September 1, 2016
The economy is truly global in every aspect. It can be alluring to assume that because the United States works within the constructs of its own regulatory programs, the automotive and fuels markets of North America are unique from the increasing pace of globalization – but that would be incredibly short sighted.
I am consistently reading reports about automakers pursuing more efficient production strategies leveraging a “global architecture” of vehicles, through which they can produce the world’s vehicles from a reduced number of platforms and powertrain plans. This would reduce costs, simplify production and increase profitability – all good things.
The fuels market, meanwhile, is increasingly leveraging capacities from various markets to fulfill demands elsewhere. For years, Europe has been exporting gasoline to the U.S., and the U.S. has been exporting diesel to a number of other countries – and we don’t have to mention the global oil supply.
In addition, the international motivation to reduce carbon emissions and increase the efficiency of the transportation sector is only gaining momentum. The Global Fuel Economy Initiative (GFEI), comprised of leading international organizations, has set a global objective to reduce emissions from the vehicles on the road in 2050 by 50% below today’s levels (GFEI also targets a 50% reduction in new cars by 2030). This is a very ambitious effort, but the majority of developed economies have already implemented or are in the process of implementing fuel efficiency programs. It is only a matter of time before international pressure compels government to step up their efforts.
“We face a near tripling of the number of cars on the planet from 2010 to 2050, the vast bulk in emerging economies. Improved fuel economy is essential if we are to address some of the negative implications of this growth, such as pollution, congestion, energy and resource depletion, and environmental damage.” GFEI
The globalization of the transportation energy market was re-enforced when I recently spent some time in Brazil and Argentina. The U.S. can learn much from these markets. For example, their flex fuel vehicle fleet enable the gasoline pool in Brazil to contain about 27% ethanol, and in Argentina the government this year increased the per gallon mandate to 12%.
Both nations market a very low sulfur diesel fuel (10 parts per million) to enable European specification engines to operate and each use a significant volume of biodiesel – 7% per gallon in Brazil (with intent to increase to 10% by 2020, contingent upon OEM approval) and 10% in Argentina. An important finding for the U.S. market is that both countries have experienced an increase in microbial growth and resulting corrosion in their low sulfur diesel tanks, just as retailers have experienced in the U.S. Diesel comprises 49% of the market in Brazil and 56% in Argentina, where it is sold as multiple sulfur levels (10 ppm and 500 ppm in the cities and 1500 in rural markets).
In addition, both nations have invested heavily in the natural gas market. The Brazilian market began with considerable strength in taxi cab fleets; however, demand has softened in recent years. In Argentina, natural gas remains extremely popular, and represents approximately 12% of the market.
One of the things that struck me in Argentina, relative to discussions currently ongoing in the United States, was the octane mix of their fuel. Each station is required to offer four fuel blends – diesel fuel containing 500/1500 parts per million sulfur, diesel containing 10 ppm sulfur, gasoline with a RON value of 95 and gasoline with a RON value of 98. The U.S. is considering what effect there might be to boost octane in gasoline to enable optimized engines and one of the targets seems to be 98 RON. Many believe this will be best achieved with ethanol blends of 20%-40%. In Argentina, about 10%-15% of the gasoline sold meets the 98 RON specification, containing only 12% ethanol. One source told me the octane is boosted by an increase use of alkylates.
There are lessons to be learned by studying other markets – and those with whom I met in Brazil and Argentina had a lot of questions about what is happening in the U.S. If we were to spend more time sharing experiences and objectives with our colleagues operating across borders, we might find we have a lot in common and that we could potentially identify and eliminate some market challenges before they become problems.
It’s definitely worth the effort – plus, it’s always a good idea to visit Rio and Buenos Aires!