Gas station business losing to reality

January 16th, 2013 by Philip Brasor & Masako Tsubuku

Tanks for the memories

According to the Petroleum Association of Japan, the demand for gasoline continues to decrease owing to the popularity of hybrids and mini-cars, the greater fuel efficiency of automobiles in general, and a trend that sees more and more young people foregoing the pleasures of motoring. In 1999, 250 million kiloliters of gasoline were sold in Japan. In 2011 the amount was about 200 million. Consequently, the country doesn’t need as many gas stations. There were 60,000 in 1994, only 38,000 in 2011.

The disappearance of gas stations will likely accelerate this year due to a revision to the Fire Prevention Law. Several years ago it was discovered that gasoline reservoirs — the tanks buried under gas stations to store fuel — were leaking at an alarming rate, so the government enacted a law to address the problem. If the tank is 40 years old or older, the owner of the gas station must replace it or repair it. If he doesn’t, his license to pump gas could be revoked. Either operation requires excavation and the use of heavy machinery, and costs between ¥1.5 and ¥2.5 million. Many gas stations, in fact, have at least three tanks underground: one for gasoline, one for diesel, and one for kerosene. Each would have to be replaced once it turns 40. The revision went into effect in February 2011, and all gas stations with tanks older than 40 years had two years to comply. At the same time, the government introduced a subsidy that would provide two-thirds of the cost of the replacement-repair if the application is made by the end of January 2013. According to an industry group survey cited in Tokyo Shimbun, as of the end of September only 30 percent of tanks that needed to be changed actually had been. Of the other respondents, 7.5 percent said they are considering closing their businesses due to the revision. Others said they will wait until the last minute to apply for the subsidy. An industry representative told the Tokyo Shimbun that the older the tank the older the gas station owner, so it is likely they will simply decide to retire if no one in the family wants to take over the business. Perhaps in light of these findings, the government has already decided to extend the subsidy period.

It may not make much of a difference. The projection for gasoline demand in 2020 is only 130 million kiloliters. The main problem with lack of demand is that it affects different regions differently. The loss of gas stations in major cities and densely populated suburban regions won’t cause major problems, but in outlying rural areas, where there is little public transportation and people rely on automobiles to get around, it could cause an increase in so-called gas refugees.

Among Japan’s prefectures, Yamaguchi pays the most for gasoline a year per household — ¥80,000 — while Osaka pays the least, about ¥14,000. If a gas station in Osaka closes, not many people will notice, but if one in Yamaguchi shuts down, the people who relied on it will have to drive even farther to fill up, thus consuming more gasoline just to buy gasoline.

As a side note, the development of electric cars doesn’t seem to be much of a factor in these projections. The magainze Toyo Keizai reports that despite government subsidies, the Nissan Leaf, which first went on sale in Nov. 2010, isn’t selling as well as expected (and Toyota, which just regained its position as No. 1 carmaker in the world, has cancelled its plans to make an electric).

As of last November, Nissan had sold 43,000 Leafs worldwide, including 19,000 in Japan and 17,000 in the U.S. Since manufacturing capacity is 50,000 cars a year, the model is only fulfilling 43 percent of its potential. Experts say the problem is still driving distance. Even with new improvements in battery storage and efficiency, a full charge for a Leaf will only get you 250 km, while the average compact with a full tank could get you up to 800 km.

The relative savings in gasoline costs enjoyed by the electric car driver doesn’t seem to be a major consideration for consumers at the moment. However, this may change as more gas stations disappear, since electric chargers can be installed anywhere without any expensive requirements: dealerships, service areas, even convenience stores.

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2 Responses

  1. As usual, an interesting article but I think you may have got your figures wrong regarding gasoline sales. Only 200,000 liters sold in 2011?

    An article in the Journal of Economic Structures gives estimates of annual total gasoline consumption for passenger automobiles during 2000-2007 in Japan ranging between 38,034 megaliters in 2007 and 39,884 megaliters in 2003. See:
    http://www.journalofeconomicstructures.com/content/pdf/2193-2409-1-9.pdf

  2. Yes. It should be 200 million kiloliters, etc.

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