Valero Energy Corporation, the largest independent oil refiner in the United States, has announced that it is planning new distribution stores that will offer more options than the traditional “gas station.” In fact, the company is thinking of them more as “fuel stations” because they will offer a variety of alternative fuelsincluding natural gas, E85 and recharging facilities for electric vehicles.
Geoffrey Styles, an energy and environmental strategy consultant and advisor with 22 years of industry experience, recently wrote about Valero’s plans for The Energy Collective. Styles referred to Valero’s future fuel stations as employing a “multiple choice energy” strategy. He wrote that while the idea has been attractive to executives in the retail fuel industry for at least a decade, implementation has been difficult because “margins are slim, competition high, and major redesigns of existing facilitiesfor rebranding or any other purposeare very hard to justify financially.”
However, Valero CEO Bill Klesse said, “In certain markets they’re already consuming natural gas in vehicles.” Consequently, he said it makes sense to offer alternatives in those areas “if there is market demand.”
The key is to incorporate the capabilities for offering alternatives when new stations are being built instead of adding them later. Klesse explained, for example, that it can cost $100,000 to add an E85 pump to an existing store.
Styles said that Valero’s initiatives are important because the company is expanding its retail network and investing in new sites while other major oil companies are exiting retail to free up capital for oil exploration and production.
Valero’s marketing network already includes 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean. By including alternative fuels in the company’s expansion strategy, Valero has the opportunity to tap into the demand for alternative fuels that is materializing from sustained high gasoline prices, predicted Styles.
Valero has already invested considerably in alternative fuels by acquiring 10 ethanol plants, and the company is benefiting from its diversified product offerings. In the first quarter of 2011, Valero’s ethanol facilities contributed 18 percent of the company’s operating income while making up less than 4 percent of the production output by volume.
Styles said he thinks Valero’s efforts and those of other fuel retailers willing to venture into alternatives will likely overcome the “chicken-and-egg” barrier of bringing nonpetroleum fuels to the market. He explained that if demand is allowed to develop and some fueling infrastructure is in place to meet the demand, it might not be long before both alternative fuel vehicles and supplies of alternative fuels are more widely available.