Retail challenges in Europe
Major oil companies in the region identify key opportunities for retail growth
The EU's retail oil industry is adapting to the policy and operational challenges raised by the energy transition. Major European companies such as BP, Shell and Total are adjusting their outlooks to make way for a future which will include major shifts in product demand and retail services.
Within the structures recommended by the EU's strategy for the development of the market for alternative fuels, launched in 2014, European oil majors have acquired electricity and technology assets including conventional and renewable power generation, electricity supply companies, and electric vehicle charging infrastructure development. Smaller national firms, including OMV, have also cemented agreements with leading utilities to supply the power for EV charging.
14,000 — EV charging points Enel is developing
OMV's alliances include agreements with Austrian utility Verbund, Germany's EnBW, and Ionity, a joint venture between auto manufacturers BMW, Daimler, Ford and Volkswagen. But EV charging is not the only new infrastructure development under way in the crowded European retail sector. Development of the distribution of LNG for truck traffic is also gaining ground. Total, in its Energy Outlook to 2040 presentation last February, forecast that natural gas is likely to play a significant role in dampening oil demand growth in the long-distance transport sector, while light vehicle demand will increasingly migrate towards electricity. Total expects 32pc of the light duty vehicle fleet could be electrified by 2040.
These developments are challenging retail operators. Geographically, public charging stations are concentrated in northwest Europe, which boasts the greatest concentration of EVs. EU neighbour Norway has the world's highest market penetration, with over 40pc of new vehicle sales now EVs. Within the EU, Germany, the UK, France and the Netherlands, which has long been a leading market for automotive LPG, are the largest EV markets, according to the European Automobile Manufacturer's Association.
Home or office charging
A study by the European Federation for Transport and Environment (AISBL) forecasts that development of public EV charging infrastructure at the EU-recommended rate of one charging point per 10 EVs on the road is likely to spread south and east through the EU over the next decade, initially along main highways. In Italy, utility Enel is developing a network of 14,000 EV charging points, primarily through its ENEL X unit. AISBL estimates that there are around 2,500 fast charging sites along Europe's main roads, while 95pc of EV charging takes place at homes or offices.
The expansion of EV charging will challenge oil retailers, currently dependent largely on a mix of margins from traditional product sales and non-oil sales from station shops. A retail director with an independent EU retailer says that, as EV chargers and LNG for trucking become more common, his company is now "selling everything: gasoline, diesel, LPG, LNG and power". The low cost of charger installation, which the executive estimates at €10,000 per charger, means that installation payback can be very quick.
But the executive notes that pricing EV electricity was difficult for sellers not holding a supply license, or in an agreement with an electricity supplier, as in many EU jurisdictions electricity cannot be resold by consumers. He suggests that for his company teaming up with a local power supplier and charging a power sales commission or charging a parking fee for EV charging were pricing options in the near term.
Meanwhile, LNG for trucking will require development of additional small-scale LNG infrastructure at ports and along pipelines, he adds. Currently, much LNG is trucked across Europe from major LNG receiving terminals, increasing costs and keeping sales margins tight.