Articles tagged with "gasoline"
Posted by Gail the Actuary on February 6, 2013 - 10:57am
Tags: demand destruction, fuel savings, gasoline, gasoline consumption, gasoline savings, industrialization, mileage, miles per gallon, mpg, oil consumption, oil demand destruction, vmt [list all tags]
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 incidates 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.
Oil importing nations have long treated Saudi Arabia as an infinitely deep well of crude oil supplies. In 2005, Matt Simmon’s book Twilight in the Desert did much to call attention to the possibility of diminishing production from the desert kingdom’s aging wells. More recently, cables released by Wikileaks highlight the possible overstatement of Saudi oil reserves. Excellent commentary and links to detailed information covering these issues can be found in a recent post on The Oil Drum.
What much of this discussion ignores, however, is that oil exports from Saudi Arabia depend on more than just production — they are a function of both production and internal consumption. This post will focus on the existing trends of energy consumption within Saudi Arabia and how they will impact future exports, whatever future production levels may be.
One consequence of the Japanese earthquake and tsunami that is not receiving as much press as the ongoing struggle to cool the damaged reactors, but which continues to influence more people, is the lack of fuel. Nine of the Japanese refineries were damaged and put out of action, and this dropped the amount of fuel being refined from 4,500,000 bd down to 3,100,000 bd. (Note that the Guardian report I quoted earlier was off by a factor of ten.) The lack of fuel for transportation affects not only those in the disaster area, but also those away from it, since food and fuel itself depend on transport to move it to customers around the country.
"What we urgently need now is fuel, heavy and light oil, water and food. More than anything else, we need fuel because we can't do anything without it. We can't stay warm or work the water pumps," said Masao Hara, the mayor of Koriyama city, in Fukushima prefecture.
The refineries that remain in production are responding to the need. Idemitsi Kosan has raised production at its four refineries by 83,200 bd (from 87% to 100% production) and Cosmo Oil has raised production at its two operating refineries by an additional 80,000 bd but this does not match the size of the problem.
There are several different aspects to the problem; first the oil has to come ashore. With ports closed and unable to re-open for possibly months, shipments from the Middle East, which supplies 80% of Japan’s need, have now been curtailed until the situation becomes clearer. Within the country, the Japanese Government has released around 8 million barrels of oil from their strategic reserve. It is also shipping 250,000 barrels of refined product to the area affected by sea (though this runs into the issue of how to get into the ports and distribution network). At Chiba some of the port has been able to re-open but not the terminal that fed to the Cosmo refinery (since that had burned).
This post is a contribution to Honda’s “Racing Against Time” thought leadership series. The Oil Drum was selected to provide a unique perspective on how we should approach the discussion of oil as a finite energy source. During the first week of October 2010, five individuals provide their own thoughts on the subject. These independent contributors were not compensated for their participation and as such their views are their own and do not necessarily reflect those of Honda. Details and links to what others are saying about “Racing Against Time” can be found at www.facebook.com/honda.
This week, Honda is focusing conversation on the world's dependency on oil as a finite resource. Many people assume that the concern about the finite nature of the world's oil supply is way off in the future, but this really isn't the case.
We hear that there are huge reserves of oil, so we assume that the oil will be available when we want it. That is not necessarily true. Even if we know the oil is there, if it takes more than one barrel of previously-extracted oil to extract a new barrel of oil, the fact that the oil reserves are there doesn't really help us--it is too expensive in terms of oil, to extract the new oil. This relationship also holds in terms of dollars. Once a barrel of oil is too expensive in $$ to extract, relative to what it can produce, the system starts breaking down.
The question is how high oil prices can go, without the economy being adversely affected (say, by recession). Analysis by Oil Drum staff member Dave Murphy suggests that this level is $80 or $85 a barrel. The current oil price is about $82 a barrel, so we are again reaching the problematic range.
Lending further credence to this concern is the fact that world oil production has been flat for five and a half years now - 2005 to the present - despite a rising number of vehicles. So there is a reason we keep hearing about alternatives.
