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Addicted to oil: US gasoline consumption is higher than ever

Addicted to oil: US gasoline consumption is higher than ever thumbnail

August was the biggest month ever for U.S. gasoline consumption. Americans used a staggering 9.7 million barrels per day. That’s more than a gallon per day for every U.S. man, woman and child.

The new peak comes as a surprise to many. In 2012, energy expert Daniel Yergin said, “The U.S. has already reached what we can call`peak demand.” Many others agreed. The U.S. Department of Energy forecast in 2012 that U.S. gasoline consumption would steadily decline for the foreseeable future.

Source: Constructed by Lucas Davis (UC Berkeley) using EIA data ‘Motor Gasoline, 4-Week Averages.’

This seemed to make sense at the time. U.S. gasoline consumption had declined for five years in a row and, in 2012, was a million barrels per day below its July 2007 peak. Also in August 2012, President Obama had just announced aggressive new fuel economy standards that would push average vehicle fuel economy to 54 miles per gallon.

Fast forward to 2016, and U.S. gasoline consumption has increased steadily four years in a row. We now have a new peak. This dramatic reversal has important consequences for petroleum markets, the environment and the U.S. economy.

How did we get here? There were a number of factors, including the the Great Recession and a spike in gasoline prices at the end of the last decade, which are unlikely to be repeated any time soon. But it should come as no surprise. With incomes increasing again and low gasoline prices, Americans are back to buying big cars and driving more miles than ever before.

The Great Recession

The slowdown in U.S. gasoline consumption between 2007 and 2012 occurred during the worst global recession since World War II. The National Bureau of Economic Research dates the Great Recession as beginning December 2007, exactly at the beginning of the slowdown in gasoline consumption. The economy remained anemic, with unemployment above 7 percent through 2013, just about when gasoline consumption started to increase again.

Economists have shown in dozens of studies that there is a robust positive relationship between income and gasoline consumption – when people have more to spend, gasoline usage goes up. During the Great Recession, Americans traded in their vehicles for more fuel-efficient models, and drove fewer miles. But now, as incomes are increasing again, Americans are buying bigger cars and trucks with bigger engines, and driving more total miles.

Gasoline prices

The other important explanation is gasoline prices. During the first half of 2008, gasoline prices increased sharply. It is hard to remember now, but U.S. gasoline prices peaked during the summer of 2008 above US$4.00 gallon, driven by crude oil prices that had topped out above $140/barrel.

Gasoline prices in Washington D.C. top $4 a gallon in 2008. brownpau/flickr, CC BY

These $4.00+ prices were short-lived, but gasoline prices nonetheless remained steep during most of 2010 to 2014, before falling sharply during 2014. Indeed, it was these high prices that contributed to the decrease in U.S. gasoline consumption between 2007 and 2012. Demand curves, after all, do slope down. Economists have shown that Americans are getting less sensitive to gasoline prices, but there is still a strong negative relationship between prices and gasoline consumption.

Moreover, since gasoline prices plummeted in the last few months of 2014, Americans have been buying gasoline like crazy. Last year was the biggest year ever for U.S. vehicle sales, with trucks and SUVs leading the charge. This summer Americans took to the roads in record numbers. The U.S. average retail price for gasoline was $2.24 per gallon on August 29, 2016, the lowest Labor Day price in 12 years. No wonder Americans are driving more.

Can fuel economy standards turn the tide?

It’s hard to make predictions. Still, in retrospect, it seems clear that the years of the Great Recession were highly unusual. For decades U.S. gasoline consumption has gone up and up – driven by rising incomes – and it appears that we are now very much back on that path.

This all illustrates the deep challenge of reducing fossil fuel use in transportation. U.S. electricity generation, in contrast, has become considerably greener over this same period, with enormous declines in U.S. coal consumption. Reducing gasoline consumption is harder, however. The available substitutes, such as electric vehicles and biofuels, are expensive and not necessarily less carbon-intensive. For example, electric vehicles can actually increase overall carbon emissions in states with mostly coal-fired electricity.

How we roll: Americans are buying less fuel-efficient vehicles, such as SUVs, as gas prices go down. gas pump from

Can new fuel economy standards turn the tide? Perhaps, but the new “footprint”-based rules are yielding smaller fuel economy gains than was expected. With the new rules, the fuel economy target for each vehicle depends on its overall size (i.e., its “footprint”); so as Americans have purchased more trucks, SUVs and other large vehicles, this relaxes the overall stringency of the standard. So, yes, fuel economy has improved, but much less than it would have without this mechanism.

