Comprehensive weather insights help safeguard your operations and drive confident decisions to make everyday mining operations as safe and efficient as possible.What is Driving Artificial Intelligence Adoption for Wholesale Fuel Markets?
Artificial intelligence (AI) is transforming the downstream oil and gas industry delivering significant efficiency, safety, and sustainability gains. Over the past decade, it has emerged as a key driver in modernizing this traditionally labor-intensive and fragmented sector, leading to improved performance and operational breakthroughs.
Growth of AI Adoption in Downstream Oil and Gas
In 2022, the global AI market within the oil and gas industry was valued at approximately $2.16 billion. According to Precedence Research, that number will grow to over $25 billion by 2024 with North America dominating the market share.
For an industry typically labeled as slow to adopt digitalization due to the complexity of the supply chain, a large majority of oil and gas companies have already embraced AI with 97% reporting a positive ROI from their investments.
For an industry typically labeled as slow to adopt digitalization due to the complexity of the supply chain, a large majority of oil and gas companies have already embraced AI with 97% reporting a positive ROI from their investments.
For fuel marketers and retailers, several market forces are accelerating AI adoption.
1. Fluctuating Oil Prices
Oil prices are notoriously volatile due to geopolitical tensions, supply disruptions, and demand changes. However, in recent years, these impacts have become more pronounced and unpredictable.
Marcrotrends chart showing daily crude oil prices.
As the downstream industry has felt all too well, volatility in one segment of the industry has ripple effects across the entire supply chain. Consider how fluctuations in crude oil prices can lead to unpredictable and unstable profit margins for downstream operations and, in turn, affect operational expenses for transportation and logistics companies.
AI helps wholesalers better forecast price trends and manage risks through predictive analytics. Accurate price predictions can aid in optimizing purchasing decisions and improving profit margins.
2. Increasing Competition
Consolidation and non-traditional players, such as tech companies and retailers with large logistics operations, entering the fuel distribution market are driving increased competition among fuel wholesalers. 7-Eleven’s acquisition of Speedway and Sunoco’s acquisition of NuStar Energy are recent examples of consolidated market share.
AI offers a competitive edge by improving efficiency in operations, logistics, and pricing strategies. Larger companies have more interest and greater capability to utilize AI in their everyday processes, which allows them to gain better insights into customer behavior, optimize supply chain management, and reduce operational costs so that they can gain market share and perpetuate their growth.
3. Supply Chain Optimization
Fuel supply chains are complex, and disruptions can lead to significant losses. A look at the last 10 years including a global pandemic, labor shortages, geopolitical unrest, and volatile weather events is undeniable proof of this statement.
AI helps wholesalers optimize their supply chains and make them more resilient by analyzing real-time data on weather, shipping conditions, and global fuel demand. The benefit to the wholesaler is when their supplier can ensure product availability for future lifting patterns and for unexpected supply disruptions.
AI can also enable route optimization, which reduces fuel consumption, improves delivery times and ratability, and maximizes driver and equipment utilization.
4. Regulatory Pressures and Sustainability Goals
Since 2020, several global regulations and policies, such as the European Union Emissions Trading System and the Inflation Reduction Act have been implemented to address environmental concerns and promote sustainability. These drive technology adoption to automate compliance reporting and provide real-time monitoring and alerting capabilities. Advanced modeling can significantly mitigate compliance risks and ensure adherence to industry standards.
As the world moves toward renewable energy solutions, fuel wholesalers are under pressure to adapt. AI can help them optimize the distribution of traditional fuels while also exploring alternative fuel sources, such as biofuels or hydrogen.
AI tools can also reduce the industry’s own carbon footprint. For example, AI-informed route optimization can minimize fuel consumption and greenhouse gas emissions. These systems can consider factors such as vehicle type, fuel efficiency, and alternative energy sources when planning routes.
5. Operational Efficiency and Cost Reduction
Noting the increased competition and the already razor-thin margins for the downstream industry, AI applications such as automated scheduling and optimized delivery routes can significantly reduce operational costs. The early and predictive detection of supply events can enable both reduced costs to serve while maintaining customer commitments and satisfaction.
6. Digital Transformation and Automation
Meanwhile, the fuel industry is undergoing a broader shift toward digitalization, particularly as the sector realizes the AI benefits of reduced labor costs, increased speed both in operations and decision-making, and predictive insights. Until recently, these capabilities were limited to in-house teams at majors due to cybersecurity concerns and lacking skill sets but are opening up to the broader sector.
According to 2021 research performed by Forrester Consulting on behalf of DTN, more than 70% respondents working in the downstream industry agreed that digital modernization is a top priority for their business. More than half of the respondents have not begun the process due to the cited challenges below:
Increasingly technology companies are building scalable user-friendly, cloud-based platforms specific to the needs and challenges of the downstream sector.
The data-heavy lifting is done by the technology company, packaged and sent to the wholesaler through an application programming interface (API). The API easily integrates with a company’s existing system or delivered through a platform. This means that a company doesn’t have to design, build, and maintain data operation hubs, or hire a large data engineering team to harness the benefit of AI.
7. Customer Demand for Personalization
AI helps wholesalers respond to growing customer demand for more personalized and flexible fuel purchasing options. With AI, wholesalers can analyze customer buying patterns and offer tailored solutions, including flexible pricing, delivery schedules, and payment terms, which can enhance customer loyalty.
The benefit [of AI] to the wholesaler is when their supplier can ensure product availability for future lifting patterns and for unexpected supply disruptions.
The most likely visible response to meeting new customer behavior is the c-store transformation with a focus on the customer retail experience over the traditional gas station. Majors realize they are selling a fungible commodity and customer experience is a key path to competitively differentiating in the market.
By building multi-service hubs offering electric vehicle (EV) charging, retail, and food services, major energy companies expect to build brand loyalty and revenue by building personalized experiences and making it easier for customers to choose to do business with them.
The Future of AI for Fuel Retailers
As the industry continues to embrace AI, the role of big data will only become more critical in helping companies remain competitive, adaptive and resilient.
While market forces were the catalyst for adopting AI, majors now realize that it will be data integrity, granularity, reliability and accessibility that drives broader adoption.
This will create more opportunities to build digital collaboration with partners in the energy supply chain while maintaining information security protocols and competitiveness. AI will play an increasingly vital role in ensuring that downstream operations remain resilient and competitive.
This article originally published in the November/December 2024 issue of SIGMA’s IGM magazine.
About the author
Ken Evans
Ken Evans leads the energy and refined fuels business, assuring DTN energy and refined fuel solutions continue to deliver exceptional value to customers in this sector. He has more than 30 years across the oil and gas industry, including Global Vice President for Oil & Gas at SAP prior to joining DTN.