Gasoline Starts Its Long, Slow Ride Down

with cleaner forms of energy is actually starting to happen. Now, that's not to say gas is gonna disappear overnight or even soon, but what is causing gasoline used to tick downward? And where do things go from year? There's no one better to answer those questions than my colleagues who cover energy day in and day out. Chunss You in Houston, lynned One in New York, and Millie Munchie in Denver joined me now, Lynn, Chonsa, Milly, thanks so much for

being here. Thank you, thank you for having us, Thank you. In this recent Bloomberg story, there is this really interesting fact that Americans are actually driving more than they have before, but they're using less gasoline. Maybe I'll start with you, why is that such a big deal. What does that mean? I mean, it's pretty incredible in and of itself. Just this inflection point, isn't it, in which we have seen our US gasoline demand peak. Why is it incredible? Like?

Why is it such a significant moment in American history? A few reasons. One points to the fact that the energy transition is happening, and it's happening in the biggest gasoline consuming country in the world. But it also points to the fact that we as a country have figured out how to develop the technologies and the fuel efficiency to do more with less, which you know helps in a time of rampant inflation and recessionary fears. I think there are a lot of reasons, Gensa, can you add

on to that. I think a big part of that is the fuel efficiency standards that were put in place more than a decade ago. The average lifespan of a car is about twelve years in this country, and so it's been it's been about that time, but because of the pandemic, we didn't quite see that impact till two years after the pandemic. So last year was really when we saw the compound impact of more efficient cars being

able to run more miles on this fuel. How much more efficient our cars, say, you know now than they were a decade ago. Well, right now we're at a record for is something like just over twenty six miles per gallon, and that's up even from twenty one, like almost by a full mile. The twenty one number was closer to twenty five miles per gallon, and the twenty two numbers closer to twenty six miles per gallon. And so even year to year, we're seeing a pretty big

gains in efficiency, and that's gonna keep going. And so I think, you know, like Lynn was saying, it's a slow process, but if you're talking about twenty or thirty years from now, could gasolene demand be a third to a half of what it is now, I think that's reasonable. And I would just add that the jump from one was much bigger than than previous years because of the fleet turnover that's coming from the more efficient cars being

sold or being made. A decade ago. Gasoline demand in the four years leading up to the pandemic is pretty much stable at the peak level, and then the pandemic happened, and there was hope that maybe we would get back to that now we're realizing that we're never getting back to that. So that's one thing, which is just that cars are more fuel efficient, but there are other things involved there too. It's not just that you're able to go more miles on less gas. There's a whole bunch

of other stuff happening here to Milly. Do you want to jump in on there, Yeah, totally. I mean, I think one of the things that's really interesting is obviously the adoption of electric vehicles or e v s that you know, has been very slow. To be very clear, it's like a very small percentage of the cars that are out there. What is it now? Do you know

what the percentage of electric cars are? I want to say it's about one percent, really one percent, because man, we talked about them all the time, and you know, of course Tesla, but then everybody's jumping in the market. It's still only one percent of cars on the road in the US, but it's rising in terms of new car sales. So that's interesting because we're talking about how it was slow to start, but now it's kind of like that stone roll downhill and it's starting to pick

up speed exactly. And I think one of the things That's so interesting though, is there's two fact years there there's new car sales, but then there's the entire car fleet. People don't buy a new cars all that often, you know, they buy a new car once a decade maybe, and so sometimes people will run their car for twenty years, um,

if they can get it to last that long. So Chansa had this bit of interesting reporting that you know, even if everybody in the US who's buying a new car today was to buy an e V, it would still take nine years for even half the fleet to turn over into e v's And so that really just shows you how long of a process this is. So we're at the peak, but it's a long way before we're sort of like falling off a cliff. You know.

In the past, we've seen this happen where gas prices are high, people use less gas, and we've even seen people say, oh, we reached peak gaslen But this is different than that. This is different than just oh, you know, gas prices are high, so of course we're using less gas. Yeah, this is super structural. We were talking about this tons a million I and I'm going to age myself now

because I remembered as we were talking that. On December, I wrote a story for Bloomberg News as an oil reporter about the US getting rid of its oil addiction and how gasoline demand here has started a d couple from gross domestic product and that was the first time that that had ever happened. And that's a big deal because the production of the U. S economy would rise kind of with gasoline. That they were so so tied together,

so tied together. Yeah, they were married and then it started divorce, and that was the first time that we had seen that. You know, at that time. It was driven by as Jensa said, fuel efficiency, changing demographics, and also just the recession, like forcing people to like rethink how much money they wanted to spend on fuel. But that just gives you an idea of how long this has been happening and how like steady and structural this is, which means that it's going to take a while before

we get to like zero. But what I think is interesting, just picking back up on this question of well, when gasoline prices are high, people drive less. Of course, what's really interesting right now is that people are actually driving more. If you look at the Department of Transportation, data, those miles keep hitting records, So the miles actually traveled on US roads are at records, means people are driving more, but it's happening on less gasoline, and so that really

speaks to the structural nature of this. It's not just a sort of oh, prices are high, we're gonna, you know, bounce lower, then we'll bounce back up. It's really like a big structural change. Do we know where that is why people are driving more? Yeah, it's interesting because I think I don't know if everybody else is like this, but I've been still a little plain shy in the pandemic.

