Weekend Economists Hail to the King January 9-11, 2015

[Demeter]

60. Why has US Oil Consumption Steadily Fallen since 2004? FROM FEB 2013 By Gail Tverberg

AND WE FINALLY SEE THE PRICE CRASH--ONLY TOOK 10 YEARS!

http://oilprice.com/Energy/Crude-Oil/Why-has-US-Oil-Consumption-Steadily-Fallen-since-2004.html



United States oil consumption in 2012 will be about 4.7 million barrels a day, or 20% lower than it would have been, if the pre-2005 trend in oil consumption growth of 1.5% per year had continued. This drop in consumption is no doubt related to a rise in oil prices starting about 2004. Oil prices started rising rapidly in the 2004-2005 period (Figure 2, below). They reached a peak in 2008, then dipped in 2009. They are now again at a very high level.



Given the timing of the drop off in oil consumption, we would expect that most of the drop off would be the result of “demand destruction” as the result of high oil prices. In this post, we will see more specifically where this decline in consumption occurred. A small part of the decline in oil consumption comes from improved gasoline mileage. My analysis indicates that about 7% of the reduction in oil use was due to better automobile mileage. The amount of savings related to improved gasoline mileage between 2004 and 2012 brought gasoline consumption down by about 347,000 barrels a day. The annual savings due to mileage improvements would be about one-eighth of this, or 43,000 barrels a day.

Apart from improved gasoline mileage, the vast majority of the savings seem to come from (1) continued shrinkage of US industrial activity, (2) a reduction in vehicle miles traveled, and (3) recessionary influences (likely related to high oil prices) on businesses, leading to job layoffs and less fuel use.

Gasoline Savings from Better MPG, Fewer Miles Traveled



... Under “normal” circumstances, we would expect gasoline consumption to continue to rise, along with oil products in general, as shown in Figure 1 at the top of the post...The amount of gasoline consumed reflects at least two different influences (1) the number of miles traveled, and (2) savings due to more fuel efficient cars. Based on data compiled by the US Department of Transportation, vehicle miles traveled (VMT) were rising by 2.2% per year prior to 2004, then suddenly flattened (Figure 4, below) about the time oil prices started to rise significantly.







...If we apply the 2004 rate of fuel usage (or MPG) to 2012 VMT, we find that the improvement in fuel mileage between 2004 and 2012 reduced fuel usage by 347 thousand barrels a day over the eight year period, which is equivalent to a reduction of about 43 thousand barrels a day, per year. The total reduction in gasoline use between 2004 and 2012, relative to what would have been expected, (based on the trend line in Figure 1, assuming the mix of products each retain their 2004 proportions) is about 1.49 million barrels a day. Thus, this calculation implies that about 23% of gasoline savings is from better mileage; the other 77% is from driving fewer miles.

One point of interest is the fact that US population has recently been growing by 1% per year. Because of the growing population, a person would expect VMT to grow by at least 1% per year, unless per capita miles driven is shrinking. Since 2004, vehicle miles traveled have been growing less rapidly than population growth. As a result, mileage per person has been shrinking, recently by a little over 1% per year. Prior to 2004, vehicle miles traveled were growing at 2.2% a year while population was growing at 1.1% per year, implying that per capita miles traveled were increasing by 1.1% per year. How do vehicle miles per person go from increasing to decreasing? There are a couple of possible ways. One is by a reduction in the number of drivers; the other is by decreasing the number of miles driven for individual drivers. My friends who are automobile insurance actuaries tell me that at least part of the change recently is that fewer young people are driving. This is not too surprising–young people today have very high unemployment rates, so they are less able to afford the cost of a car.

Fuel Savings for Distillate and for Other Oil Products



At least part of the reason the “All Other” portion is shrinking is the fact that the All Other category includes quite a bit of oil products for industrial use, and the amount oil products used by the industrial sector shrank by 7.9%, comparing 2011 to 1994. We can also look at the use of other energy products by sector, to see additional evidence that the Industrial Sector is shrinking, or at least, not growing nearly as much as the other sectors are growing. For example, if we look at electricity use by sector, residential use is up by 41% since 1994, commercial use (office and stores) is up by 44% since 1994, while industrial use is down by 3%.



Also, between 1994 and 2011, use of natural gas by the industrial sector declined by 8.5% further suggesting that it is the industrial sector that is shrinking. One factor in this shrinkage is likely increased competition from China, once they joined the World Trade Organization in December 2001. Of course, part of the reason for the lower growth in oil products use by All Other could be greater industrial efficiency...Another point of interest is the fact that the trend in gasoline and in distillate consumption both roughly follow the trend in the number of jobs available in the US economy.



There is a theoretical reason why gasoline consumption might rise and fall with employment. People who have jobs can afford to buy cars and drive them. People who don’t, often can’t afford to drive...

Summary of Where Oil Savings Comes From

As stated at the beginning of the post, United States oil consumption is about 4.7 million barrels a day lower in 2012 than would have been expected based on pre-2005 patterns. The way that this savings breaks out by product grouping is as follows:



Decreased gasoline usage due to improved gasoline mileage amounts to 7% of the total, decreased gasoline usage because of fewer miles traveled amounts to 25% of the total, and a decrease in distillate use amounts to 17% of the savings. The majority of the decrease, 51%, comes from a decrease in the “All Other” category, which is most closely related to a decrease in industrialization.


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