On fuel price and tender requirements

In 1987 the Brundtland commission presented its report on defining sustainability.

The conclusions were summarized like this:
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Energy use often have a high impact in life cycle analysis of transports. In particular public transports, that frequently have very high utilization, rely heavily on the choice of energy. So from a plain environmental standpoint the choice would be easy. Low energy use should have very high priority in the design of public transport systems.

However, for many, energy price is equally important. I have studied a large number of bus tenders all around the world and found that surprisingly low emphasis is put on the fuel consumption.

I have divided the principles into four groups:
1: No requirement is put on fuel consumption of the bus and the cost for fuel is subsidized or fuel expenses refunded using an index
2: No requirement is put on fuel consumption of the bus, but the bus operator covers the cost for the fuel
3: The tender has a minimum requirement for fuel consumption to be met
4: Fuel consumption is a competitive part of the tender
I have found no case where the full life cycle cost of the fuel consumption is at stake.

If the true cost for fuel is to be considered the future price would be an important part.
So what would the expected price development for fuel be?

For the study below I have used data from the US Federal Reserve Div. Economic Data.

First we can conclude that the consumer price index historically has not varied much year by year. There has been a constant linear increase year by year. Today the consumer price index increase by ~3% with a linear increase. Even if fuel is a part of the price index it is not “heavy” enough to fully capture the pace of change.

fuel price 1

For fuel it is a completely different story. Historically and fundamentally there have been two major trends: before and after the oil crisis in the 1970s. After the oil crisis the fuel price was very unstable and easily impacted by international crisis development. The risk for a disturbance of the transports in the Hormuz Straits has led to increased prices. Even if the price increase has been mainly instable a fit with an exponential increase seems not too wrong.

If we study the last 14 years the trend is similar but a bit more accentuated.

fuel price2

We can hence conclude that the fuel price index has historically increased by 8% annually.

Consumer Price Index and Fuel Price Index Change from January 2000 to September 2014:

Consumer price index increase yearly linear by 2.5%
Fuel price index has an exponential increase yearly by 8%

How does this help in calculating the Life Cycle Cost for a bus?
If the life time of the bus is 12 years the first tank will start at the index of 100 and after one year the cost will be 108. After 12 years the cost will be 152% higher than today.The average fuel tank during the life time of the bus will cost 65% more than the price today.

Based on the observation that the fuel price has increased by 8% per year since year 2000:

During the full life time of the bus purchased in year 2000 the average fuel tank cost 65% more than the first tank.

Forecasting is always a matter of guessing. In particular instable data, such as the fuel price, is hard. Guessing the future based on the past is mostly better than doing nothing. The best we can do today is use the most precise information we have.
For this study I used US data from the Federal Reserve. For any other part of the world local data may change the picture.

I therefore conclude that: Any city or operator that is concerned about their future cost of fuel the future fuel price should be taken into the equation already when the bus is purchased. It will actually make a hugh difference in technology choice in the favour of lower energy use.

About volvobuses

Adjunct Professor of Catalysis at Chalmers University of Technology. Lives in Gothenburg, Sweden, with my wife and three daughters born in 1991, 1994 and 1997. Is a passionate runner.
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