America’s hunger for gasoline falls and is unlikely to return

The United States used more gasoline than ever in 2007 and far more than any other country. It seemed as if America’s growing appetite for gas would go on forever.

Well, it won’t — and things may never be the same.

Gasoline consumption has been down the last two years, in part because of the recession. Even when the economy picks up, three underlying trends mean the U.S. might never use as much gas again:

•New standards for cars and light trucks, including SUVs, will make U.S. vehicles more fuel-efficient.

•The growth in the number of U.S. vehicles, after surging the last 30 years, is likely to plateau. The country now has more than four vehicles for every five people, including children.

•Alternative fuels will grow enough to cover increased fuel needs.

As a result, the federal Energy Information Administration predicts that 2007 was the peak year for U.S. gasoline demand. Even in 2035, the last year of the latest long-term projections, motorists are expected to use less gasoline than they are now.

As unexpected as this trend was, there is widespread agreement that it is right.

“We’re on a slow but inexorable path away from petroleum. This is a big deal,” said James Williams, an analyst with WTRG Economics, an oil and gas consultancy.

In a recent speech in Washington, Rex Tillerson agreed.

“Motor vehicle gasoline demand is down, is headed down and is going to continue to head down,” said Tillerson, the CEO of Exxon Mobil Corp., the world’s largest oil company.

That decline is reverberating through the oil industry. Refineries now use only 78.5 percent of their capacity, the lowest level since the federal government began routinely collecting the information in 1990. Valero Energy, which once bought refineries enthusiastically, now snaps up ethanol plants instead.

And Chevron Corp. recently announced it was reorganizing its U.S. refining business, which could include selling or closing refineries.

One variable will be how quickly consumers take to alternatives and more-efficient vehicles.

When the new fuel-economy standards were being considered, a Gallup poll found 80 percent of respondents supported the idea, even though it could make vehicles smaller and more expensive. A Pew Research Center poll released last week found only 49 percent of respondents said they favored making energy a top priority, down from 60 percent a year ago.

Mike Omotoso, an analyst for the marketing firm J.D. Power & Associates, said many consumers are reluctant to pay more for alternatives such as electric hybrids, especially when gas costs less than $3 a gallon.

“People can have short memories,” Omotoso said.

Other analysts say $4 gasoline left a lasting impression. Mike Right, a spokesman for AAA, said consumers understand things have changed and higher energy prices weren’t a temporary situation.

“Everyone knows the era of $2 gas is over,” he said.

Paul Gilbert, a former area resident who is now retired in southern Missouri, makes regular trips to Kansas City in his pickup truck — trips that became especially pricey when gas prices spiked in 2008. Though gas prices have settled, Gilbert said they’re still too high, and he plans to buy a Honda Accord or Toyota Corolla.

“You either do what is right or keep on going down the path we’re going down,” he said. “People are starting to wise up.”

Americans have tried this before. In the 1970s after the OPEC oil embargo, the government imposed fuel-efficiency standards and other measures to slash fuel and oil consumption. The effort eventually was undone by plummeting oil prices and the popularity of thirsty SUVs.

The experience left a lesson that is playing out again. Forward-looking policies require patience and can be difficult politically, but they pay off, said Jay Hakes, a former head of the Energy Information Administration and the author of “A Declaration of Energy Independence.”

“It’s a gradual thing,” Hakes said. “The really good policies are the ones that look five to 10 years ahead.”

A similar approach is showing results. Federal tax incentives for ethanol, though widely criticized, have helped increase production from less than 1 billion gallons in 1992 to 10.5 billion last year. That reduces by 5 percent the amount of gas the country needs.

The new fuel-efficiency standards won’t be fully felt for years.

Congress approved the measure in 2007, and the Obama administration toughened it by saying the standard must be fully in force by 2016 instead of 2020. Fuel efficiency must start climbing in the 2011 model year, and by 2016, cars are to average 39 miles per gallon and light trucks, including SUVs, must average 30 miles per gallon. The current requirements are 27.5 mpg for cars and 23.1 for light trucks.

How much fuel will that save? The 2011 models, according to federal estimates, will save 900 million gallons over their lifetimes. That’s not bad, but it amounts to only a day’s worth of U.S. oil consumption.

By 2016, the results are more impressive. All the vehicles produced under the new standards are expected to save 76 billion gallons of gas. That impact will build for a few more years, because it takes about 20 years to completely replace the nation’s vehicles.

Meanwhile, a decline in the number of vehicles owned by U.S. households will have an impact. From 1980 to 2007, 100 million vehicles were registered in the U.S., giving the country 844 vehicles for every 1,000 people. As a result, car travel nearly doubled to 3 trillion miles a year.

Last year, the number of vehicles in the U.S. dipped slightly, J.D. Power said, and just slowing the growth in vehicles should help prevent a surge in gasoline demand.

All of that doesn’t mean gasoline will stay cheap, because growing demand in countries such as China and India eventually will send prices back up.

And it doesn’t mean gas will disappear. The Energy Information Administration predicts that by 2035, petroleum still will provide 88 percent of the fuel for cars and light trucks.

The rest will come from alternative fuels — mainly ethanol, followed by electricity, natural gas, hydrogen and propane. Many analysts say alternatives will grow much faster than federal officials expect. That will depend in part on developing infrastructure such as stations to charge electric cars or dispense compressed natural gas.

Several alternate fuels could enjoy some growth, said Mary Beth Stanek, the director of environment, energy and safety policy for General Motors Corp. GM expects hydrogen to play a bigger role and has a second generation of hydrogen cars in the field.

However quickly alternatives are adopted, they mean less gasoline use — and a reshuffling of past expectations.

In 2005, the chief executive of the largest independent U.S. refining company, Valero, declared a “Golden Age of refining” and said the best was yet to come. Less than five years later, Valero has a new CEO — who says that age is over.

When Valero spokesman Bill Day was asked last week whether his company agreed that demand for gas will drop, he put it this way:

“It makes sense to us.”

About Pynergy Petroleum Company

Pynergy Petroleum Company was founded in August 1999 when it acquired three Conoco Branded retail locations in the Denver, CO area.  Since then, Pynergy has been devoted to providing high quality fuels, lubricants, diesel exhaust fluid, equipment and service to the automotive, heavy duty and industrial markets.  Please visit us at www.pynergypetroleum.com

This entry was posted on Tuesday, February 2nd, 2010 at 7:10 pm and is filed under Fuel. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.