The reasons include changes in the way Americans live and the transportation they choose, along with a growing emphasis on alternative fuels. The result could be profound transformations not only for refiners, but [image-nocss] also for state and federal budgets and for consumers, the report said. Much of contemporary America, from the design of its cities to its tax code and its foreign policy, is predicated on a growing thirst for gasoline.
In the vast market for crude oil, American gasoline consumption matters. One of every 10 barrels of crude ends up in U.S. gasoline tanks, more than is used by the entire Chinese economy.
Right now, the recession is curbing U.S. gasoline consumption, as laid-off workers stop commuting and budget-conscious families forgo long road trips. Drivers filled their cars with 371.2 million gallons of petroleum-based gasoline every day in 2007, according to the U.S. Energy Information Administration. It expects that to fall 6.9% to 345.7 million gallons in 2009, as demand at the pump declines and the use of plant-based ethanol increases. Even if usage climbs after the recession ends, it won't exceed 2007 levels, according to EIA forecasts.
Demand for all petroleum-based transportation fuelsgasoline, diesel and jet fuelfell 7.1% last year, according to the EIA. This is the steepest one-year decline since at least 1950, as far back as the federal government has reliable data. Many industry observers have become convinced the drop in consumption won't reverse even when economic growth resumes, said the report. In December, the EIA said gasoline consumption by U.S. drivers had peaked, in part because of growing consumer interest in fuel efficiency.
ExxonMobil said it believes U.S. fuel demand to keep cars, SUVs and pickups moving will shrink 22% between now and 2030. "We are probably at or very near a peak in terms of light-duty gasoline demand," Scott Nauman, ExxonMobil's head of energy forecasting, told the newspaper. If ExxonMobil is right, the full impact of falling demand for fuel would take years to be felt. But some deep changes are under way.
Declining gasoline-tax revenue is forcing local and federal governments to search for new sources of funding. Oil refiners, which for decades focused on bringing U.S. drivers more gallons of gasoline, are retooling their businesses. Some have said they could shut down some of their refineries entirely, along with thousands of small gas stations. Oil companies are beginning to invest in biofuels and battery technology, according to the report.
Diverse trends are adding up to a steady drain on gasoline demand, the report said. Gasoline engines are being designed to burn fuel more efficiently. Hybrid and other advanced-technology vehicles that minimize gasoline usage are joining the nation's fleet. Tanks of gasoline and diesel fuel are being leavened with increasing amounts of biofuel, now made mostly from corn but in the future also from perennial grasses and municipal waste. President Barack Obama's pledge to end the "tyranny of oil," and a push for energy efficiency and biofuels in recent legislation, could accelerate these trends.
Lower gasoline prices are back after a multiyear spike in prices, the Journal said. That could reignite consumers' desire for big, fuel-guzzling SUVs and tolerance of long commutes, especially when the economy strengthens. After the 1979 spike in crude-oil prices, U.S. gasoline consumption dropped for four years, but then rose again when fuel prices plummeted in the mid- to late-1980s. This time, the forces suppressing gasoline usage are formidable. The 2007 Energy Independence & Security Act toughened requirements for both efficiency and biofuels use. By 2020, vehicles sold in the U.S. must average 35 miles a gallon, versus 27.5 for cars now and 23.5 for light trucks. The Obama administration is working on proposals to further increase the standard. Makers of U.S. transportation fuel must blend in 36 billion gallons of biofuels a year by 2022, compared with about 11 billion this year.
High corn prices last year, combined with low gasoline demand from consumers, decimated ethanol producers' margins, forcing several into bankruptcy. But government mandates requiring refiners to blend ethanol into gasoline aren't expected to change. The 2009 economic-stimulus law includes large new loan guarantees to help renewable-energy businesses get financing--and provides huge incentives for oil companies to dive in, too. Most big oil companies declined to discuss their views on the direction of demand for petroleum-based gasoline for this article, but most are expanding their push into alternative fuels.
U.S. government policy is pushing gasoline consumption "down, down, down," Ed Feo, a partner with law firm Milbank, Tweed, Hadley & McCloy LLP, who advises clients on renewable-energy policy, told the paper. "There isn't a single policy I can think of that supports increasing gasoline use."
Americans are changing, too. Demographic shifts that once spurred higher gasoline consumption have run their course, such as more women joining the work force and the flight to the suburbs. More people are minimizing their commutes by living closer to their jobs. Inner cities and surrounding suburbs are growing denser, shortening trips to work and to the mall. More Americans are commuting by bus or train or working from home, the report said. And even as the population continues to rise, the rate of gasoline consumption appears to be slowing. From 1960 to 1970, the U.S. population grew 13% while vehicle miles rose 54% and gasoline demand 45%, according to government data. Between 1990 and 2000, the population grew at the same 13% rate, but miles driven rose only 28% and gasoline demand by 17%.
And as people pump fewer gallons, government has less money available for one of its most basic functions: keeping roads in working order. Federal gasoline-tax revenue fell 3% last year, according to the Department of Transportation. That plus other tax shortfalls left Congress having to plug an $8 billion hole last year in the Highway Trust Fund, previously kept flush by growing gasoline use, the report said. Localities have begun facing their own gasoline-tax gaps.
One remedy proposed by a commission Congress formed to study the problem: Base taxes on the number of miles people drive, rather than on how many gallons they pump. The aim is to continue raising money as biofuels and other fuels displace oil-based gasoline. Oregon is considering the idea. More than a dozen states are considering an increase in their own gasoline taxes, the report added.
Refiners must adjust not only for less driving but for a higher biofuels component in what they sell. Last year, plant-based fuel made up about 7% of the gasoline Americans pumped into their tanks, according to an analysis of government data by researchers at the University of Texas's Center for International Energy & Environmental Policy. The federal EIA forecasts a doubling of that percentage over the next decade as mandates to use more biofuels kick in.
The lost business from falling gasoline demand has contributed to the demise of at least one oil refiner, said The Journal. Flying J Inc. filed for bankruptcy reorganization in December. It closed its refinery in Bakersfield, Calif., and hasn't said when or if it will restart production. Sunoco Inc. said if it can't sell a refinery in Tulsa, Okla., by the end of the year, it will shut it down entirely.
Other crude-oil refiners are moving in to the biofuel business as new fuels grab market share, said the report. Big refiner Valero Energy Corp. started a renewable-fuels division last year. In March, Valero won a bid to buy a group of ethanol plants for $477 million out of the Chapter 11 bankruptcy of VeraSun Energy Corp. And numerous startup companies are building "biorefineries" to turn plants into ethanol or diesel, a response to mandates that say these fuels can't all be made from corn. One concern is that if too much corn is grown for fuel it could result in higher prices for corn-based food products.
Gas stations are also feeling squeezed. There are 11% fewer in the U.S. than a decade ago, according to the report, citing industry sources. The trend, partly a result of retail consolidation, accelerated last year due to weak gasoline demand.
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