CAMBRIDGE, Mass. -- America's love affair with the automobile is being transformed by forces that are redrawing the global gasoline and oil market, including higher gasoline prices, tightening environmental requirements, changing demographics, growing world oil demand and expanding fuel options, according to the new 2007 edition of Gasoline & the American People, by Cambridge Energy Research Associates (CERA).
Americans have been driving further40% more than 25 years agoand using more gasoline in bigger, more powerful cars and other light-duty vehicles. [image-nocss] But higher gasoline prices have had a significant impact. The rate of growth in gasoline demand slowed sharply from its 1.6% per year pace (1990-2004) to 0.3% in 2005, and continued to grow slowly in 2006, at 1%.
And for the first time in 25 years, motorists' average mileage went down. Overall, though, according to the CERA report, improved automotive efficiencies and one of the lowest fuel tax rates among Western countries have kept gasoline and oil's share of average U.S. household budgets at 3.8% in 2006, slightly above the 1960s' 3.4% to 3.6% level despite rising world oil prices.
Americans' love affair with the automobile has in recent years turned into a passion for SUVs and minivans. But the passion has cooled, with new purchases of light trucks, SUVs and minivans declining in 2005 and 2006 for the first time since 1990. And fuel for their vehicles is coming from an increasingly diverse set of sources, with ethanol providing about 4% of total consumption by volume, imports at nearly 12% of gasoline supply, and convenience stores continuing to replace gasoline stations to become 65% of total outlets.
Details of the evolving position of gasoline as Americans' No. 1 energy source include:
Gasoline Demand: The rate of growth in U.S. gasoline demand averaged 1.6% per year over the decade and a half through 2004. But, with rising gasoline prices, in 2005 U.S. demand growth was only 0.3%, and for the first 11 months of 2006 show a reduced growth rate of just 1%. This contrasts sharply with significantly faster rates of growth from 1990 through 2005 in most emerging countries including China (6.6%), India (6.2%) and Brazil (4.5%). Gasoline Prices: After world oil consumption surged by 3.1 million barrels per day in 2004, with much of the increase in China and Asia, U.S. gasoline prices rose from $1.59 in 2003 to $2.30 per gallon in 2005. In 2006 through mid-November, prices have averaged $2.61. Gasoline started at $2.30 in January 2006, hit a high of $3 per gallon in July and is currently averaging $2.22 in November. Gasoline and Oil Spending: Although there have been some fluctuations in gasoline and oil spending as a share of the household budget in the last four decades, overall it has remained stable, especially compared with other components. Throughout the 1960s it fluctuated between 3.4% and 3.6%, rising to its highest level of 5% in 1981 on the back of the oil shocks of the 1970s and 1980s. It reached its lowest level with the oil price collapse in 1998 when just 2.1% of household spending went to gasoline and oil, and increased to an estimated 3.8% in 2006. This appears remarkably stable especially compared with medical care, which grew from 11.2% of household spending in 1981 to 17.3% in 2005 and with food which declined to 13.4% from 20% over the same period. Market Saturation: The United States has reached the unusual position of having more vehicles than licensed drivers1,148 registered personal vehicles (cars and light trucks) for every 1,000 licensed drivers. Britain has 700; Mexico, 208. Brazil has 137 per thousand eligible drivers, and India has 11 per thousand, while China has just nine cars per thousand eligible drivers. Demographics: Licensed drivers total 89% of the U.S. driving-age population. They average about 40 years of age, but almost 29 million, or 14.5%, are over the age of 65 (15.5 million)almost double the level of 25 years ago. Because people drive less as they age, and since an increasing share of the U.S. population will enter middle age or retirement in the next five to 10 years, the growth rate of miles driven per licensed driver is likely to continue slowing, as in the recent past. What Americans Are Driving: In 1975, the year corporate fuel efficiency standards were legislated, just 16% of all vehicles were SUVs (including minivans and light trucks). By 2005, that share had risen to 41%, peaking at 56% of all new vehicles sold in 2004. In 2005, the SUV share of total sales slipped to under 55% in 2005 and 53% in 2006. Moreover, buyers appear to be shifting from big SUVs to smaller, more fuel-efficient vehicles in that same class. Although new car buyers are once again shopping for fuel efficiency, it will take some years for the fleet fuel efficiency to change significantly since new car and light truck sales account for only about 8% of the vehicle fleet each year. While sales of hybrids are rapidly rising, so far in 2006 they constitute only 1.4% of new vehicles sold. Fuel Efficiency: The fuel efficiency of the entire automobile fleetnew and old cars on the roadreached 22.1 mpg by 2001. Since then, however, the pace of efficiency gains has slowed, flattening out at 22.2 miles per gallon by 2005. The average for all light trucks (SUVs, minivans and light pickup trucks) on the road was 16.9 mpg as of 2005, below the federal target for new light trucks. Since light trucks are a growing share of the vehicle fleet, they pulled down the average for all vehicles to 19.8 mpg in 2005 (the last year for which complete data are available), a drop from the peak of 20.2 mpg attained in 2001. Taxes and Prices: Gasoline prices in the U.S. are at the low end of the worldwide scale, because of tax policy. In the third quarter of 2006, U.S. motorists paid an average of $2.86 a gallon for regular unleaded, compared with $3.49 in Canada, $4.42 in Japan, $6.20 in France, and $6.50 in the league leader in taxes, Britain. The largest proportion of these price differences is gasoline tax -- 15% of the retail price in the U.S., 30% in Canada, 45% in Japan, 61% in France, and 64% in Britain. Where Americans Buy Gas: Of a total of 223,118 gasoline stations in 1977, just 11,900, or 5%, were convenience stores. The number of retail outlets has fallen 25%to just 167,476 in 2006, and the amount of gasoline pumped per station has risen 73%. The c-store share of total outlets has risen dramatically, to some 109,400, or 65% of the total. Alongside this trend is a growing third choice, the mass market outlets attached to the big discount stores. There were a mere 111 in 1997; today there are 4,073, with more on the way. Where Gasoline is Made: Although no new refineries have been built in the United States since the 1970s, refinery capacity has increased significantly in recent years, from 15.3 million bpd in 1996 to 17.4 million bpd in 2006, about the same effect as building 17 average-sized new refineries. This growth is occurring on existing refinery sites as a result of adding capacity, debottlenecking facilities, modernization and environmental upgradesat a cost of $5 billion to $7 billion in new investment annually. Ethanol: Reformulated gasoline requirements, congressional and state mandates, and significant tax incentives (currently a 51-cents per gallon tax credit) have driven U.S. ethanol consumption from 11,000 bpd in 1980 to about 350,000 bpd in 2006, or about 4% of total gasoline consumption by volume. These supports suggest that ethanol output will continue to grow. Conventional ethanol from corn is not expected to exceed 10% by volume of total gasoline usage because of food-for-fuel tradeoffs and ethanol's logistical challenges. This would still be a significant numberclose to a million bpd. But, since ethanol provides about two-thirds the energy as the same volume of gasoline, more volume of ethanol is needed for every barrel of gasoline replaced.Cambridge, Mass.-based CERA, an IHS company, is an advisor to energy companies, consumers, financial institutions, technology providers and governments. 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