Gasoline Demand Defies "Experts" and Drops

by John M. Curtis
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Copyright December 20, 2010
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            Defying all the “experts,” gasoline demand in the U.S. has dropped 8% since 2006 when demand peaked.  Prevailing wisdom has held since the OPEC oil shocks of the mid-1970s that that supplies would not keep pace with demand, eventually leading to the end of the oil supply.  Quoted by Independent presidential candidate Rep. John B. Anderson (I-Ill.) Sept. 23, 1980, while debating former President Ronald Reagan, the American Petroleum Institute predicted that world oil demand would exceed available supply by 1990.  Today’s U.S. Energy Dept. report indicates that, with the new breed of fuel-efficient and alternative-fuel vehicles, gasoline demand should drop by another 20% by 2030, leaving the world awash in gasoline.  Despite increased consumption by the rest of the industrialized and developing worlds, gasoline demand should continue to drop in those countries too.

            With the U.S. burning over 20 million gasoline barrels a day, nearly three times that of China just under 8 million barrels a day, more fuel-efficient cars and alternative fuel technology should continue to reduce gasoline consumption.  “A combination of demographic change and policy change means the heady days of gasoline growing in the U.S. are over,” said David Vergin, chairman of IHS Cambridge Energy Research Associates, winner of the Pulitzer Prize for his history of the oil industry.  Exxon-Mobil’s CEO Rex W. Tillerson acknowledged that U.S. gasoline demand peaked in 2006, anticipating future declines.  While the country’s “Great Recession” and high gas prices have kept Americans off the roads, more fuel efficiency and alternative-fuel vehicles promise to keep demand down.  Current and past administrations continue to press for alternatives to fossil fuels.

            Controversy still exists over the effect of burning fossils on climate change.  Reducing the so-called “carbon footprint” has become practically a new religion for environmentalists at the United Nations, driving the Kyoto Protocol, requiring the world’s industrial giants to sign on to reducing targeted carbon goals.  In their lust to be right—as opposed to factual—these same environmentalists push the corn-based ethanol industry, despite depleting the livestock food and water supplies.  Taking valuable farmland and water resources to fuel the ethanol industry also has environmental consequences.  Demonizing fossil fuels can’t hide the fact that even so-called zero polluting electrical vehickles, now the craze in Detroit and Tokyo, must get the electricity from somewhere, typically coal-fired, natural gas or nuclear power plants, all with real environmental consequences.

            Given today’s lean economic times, the popularity of SUVs and other less fuel- efficient vehicles has waned.  New EPA fuel-efficiency standards require automakers to boost average miles-per-gallon from the 1990 benchmark of 27.5 mpg to 31.1 mph starting with the 2012 model-year, arriving for automakers in mid-2011.  In 2016, even trucks, minivans and SUVs will have the same fuel-efficiency standards as regular passenger vehicles, reducing gas consumption.  With current EPA laws, ethanol and biofuels will account for about 25% of all fuels sold in the U.S. by 2022, whether or not they wreak havoc on the corn industry and water supply.  Better public transportation systems, including more natural gas buses, electric subways and light-rail also add to diminishing gasoline consumption.  Trends toward more urban living should also reduce future gasoline use.

            Aging baby boomers, whose love affair with fast muscle cars is losing steam, also expect to do less driving in the future.  “People wildly underestimate the effect that all this is going to have,” on gasoline consumption, said Deutsche Bank petroleum analyst Paul Sankey.  He predicts by 2030 Americans will reduce their gasoline consumption to 5.4 million barrels a day, the same level as 1969.  Other analysts like CERA’s Aaron Brady, predict consumption more in the range of 6.6 million barrels a day.  According to the National Resources Defense Council, Americans save about $1.5 billion on gasoline since 2004 by shifting out of gas-guzzling SUVs.  Despite expecting a whopping 254 million cars on the road in 2030, gas consumption is expected to drop according to government projections.  Reagan’s prophetic voice can still be heard reassuring folks that there’s plenty of oil and gasoline.

            Profits of doom-and-gloom predicting the end of fossil fuels should take notice that their predictions didn’t pan out.  Decreased demand should eventually translate into higher supplies and lower prices.  When the economy rebounds and oil prices come in line with increased supplies, it remains to be seen whether the drop in consumption will continue.  Emerging markets, especially India and China, might also eventually pick up the demand, despite trends in the U.S.  “Sometimes what we think is a structural shift is really just a temporary phase,” said Newedge oil analyst Antoinne Huff, questioning whether the trend will continue.  Environmentalists applauding current trends should keep in mind the tradeoffs that come from less fossil fuel consumption:  Corn-based ethanol is no answer for what the planet must do feed itself and preserve the precious water supply.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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