NEW YORK: While U.S. gasoline demand is unlikely to rescale the pre-pandemic peaks of 2018 as the energy transition accelerates, the pace of its decline is uncertain, illustrating the challenge for industry and the government in planning the shift to a low-carbon economy.
The complex interplay between the transition, policy, economic performance and consumer preferences have made it harder than ever to forecast gasoline demand.
Those forecasts are important for oil refiners making decisions on production and capacity, as well as for policy makers overseeing the transition. If refiners close capacity more quickly than demand drops, motorists could face higher fuel prices or even shortages.
American motorists alone consume 9% of all the world’s oil, so the trajectory of U.S. gasoline demand is arguably the most important consumption metric in determining global fuel prices.
“(U.S. gasoline) is the single biggest country-product combination in the oil markets, so it is really symbolic of something bigger: if this turns, then it could impact the entire energy transition’s progress,” said Ciaran Healy, oil market analyst at the Paris-based International Energy Agency.
“What makes it particularly hard to predict U.S. gasoline demand is that it is so finely balanced - there is this dynamic equilibrium where you have a number of factors really pushing demand up, and a number of factors counteracting that.”
U.S. gasoline consumption likely topped out at around 9.33 million barrels per day (bpd) in 2018, according to the Energy Information Administration.
Since then, the post-pandemic transition to a hybrid workplace has cut fuel demand for commuting. Rising vehicle efficiency standards have steadily increased the number of miles motorists drive per gallon, while a rapid hike in electric vehicle (EV) sales is eating away at fuel consumption. The spike in fuel prices after Russia invaded Ukraine also cut demand.
Against all that, there are more cars on the road than ever, and Americans are buying record numbers of gas-guzzling vehicles, such as pickups and truck SUVs.
With the difficulty of predicting where gasoline demand goes from here, the EIA has revised its forecast several times this year.
In January, it pegged demand this year at 8.74 million bpd, a fall from 8.76 million bpd last year. By July, it forecast demand to complete its post-pandemic recovery this year at 8.92 million bpd - up from last year but 410,000 bpd short of the 2018 average annual record.
The EIA forecasts demand for the motor fuel will fall to around 8.12 million bpd in 2030 in its reference case scenario.
But it also says that depending on oil prices, policy changes, economic growth and EV sales, demand could range anywhere between 7.85 million bpd and 8.57 million bpd.
EVs are less than 1% of the 286 million vehicles on U.S. roads, but sales are rising fast. Sales are expected to grow to 1.6 million cars this year from a million last year, and could rise to as much as 8.3 million by 2030, but only if automakers meet the voluntary output pledges they have set in recent years, the IEA estimates.
“EVs are especially relevant in the medium-term version of the gasoline story,” Healy said.
“The numbers are rising fast, and the impact is almost entirely concentrated on gasoline so it’s likely to have a big impact but exactly how much is hard to say.”
The administration of U.S. President Joe Biden is investing billions of dollars on promoting EVs through subsidies and infrastructure and is finalizing steep efficiency improvement targets for combustion engines.
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