Thursday, March 22, 2012
The price of gasoline keeps rising for Americans, but it's not because of rising demand from consumers.
Since the first Arab oil embargo of the 1970s, the U.S. has struggled to quench a growing appetite for oil and gasoline. Now, that trend is changing.
"When you look at the U.S. oil market, you see that there's actually no growth," says Daniel Yergin, chairman of IHS Cambridge Energy Research Associates.
He says gasoline demand peaked in 2007 and has fallen each year since, even though the economy has begun to recover.
"The U.S. has already reached what we can call 'peak demand.' Because of increased efficiency, because of biofuels, we're not going to see growth in our oil consumption," Yergin says.
That view is shared by the government's official source of energy data, the Energy Information Administration. Its long-term projection is that gasoline consumption will steadily decline by around 7 percent over the next 25 years.
Howard Gruenspecht, the EIA's acting administrator, says the projection does not take into account the latest proposal on automotive fuel efficiency, likely to be approved later this year. It requires fleet averages of 54.5 miles per gallon.
"If you put those into the mix, we would expect a somewhat steeper decline in overall liquid fuels demand, and gasoline demand in particular," Gruenspecht says.
The Crossover Effect
Gruenspecht says there are many reasons for the declining demand for gasoline. They include government mandates for the use of biofuels, like ethanol; and some demographic changes — for instance, the graying of America (older people tend to drive less). The main factor, though, is the increasing efficiency of new cars and trucks.
Rebecca Lindland, director of research for IHS Automotive, says 27 percent of the new vehicles sold in 2011 were smaller, lighter, car-based versions of the SUV, called "crossovers."
"Those tend to get significantly better fuel economy than our traditional truck-based SUVs that used to account for 20 percent of all the vehicles we bought," she says.
Now, those big SUVs are less than 5 percent of sales, and the average fuel efficiency of the crossovers is 20 to 30 percent higher than the old SUVs.
Of course, the higher price of gasoline plays a role in the changeover, says the EIA's Gruenspecht.
"I'm sure it's having some effect, but I don't think it's a major driver," he says.
Lindland agrees that the high price at the pump plays a role, but that's not the main consideration in consumers' vehicle purchases.
"What really matters to the consumer, what really drives their purchase decision, is whether the vehicle meets their wants and needs in terms of cargo load — whether people or stuff — and just their overall lifestyle," she says.
Lindland says the key to the decline in gasoline use is higher government fuel efficiency standards, which forced automakers to make more fuel-efficient cars that appeal to consumers.
If fuel economy was the top priority, says Lindland, sales of hybrids would be exploding. But they're not.
"Actually, hybrid sales have been declining the last two years. So we're down to just 2.1 percent of the market is hybrid sales," she says. "And so we're selling nine times as many small cars and, of course, more than 12 times as many crossovers."
Eventually, hybrids and electric vehicles will likely make a big contribution to curbing the U.S. oil appetite.
For now, at least, most of the increases in fuel efficiency are coming from improvements in conventional gas-powered cars, including turbo-chargers that make smaller engines more powerful, 6-speed instead of 3- or 4-speed transmissions, smaller size and lighter materials.
Lindland says the next big improvement will be broad use of a start/stop feature that turns the engine off when you're at a traffic light, for instance, and automatically restarts it when you press on the accelerator. It's a feature already widely available in Europe.