The long queues and forecourt closures have been blamed on lorry driver shortages and panic buying. But is that the whole story? Luc Muyldermans and Bart MacCarthy of University of Nottingham believe there’s more to the crisis than meets the eye…
The shortage of fuel at forecourts has been wreaking havoc in the UK in recent days, leading to long queues and forcing many stations to close. The main reasons being cited in the media are too few lorry drivers to replenish forecourt stocks, coupled with temporary spikes in fuel demand that have been magnified by panic-buying.
Without doubt, these factors have contributed to the disruptions. But simply pointing to driver shortages or short-term fluctuations in fuel demand does not fully explain the situation. Driver numbers have not changed significantly from August to September and the sector has handled periodic demand spikes well in the past. Typically only 1% of petrol stations run out of fuel.
So how can a distribution system that normally works so well suddenly have dramatic increases in stations running out of stock, with fuel inventories being almost completely drained across much of the network? We suspect two other factors offer a more complete explanation but have not had any attention: the recent move to E10 petrol – the new greener blend that contains 10% ethanol – and forecourts operating with lower stocks of fuel than normal in preparation for the switch.
E5 and E10 petrols
The standard 95 octane petrol grade in British forecourts became E10 on September 1. About 95% of petrol cars can use the E10 grade. Older cars are advised to continue to use E5, which has up to 5% ethanol and replaced the premium (97+ octane) grade in forecourts in 2019.
A significant fraction of fuel retailers have opted to sell E10 only. For instance, none of Asda’s 320 petrol sites – nearly 8% of the network in terms of fuel sold – are supplying E5. For BP, which has 1,229 stations or 15% market share, E10 has become the standard grade, with E5 only available at some sites. Meanwhile, around 200 of Esso’s 1,200 petrol stations (12% of the market) are no longer selling E5.
At the same time, the average petrol stock levels at fuel stations in England dropped from 38.8% in the period of March to May 2021 to 35.7% for June to August. Petrol stations may have been depleting the old 95 octane grade fuel stock before replenishing with E10. Some petrol stations may be running with a lower fuel capacity than before and require more frequent and initially larger replenishments as they adjust to the new normal.
Some forecourts may also have found it a challenge to switch to E10. Ethanol absorbs water in a way that petrol does not, so fuel storage facilities have needed upgrades to ensure they are watertight, since water can damage motor engines.
Ethanol can also corrode certain forecourt materials such as rubber, necessitating more refurbishment. Larger retailers are likely to have been prepared for this work, but it is harder to determine how the smaller players prepared for the switch. Some may not have their usual fuel capacity right now as a result.
On the demand side, fuel economy is not as good for E10 as for 95 octane. Motorists using E10 may expect a 2%-3% decrease in miles per gallon, which can be further impacted by driving style, so they have to fuel up more frequently.
In short, many stations may have experienced different supply and demand. Stations still selling E5 may have had to cope with more E5 demand than usual. Those selling E10 will be potentially dealing with unexpectedly high levels of E10 demand both because of drivers switching over from E5, and because they will be refuelling slightly more often. These shifts may each be small, but are correlated. In combination, they are likely to have had a big impact.
Changes in demand affect replenishment schedules for petrol stations, but with lorry drivers operating near full capacity, there is little room for flexibility. And when one station’s stocks run out, motorists travel to neighbouring stations, depleting their stocks faster than anticipated. The shortages therefore get worse, which gets reported by the media, and consumers respond by panic-buying.
If our analysis is correct, it raises questions about why there has been no discussion about the role of the E10 changeover until now. It’s worth pointing out that there are echoes of what happened in Germany a decade ago. Germany introduced E10 fuel but consumers were reluctant to purchase it, believing it would damage their cars. The sales of premium fuels rocketed, resulting in premium fuels running out and overstocks of unsold E10, with refineries having to reduce E10 production accordingly.
Fixing the problem
We believe that a bathtub analogy is a useful way of understanding how the current shortages occurred. The bathtub is the capacity of the fuel stations. The tap represents fuel trucks, and the plug hole represents demand for petrol. Currently there is limited fuel at the stations so the bathtub is (nearly) empty. The level of stocks acts as a buffer against supply and demand fluctuations and uncertainties, but we can only increase the level if we can fill the bath faster than the rate at which it is being drained.
Opening the tap means more and faster fuel deliveries to the forecourts. Emergency shipments by the army will help. Longer-term solutions will include incentivising lorry drivers with better remuneration and better working conditions.
Latest media reports indicate that the situation may be abating. However, further shocks cannot be ruled out. Measures to temporarily restrict demand include:
- fuel rationing – for example £30 maximum spend;
- restricting queue lengths, number of open pumps and opening hours;
- fixed fuel prices across the country to even out demand;
- incentivising working from home, car-pooling or use of public transport;
- prioritising fuel for emergency workers and/or work vehicles;
- discouraging non-essential travel.
Measures would need to be selected and implemented carefully and not necessarily in all petrol stations. More targeted industry-wide and government-led actions may be required if the situation does not stabilise.
The E10 petrol rollout in Northern Ireland, where no disruptions have occurred in the fuel supply, is scheduled for the start of 2022. Hopefully this analysis will help them to avoid the same fate as the rest of the UK.
This article is authored by Luc Muyldermans, associate professor in operations management, University of Nottingham and Bart MacCarthy, professor of operations management, University of Nottingham. It is republished from The Conversation under a Creative Commons license. Read the original article.