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0 Jul 26 2012 @ 4:22pm by Matt Smith in Crude Oil, Economy, energy consulting, Global Energy

10 Potential Perpetrators For Weak Gasoline Demand

Hey, so I know I ranted about the conundrum of strong gasoline prices versus weak demand earlier in the year (in From Target to Twitter to Tanks and 2 Bugbears, 5 Reasons, 1 Reality), but I felt it worth revisiting this proposition because although gas prices have fallen, demand still remains weak. So here are ten reasons to explain why gasoline demand is in a structural decline:

1) Right turn, Clyde. Companies are innovating. Even back in the noughties, UPS reconfigured its routes to include as many right turns as possible, saving 3 million gallons of gas a year. Meanwhile, large fuel-consuming industries such as airlines continue to focus on more energy-efficient transport to lower costs.

2) The unemployment rate is still high. Yes, it may have dropped from a high of 10.0% (…to 8.2% presently…), but with less than half the jobs lost in ‘the great recession’ from early 2008 to early 2010 recouped (um, near 9 million), it’s no surprise there are less cars on the road.

3) Less young people are driving. The percentage of 19-year-olds with driving licenses has dropped from 87.3% in 1983 to 69.5% in 2010.

Gasoline Demand (source: EIA)

4) The new frugality. A stark reality that will play out over the next generation is that ‘the great recession’ has left us inextricably scarred, meaning that we now have a sense of frugality embedded in us as a nation that wasn’t there before. That, and car pooling is not considered a swear word anymore.

5) New! Improved! Cars. Not only are new cars achieving more miles to the gallon, but they are replacing older, less efficient cars; a double whammy on the demand front.

6) Gas prices are still high. Although the national average price has dropped by over 11% since the peak of early April, prices are still comparatively high, currently 5% less than last year, but 21% higher than 2010 (…28% higher than 2009).

AAA Retail Gasoline Prices (national average)

7) Stronger sales of hybrids / plug-in vehicles. Although the 3,318 plug-in vehicles sold in June sounds paltry when compared to the 1.28 million of total vehicles sold, plug-in sales are still up 161% versus the first six months of last year. As for hybrids,  34,558 were sold last month, making up 2.7% of total vehicles sold, which is both not insignificant and growing at a decent clip.

8) Increased use of public transport. Ok, this one is a bit of a stretch, but there is incremental growth from this sector.

9) Natural gas vehicles. I delved into this topic earlier this year, and although it may only be having a very minor impact on total gasoline demand near-term, there is nonetheless a bright future for both LNG and CNG vehicles ahead (although LNG more dependent on infrastructure, CNG more dependent upon cost-reducing technologies).   

10) The internet. This is one of the most fascinating reasons for falling gasoline demand (from a burrito state of mind), as malls appear less frequented, while online shopping just seems to offer the better bargains (‘the new frugality’) due to lower overheads. Online shopping now accounts for 7% of total retail sales, and is expected to grow at a annual rate of 10% in each of the next five years.

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