Also, automakers are pushing back hard, arguing that low gasoline prices make the standards too hard to meet. Some lawmakers have raised similar concerns. The EPA’s comment window for the standards’ midterm review ends Sept. 26, so we will soon have a better idea what the standards will look like moving forward.

Regardless of what happens, fuel economy standards have a fatal flaw that fundamentally limits their effectiveness. They can increase fuel economy, but they don’t increase the cost per mile of driving. Americans will drive 3.2 trillion miles in 2016, more miles than ever before. Why wouldn’t we? Gas is cheap.

the conversation

8 Comments on "Addicted to oil: US gasoline consumption is higher than ever"

  1. george on Mon, 26th Sep 2016 5:34 am 

    you forgot to say “put a tiger in your tank”

  2. Davy on Mon, 26th Sep 2016 7:27 am 

    No shit Sherlock the US is driving more. The pumps where I am at had $1.99 gas yesterday. That is peanuts. Poor people drive too. People going broke will drive too. When gas is so cheap people are going to drive. Gas at this price becomes a leisure factor. People may not be able to afford many things but they can go for a drive and still enjoy that.

    What is ahead is a supply shock. This supply shock is already building. We have oil E&P being destroyed and cannibalized. The glut is irrelevant. In fact the glut may continue to the end. If demand destruction of the global economy continues supply may never catch up. Notice I said catch up. You instantly pictured a rise. I am talking a drop. A dropping oil supply may never catch up to a dropping demand. This is going to be more than just with oil.

    Other energy sectors will likewise be affected. Renewables are likely going to be caught in this demand destruction with excess fossil fuel power generation. If you have very cheap fossil fuel power available are you going to build out expensive new renewable power with a long pay out, not in the quantities the greenies are talking. It is likely we are going to see a period of broad based deflation in the energy sector. All energy will be caught up in this.

    The economy is near a global recession. It is only financial repression and easing that are keeping the financial Ponzi alive. The real economy is certainly in contraction. No not everywhere but where it matters. It is contracting with real production. The abstracts are doing OK because they can be messaged by artificial liquidity and irrational confidence. You can’t jawbone a Chinese city into being. This is what drove the growth of the last 15 years. The global economy took a huge potential of resources and threw it at declining real growth post 08. What resulted was debt and bad debt. That does not bode well for the hangover we are in.

  3. kirk on Mon, 26th Sep 2016 7:55 am 

    All of the morons are buying pick up trucks and SUV’s that they need like a hole in the head.

  4. Cloggie on Mon, 26th Sep 2016 9:45 am 

    Wonder if shortonoil has a model with which to explain these facts not entirely in line with ASPO-2000 orthodoxy.

    While waiting for short’s answer, here some fun with Donald Trump as the King of Sparta:

    Spoiler: doesn’t end well for George Soros.

  5. orbit7er on Mon, 26th Sep 2016 10:18 am 

    In the US we are allowed no real alternatives to the Auto Addiction monopoly. Ironically in 2008 with the dawn of $4 per gallon gas Americans took to public transit like crazy. But then 150 Transit systems had major cuts, many of which have never recovered. A lot of these Transit cuts were due to the banksters still demanding they pay billions of dollars in Interest Rate Swaps while the Fed was cutting interest rates to almost 0%.
    The NYTimes just had an article on the very recent reduction in US poverty levels in which they did deign to note this: “Another hidden benefit was lower prices at the pump,” Ms. Swonk said. “People who couldn’t afford the commute before could now afford to accept a minimum-wage job.”
    Right! So what will happen when gas prices go back up which they are sure to do?
    Meanwhile in New Jersey, my home state more densely populated than China with 12 major Rail lines, 3 LightRail systems I could not even take a train to Hoboken for a Festival because it now takes over 3 hours on the weekend each way! Due to our beloved Gov Christie who has axed our Transit to waste $7 Billion on new highways…
    Green transit is the answer not only for Environmental reasons but for mobility for the poor and ordinary workers…

  6. Plantagenet on Mon, 26th Sep 2016 11:04 am 

    Obama’s legacy includes huge gains in US oil and NG production and record amounts of fossil fuel usage.

    Gosh—and somehow I thought he was against climate change?


  7. Outcast_Searcher on Mon, 26th Sep 2016 1:48 pm 

    Of course, all these perverse incentives could be fixed with a meaningful motor fuels tax.

    It would disincentivize big vehicles folks don’t need. (Need a big vehicle to haul something once in a blue moon – then rent it). It would also greatly incentivize the move toward EV’s.

    But nah, we can’t have that. It might mean someone doesn’t get re-elected.

    Meanwhile we continue to broil ourselves at an accelerating rate. Brilliant.

  8. Anonymous on Mon, 26th Sep 2016 2:03 pm 

    Plantafool, stfu.

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