We run a version of this post each year, since it is an issue that comes up each year. It is obviously not the only factor affecting gasoline prices. The recent decrease in oil prices from $85+ per barrel to around $72 per barrel will tend to act in the opposite direction. - Gail
Just what is summer gasoline? Twice a year, in the fall and in the spring, you hear about the seasonal gasoline transition. However, most people probably don’t understand what this actually means. AAA published a Top 10 list explaining the seasonal rise in gasoline prices, and summer gasoline checked in at #7:
7. The summer blend switchover. This transition from winter-blend to summer-blend fuel, a concoction that causes less smog, occurs every spring. It causes a dip in gasoline supplies as refineries in the U.S. shut down temporarily to retool their production facilities.
That's only partially correct, and is probably the extent of most people's understanding of this transition. But given that I am very keen that people should understand the energy industry, it is worth a review, and a layman's explanation. I explained the details behind this transition in Refining 101: Winter Gasoline. But let’s review some concepts.
Even if you are a staunch proponent of U.S. biofuel policy, it is hard to argue that the current subsidy on grain ethanol serves the purpose it was designed to serve. Further, it does not help ethanol producers compete against oil companies. Why? Because we now have mandates. As I will explain here, this nullifies the purpose of the subsidy.
But first, how did we get to this point? In an effort to spur development of a domestic renewable fuel industry and wean the U.S. off of foreign oil, the U.S. government introduced tax credits for ethanol usage with the Energy Tax Act of 1978. The tax credit was an exemption to the Federal Excise Tax on gasoline, and amounted to $0.40 for every gallon of ethanol blended into gasoline at the 10% level (increased to $0.60 per gallon in 1984 and gradually decreased to the current level of $0.45 per gallon).
(Note: This was also published to Forbes' energy blog.)
In the past several weeks, we have seen many reports such as this:
Colonial Pipeline Co., which operates the largest pipeline linking U.S. Gulf Coast refiners and East Coast markets, will limit shipments of gasoline because orders exceed the company’s ability to deliver fuel on time.
The Alpharetta, Georgia-based company issued the requirement, known as an allocation, in a bulletin to shippers for the 70th cycle. The restriction applies to shipments on Colonial pipelines north of Collins, Mississippi.
Companies will be able to ship a pro-rated portion of their original nomination, based on their shipping history over the past year, according to Colonial.
With the assistance of Jane Van Ryan at API, I contacted to Steve Baker at Colonial Pipeline, to find out what is happening. I discovered the oversubscription seems to be related to refinery shutdowns in the Northeast.
Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline, such as the following (originally in the Bradenton Herald, but the link is long dead):
Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.
Other factors include the end of the summer driving season and a cheaper winter fuel mix.
Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.
So what does this mean, and why does it make winter gasoline less expensive?
You may have seen the recent news that a report by the Potential Gas Committee says natural gas reserves in 2008 rose to 2,074 trillion cubic feet. The New York Times and the Wall Street Journal (via Rigzone) both had stories on it, and T. Boone Pickens issued a press release. In this post, I will look at how long these reserves might last, if used to replace US gasoline usage.
Why are gasoline prices so low? And why do they continue to drop? The recent drop in oil prices has truly been extra-ordinary. Gasoline prices are down almost as spectacularly, and the price of diesel is down is well. If we look at the graph, it doesn't look at all like anything we have seen before. What is happening, and where is this headed?
I am becoming more and more convinced that the drop in gasoline prices has a huge amount to do with all of our credit problems (which in turn are related to limits on the oil supply). These credit problems are causing more and more defaults on debt and more and more bankruptcies. These defaults and bankruptcies have a double impact on oil prices--partly from reduced demand, and partly from distressed sellers disposing of futures contracts at low prices, because they are easy assets to sell.
We often hear that "soon" oil prices will hit a bottom, and start shooting back up again. I am less and less certain that this will be the case. Instead, I am concerned that we may on a relentless path to a point far below the point where energy companies can expect to have any chance of making money. We may be on a path toward more and more bankruptcies and defaults of all types--energy companies, owners of commercial real estate, homeowners, financial institutions, auto makers, airlines, and many more. If this is the case, there will be a huge strain on governments, and some may find it necessary to default on their debt.
In order to ultimately get past this crisis, it may be necessary for governments to establish new currencies in which debt is severely limited, and at the same time unwind the debt in the existing currency. I expect that a huge amount of derivatives of all types will need to disappear as well, so that financial assets start bearing a close relationship to physical resources.