Gasoline demand in the U.S. has peaked, with a surprise slowdown last year signaling that consumption is unlikely to ever again return to pre-Covid levels.<\/p>\n
This long-awaited milestone shows that climate-friendly initiatives put into place more than a decade ago are finally taking the U.S. across the threshold. American drivers are traveling more miles on less fuel than ever thanks to a generation of cars with more efficient engines as well as new electric vehicles<\/a>. The government forecasts further declines for gasoline demand this year and next.<\/p>\n What comes next is a two-track future, short-term pain, followed by decades of economic and environmental benefits.<\/p>\n In the next several years, the fuel industry\u00a0is poised to cut supply faster than the drop in demand, with more plants due to shut or convert to smaller biofuels<\/a> facilities. The result could be production crunches for gasoline, price spikes or even limited outages because of the mismatch. Paradoxically for drivers, it\u2019s gasoline\u2019s slow death that will make it painful.<\/p>\n In the longer term, falling gasoline demand will eventually mean tamer prices and lower emissions<\/a>, which is obviously good news for the environment since transportation is the biggest contributor to greenhouse gas emissions in the U.S..\u00a0<\/p>\n Peak gasoline will \u201chave significant implications for consumers, inflation, politics,\u201d said\u00a0Mark Finley, an energy fellow at Rice University\u2019s Baker Institute for Public Policy. \u201cAll in all, a big deal \u2014\u00a0over time.\u201d\u00a0<\/p>\n One of the strange things about being at peak gasoline is that there\u2019s still quite a lot of demand. Consumption started plateauing in the years before the pandemic. Even as it drops now, it\u2019s not falling off a cliff and is still at what historically would be considered high levels.<\/p>\n At the same time, oil refiners, who turn crude into useable fuels, are already cutting back to stay profitable. The supply losses were exacerbated because of pandemic-induced shutdowns. Since gasoline plants are destined to become uneconomical stranded assets as demand fades, there\u2019s little incentive to increase output from them now.<\/p>\n In simple terms, the refining industry risks\u00a0moving on from gasoline more quickly than consumers.<\/p>\n It\u2019s the latest example of the global energy transition\u2019s bumpy path. While most prices have calmed in the past few months, the jolts in natural gas<\/a>, electricity and fuel markets are likely to be with us for the next several years as investments flow out of fossil fuels and into technologies for clean power. And it also underscores why energy-driven inflation has become harder to control \u2014 even periods of relative stability will likely be punctuated with volatile price jumps that will make the Federal Reserve\u2019s job that much more difficult.<\/p>\n Oil refiners have already reduced their production capacity by more than 1 million barrels a day, equal to about 5% of the U.S. total.<\/p>\n That squeeze helped to send retail gasoline prices to all-time highs in 2022 and left drivers in parts of the country facing lines to fuel up during the worst crunches of 2021. The disruptions are set to continue because of just how long the lingering dependency\u00a0on gasoline will last.\u00a0<\/p>\n \u201cIt will take decades for gas-powered vehicles to drive off into the sunset,\u201d said Rob Jackson, a professor of Earth system\u00a0science at Stanford University.\u00a0<\/p>\n The Energy Information Administration sees a modest decrease for 2023, predicting a drop of less than 1%\u00a0to\u00a08.74\u00a0million barrels a day.\u00a0<\/p>\n Matthew Parry, head of long-term forecasting at consultancy Energy Aspects, says the declines will\u00a0become more pronounced over time. He predicts consumption will slump by about 15% between 2022 and 2027, for a total decline of around 1.4 million barrels a day over the period.<\/p>\n \u201cIt\u2019s the ongoing replacement of old cars with more fuel efficient<\/a> ones that contributes to the steady erosion in the amount of gasoline used per mile,\u201d said Linda Giesecke, an analyst at consultancy ESAI.<\/p>\n U.S. fuel economy<\/a> in 2021 reached a record 25.42 miles per gallon, and preliminary data for 2022 shows an even greater jump to 26.36, according to the Environmental Protection Agency<\/a>. These are the results of tough fuel mileage standards Barack Obama<\/a> called a \u201charbinger for change\u201d back in 2009. President Joe Biden<\/a> has put forward even more aggressive goals, and his administration\u2019s Inflation Reduction Act dedicates $374 billion to climate-related spending, including for EVs.\u00a0<\/p>\n It\u2019s hard to predict exactly when the supply and demand sides will even out, partly because that will depend on how quickly consumers buy new fuel-efficient cars and EVs.\u00a0<\/p>\nWhat\u2019s happening with supply?<\/span><\/strong><\/h3>\n
How much will U.S. demand fall?\u00a0<\/strong><\/span><\/h3>\n
How long will the bumps last?<\/strong><\/span><\/h3>\n