PEAK DEMAND IN THE US GASOLINE MARKET: HOW SOON?

The confluence of three issues-energy security, high gasoline prices, and climate change concerns-is likely to result in higher fuel efficiency standards in the United States for light-duty vehicles, including passenger cars, sport-utility vehicles, and light trucks. These standards could have an impact not generally recognized: the coming increase in fuel efficiency means that US gasoline demand could reach a peak in the next ten to 15 years and then decline. This change is important for the global oil market because US gasoline demand stands at 9.3 million barrels per day (mbd), out of 21 mbd of total US oil consumption. Using the lens of the three scenarios from the CERA Multiclient Study Dawn of a New Age: Global Energy Scenarios for Strategic Decision Making-The Energy Future to 2030 and a simulation model of the US light vehicle fleet, we examine in this Private Report how the path of US gasoline demand could change.

*Higher fuel efficiency standards have strong support from the US Congress and the Bush Administration. The key question is not whether higher standards will be adopted but the timing and degree of change. Higher standards currently under consideration could flatten or reduce US gasoline demand by 2020 even if consumers do not change their driving behavior or vehicle preferences. CERA estimates that US gasoline demand could be 200,000-450,000 barrels per day less in 2020 compared with a case with no changes to fuel efficiency standards.

*In a world with very high oil prices or still higher fuel efficiency standards, US gasoline demand could plateau by 2010. This more dramatic change would come about if consumers change their driving habits and vehicle preferences in response to high prices, in addition to strict government fuel efficiency standards. In this case, CERA estimates that US gasoline demand could be 1.1-1.7 mbd less in 2020 than in the base case and 0.2-0.9 mbd less than it is today.

*Renewable fuel mandates are likely to reduce the petroleum-based portion of the gasoline pool. Establishment of a stronger renewable fuel mandate is most likely in scenarios in which other forces also reduce gasoline demand, putting an additional squeeze on refiners.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.