For the over-the-road market, LNG is the way to go." TA plans to have 150 outlets in a two-and-a-half-year period.