U.S. gasoline demand begins long decline

The world’s biggest gas-guzzling nation has limits after all.

After seven decades of mostly uninterrupted growth, U.S. gasoline demand is at the start of a long-term decline. By 2030, Americans will burn at least 20 percent less gasoline than today, experts say, even as millions of more cars clog the roads.

The country’s thirst for gasoline is shrinking as cars and trucks become more fuel-efficient, the government mandates the use of more ethanol and people drive less.

“A combination of demographic change and policy change means the heady days of gasoline growing in the U.S. are over,” says Daniel Yergin, chairman of IHS Cambridge Energy Research Associates and author of a Pulitzer Prize-winning history of the oil industry.
Recessions’ effects

This isn’t the first time in U.S. history that gasoline demand has fallen, at least temporarily. Drivers typically cut back during recessions, then hit the road again when the economy picks up. Indeed, the Great Recession was the chief reason demand fell sharply in 2008.

But this time looks different. Government and industry officials – including the CEO of Exxon Mobil – say U.S. gasoline demand has peaked for good. It has declined four years in a row and will not reach the 2006 level again, even when the economy fully recovers.

In fact, the ground was shifting before the recession. The 2001 terrorist attacks, the war in Iraq, Hurricane Katrina and pump prices rising to a nationwide average of $3 a gallon for the first time in a generation re-ignited public debates about the political and economic effects of oil imports and climate change. Also, the popularity of SUVs began to wane, and the government started requiring refiners to blend corn-based ethanol into every gallon of gasoline.

Americans are burning an average of 344 million gallons of gasoline per day in 2010, a figure that excludes the ethanol blended into gasoline. That’s 8 percent less than at the 2006 peak, according to government data.
‘A player in exports’

Management at San Antonio-based Valero Energy Corp. agrees that demand for gasoline in the U.S. has peaked and won’t return to its previously high levels, spokesman Bill Day said.

But the independent refiner is bullish on demand for diesel fuel in the United States and on demand for gasoline and diesel abroad.

“We’re positioning ourselves to be a player in exports, particularly in Latin America,” Day said. And Valero will benefit from rising government mandates for ethanol use. It owns 10 ethanol plants.

Also, Valero has prepared for changing U.S. market conditions by shutting down or selling refineries that don’t fit with its overall strategy.
Accelerating trend

The decline in gasoline demand is expected to accelerate for several reasons.

Starting with the 2012 model year, cars will have to hit a higher fuel economy target for the first time since 1990. Each carmaker’s fleet must average 30.1 miles per gallon, up from 27.5. By the 2016 model year, that number must rise to 35.5.

The auto industry is introducing cars that run partially or entirely on electricity, and the federal government is providing billions of dollars in subsidies to increase production and to spur sales.

By 2022, the U.S. fuel mix must include 36 billion gallons of ethanol and other biofuels, up from 14 billion gallons in 2011. Put another way, biofuels will account for roughly one of every four gallons sold at the pump.

Gasoline prices are forecast to stay high as developing economies in Asia and the Middle East use more oil.

There are demographic factors at work, too. Baby boomers will drive less as they age. The surge of women entering the workforce and commuting in recent decades has leveled off. And the era of Americans commuting ever farther distances appears to be over. One measure of this, vehicle miles traveled per licensed driver, began to flatten in the middle of the last decade.

Chron