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Americans Curbing Thirst For Gasoline

Start of a long decline, experts predict.

by on Dec.22, 2010

Americans are pumping less gasoline every year.

There was a time when there seemed to be a gas station on every corner in America, and lines waiting to fill up.  But after hitting its peak in 2006, the U.S. thirst for gasoline may have finally hit its peak and is showing signs of what could be a long decline.

As 2010 draws to a close, U.S. gasoline consumption is expected to average out to about 8.2 million barrels a day, a full 8% less than the peak, four years earlier, government data shows.  And the actual figure is slightly less, since that number isn’t adjusted to reflect the ethanol that’s now blended into much of the gasoline pumped at the steadily dwindling number of service stations dotting American roads.

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By 2030, projects a study by Deutsche Bank, demand could dip as low as 5.4 million barrels a day – barely what the U.S. consumed in 1969.  Other research suggests that figure is too low, but most forecast a dip below 7 million barrels.

A variety of factors appear to be leading to the decline: more fuel-efficient vehicles are a lead factor.  Today’s typical automobile gets well more than double the mileage of the vehicles that were on the road in the 1970s, during the days of the first oil shocks.  The Corporate Average Fuel Economy standard is set to jump from 27 miles per gallon to 35.5 mpg by 2016.  And, while federal regulators have delayed a decision on what follows, the Obama Administration is clearly in favor of bumping the CAFE figure to as much as 62 mpg by 2025.

Americans have also been driving a bit less, whether because they’re getting smarter about organizing their errand-running or simply because unemployment has reduced the number of daily commutes.  That could shift as the economy recovers, but experts also suggest that as fuel prices continue rising motorists may further curb unnecessary travel.

As Baby Boomers age, they are driving less, research shows.  And while there’s a new bubble coming, as Millennials reach driving age, they are showing less interest in tooling around in their cars – as well as more interest in driving the sort of downsized, fuel-efficient products that motorists in Europe and Japan have long preferred.

Even among current American motorists, there’s been a shift away from the most gas-guzzling of motor vehicles.  Demand for full-size pickups began to slip during the 2008 run-up in fuel prices and then crashed with the economic melt-down the following year.  Sales have since regained some momentum and could grow further with the economy’s anticipated recovery, but few expect demand to ever again reach past levels.

The same is true for sport-utility vehicles, which once generated sales of over 3 million annually.  Demand has been roughly halved, while demand for more fuel efficient crossovers has soared to record levels.

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

While advocates credit the CAFE standard for beginning the effort to reign in gasoline usage, there are still plenty of skeptics and outright critics who feel the government either shouldn’t be regulating fuel efficiency or hasn’t used the right approach.

There’s also plenty of opposition to another government mandate designed to reduce dependence on foreign oil.  Today, the typical motorist is actually pumping a fuel blend of 90% gasoline and 10% ethanol into their tank.  In October, the EPA approved new rules increasing that alcohol content to 15% for vehicles sold since the 2007 model-year.

As reported, earlier this week, a consortium of manufacturers, including Detroit’s Big Three, Toyota and a variety of marine and power tool makers, have filed suit to block that mandate.  (Click Here for the full story.)

But regulators are under pressure from Congress to find ways to increase the use of ethanol – which last week won a Capitol Hill extension of a $0.45 per gallon tax credit.  The nation will miss the mark for 2010, when Congress wanted Americans to use 11 billion gallons of the alcohol fuel.  Next year, that figure is supposed to grow to 14 billion gallons, and keep climbing through 2022, when the target is 36 billion gallons.

Considering refiners typically get about 20 gallons of gasoline per barrel of crude oil, the impact would be massive if that mandate were met mostly at the gas pump.

Tax dollars are also subsidizing the nascent electric vehicle market.  Right now, buyers of vehicles like the Nissan Leaf and Chevrolet Volt can claim federal tax credits of up to $7,500 – and in some parts of the country, additional state and local incentives can cover as much as $10,000 more.

How big the electric vehicle market will grow is one of the biggest guessing games in the automotive industry.  The recent Drive Green study, by J.D. Power and Associates (Click Here for the full report.) projects that by 2020 conventional hybrids, plug-ins and pure battery-electric vehicles (BEVs) combined will account for just 7.3% of the global motor vehicle market.  Carlos Ghosn, CEO of both Nissan and its French alliance partner Renault, however, believes that BEVs alone will capture as much as a 10% share.

The reality, suggests Mark Fields, Ford’s President of the Americas, is that a variety of still uncertain factors could strongly influence the emergence of fuel-saving battery technology, Ford’s own forecast showing demand for all the various forms of battery-based propulsion ranging from 10% up to 25%.

The fact that demand for gasoline has already dipped would, in years past, be rewarding consumers at the pump – and perhaps spurring them to start burning more fuel again.  But as prices again nudge past $3 a gallon, it’s becoming increasingly obvious that the traditional supply-and-demand link has been broken.

Or, more accurately, demand in the U.S. alone is no longer enough to control petro-pricing.  And, if anything, that trend will continue to shift as global demand for petroleum continues to grow.  China, for example, is now the largest national automotive market in the world, so while it has far fewer motor vehicles in operation than the States, demand is growing rapidly and the squeeze on global oil supplies is helping push up prices even while motorists in the U.S. and Europe curb their consumption.

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