At year-end the Associated Press rolled out a could-be-published-on-any-day piece, presumably to fill the end of year news hole. This feel-good article, "U.S. Gas Demand Should Fall For Good After '06 Peak" leaves the impression that America's gas guzzling days are behind her.
I think the article is misleading, and overstates the implications of decreased demand.
The story lede:
"After seven decades of mostly uninterrupted growth, U.S. gasoline demand is at the start of long-term decline. By 2030, Americans will burn at least 20 percent less gasoline than today, experts say, even as millions more roads clog the roads."
U.S. gasoline demand (excluding ethanol additives) peaked at 8.9 million barrels per day in 2006, and fell 8% to 8.2 mm bbl/day in 2010. Experts quoted in the article forecast a continued decline by 2030 to levels as low as 5.4 mm bbl/day (Deutsche Bank) or 6.6 mm bbl/day (CERA). These projected levels relate to declines-from-peak of 25 to 40%. Qualitative comments from Daniel Yergin and ExxonMobile endorse the general view.
The author cites a number of generally benign causes for the projected decline, which actually started in 2007. The complete list in bullet form is:
- Gas prices that are now expensive (~$3/gallon) and expected to stay that way
- Increasingly efficient new vehicles, encouraged by more stringent fuel economy targets staring in 2012
- Introduction of electric vehicles
- Increasing use of ethanol and other biofuels
- Fewer miles-per-driver due to demographic changes (more older drivers and non-working spouses drive less than average; shorter commutes)
These trends are slightly offset by an increasing population and growth in the number of vehicles.
The most obvious take-away is that America's use of "gasoline" is on course to drop by one-third, give or take, in a generation -- a big $%#& deal, to paraphrase our Vice President.
My problem with the piece is that it obscures the share of the decline related to biofuel substitution, versus an actual decline in demand for liquid fuels. These are very different concepts, with very different implications. The reality of the figures actually presented in the article is that the substitution of biofuels for gasoline will likely represent half or more of the projected decline.
Confusion centers on the article's presentation of gasoline demand denominated in millions-of-barrels-per-day, the industry standard metric, while discussing biofuels in billions-of-gallons-per year. (Biofuel producers prefer this metric, because their relatively small output sounds larger.)
The picture becomes clearer when one translates biofuel production to mm bbl/day, with further adjustment for ethanol's lower energy value (0.67 of gasoline) to define gasoline-equivalents. With the translation we get these biofuel production figures (future years represent U.S. mandated minimums):
- 2006: 0.2 mm bbl/day
- 2010: 0.55 mm bbl/day
- 2012: 0.6 mm bbl/day
- 2022: 1.6 mm bbl/day
So, with gasoline falling by 0.7 mm bbl/day from 2006 to 2010, we can more easily see that ethanol is responsible for half of this decline,(-0.35/-0.7). For the period 2006 to 2030, experts project a decline somewhere between 2.3 and 3.5 mm bbl/day; of this amount, the increase in ethanol is 1.4 mm bbl per day, which relates to about 50% (+/- 10 %) of these differentials into the 2020's.
The AP's rosy characterization of the future is further diminished by the fact that the enormous amount of fuel required to make biofuels (currently, largely diesel fuel) is not part of its "gasoline" calculus.
In my view, the article premise is valid and interesting -- U.S. gasoline demand has likely peaked. But a more nuanced summary of the trends is that between 2006 and 2030 U.S. demand for motor fuels could decrease at least 10% (and possibly up to 20%) due to decreased demand, and further that a similar reduction in gasoline demand (-15% +/-) will likely result from the substitution of biofuels for gasoline.