I'm doing more road trips than I am plane trips. Obviously, you know, not everybody has returned to office, and so those miles could keep climbing, you know, as more people make that shift. And the other thing that's a big factor is that, you know, I think people sort I just want to get out, even if it's just like a Sunday afternoon drive, like bringing back that thing that

past time people used to have. Yeah, I mean, I think a lot of people traveled to see family this year for the first time for Thanksgiving and the Christmas holiday in three years. So I think that there's also just a pickup from people who have felt trapped for the past three years and when I hit the road again.

And just to add on to what Milly said about working from home, I think part of that dynamic also involves people driving not at peak hours, so it's more spread out when when people are driving, So that kind of lessons congestion and can make cars more efficient because you're not stopping more. So does it naturally follow that if Americans are using less gasoline cast pressure are pretty high right now, that those cast prices are going to continue to drop as cars become more fuel efficient and

less demand for gasoline is just there. Oh here it comes to bad news. Well, I think long term that's what it means. Less demand. Um won't mean cheaper fuel, and not just cheaper fuel, but the fact that it won't contribute to inflation as much and it probably won't loom as large. And you know, the the American consciousness is something that's intrinsic to the American economy. But in the short term, what this means is that we could

actually be more prone to supply shocks and price spikes. Yeah, just to add to what Chenzo was saying, I think one of the things for prices is that you sort of have to take two views on it. If you're looking with a really zoomed out lens and you want to look at the big picture over you know, the next decade or two decades. Of course, falling demand is going to mean lower prices, But when you look at the next couple of years in particular, it's going to

be a little bit more bumpy than that. And part of that is because supply of gasoline is actually falling faster than demand is. When it comes to the folks that make gasoline, that's the oil refiners. They take crude oil and they process it into fuels like gasoline and diesel. They're looking at like the sunset for their industry, so they don't want to put a lot of more money into things, and they are actually pulling back. They're cutting

production capacity. That capacity has already dropped by about a million barrels a day since and that is a faster rate than the rate that demand is falling right now. And so even though demand is falling, it's causing this sort of mismatch in the market between supply and demand, and that's what's going to cause the bumps consumers could see the kinds of price bikes that we saw in continue for the next couple of years. One of the big things that drove gasoline prices last year in two

was actually this refining side of things. It was the fact that there just wasn't enough for finding capacity. It wasn't because there wasn't enough actual oil to turn into gasoline. And so those kind of spikes are probably likely to keep happening. They will be isolated. I don't want to say that like, oh this means, you know, start holding

gasoline or something like that. They're going to be short term spikes, but they will be there and it's going to be rocky, and so it's sort of hard to say, you know, we're gasoline what prices will be at any given moment because of those possibilities of spikes and even

some possible outages. I remember there were some isolated incidences, especially around like peak driving times around I think it was in the summer of one some states actually like we're turning drivers away or drivers were lighting up for

hours to fill up on gasoline. Um and that again was an infrastructure problem, was not an actual supply problem, and so, you know, like so many things that have happened in the last few years, we're seeing these infrastructure squeezes and we're specifically a drop in investment in that infrastructure. And that's like a theme that is played out in a lot of corners in the energy and transition. Biden is you know, consistently going out there and asking the

refiners why they aren't refining more? Why can't you just build a new refinery in the United States? What's the problem? Like, clearly there's the demand, and you know, you have the refiners and you have the oil and gas producers all collectively saying, well, give us a signal that demand that is here to stay and that it's a permanent piece of demand, and then we'll put the money in it. But if you're not going to show us that, then why would we sink you know, billions and billions of

dollars into building a new refinery for you. So it's a theme that has played out in a lot of different parts of the energy system, and it's going to keep playing out over the span of many years because there is still a heavy dependence upon fossil fuels, not just in America, but like around the world, and yet the industry is already trying to move past it. Len Milly Chance, I please stay with me. We'll keep this

conversation going. After the break. Are we going to start to see things breakdown, maybe more leaks and spills and just other things as a result of companies not wanting to put money into something that they no longer see as being a long term investment. Yes, I mean, I think that it's inevitable that you're going to see that you've got really aging infrastructure. And obviously the companies are going to meet the minimum standards that they have to meet.

They're not gonna let things sort of fall into neglect. But I think that, like you're not going to see billions of dollars being poured into assets that even ten years from now, are not going to be profitable. There's no real incentive for them to do that. And so for them it is sort of writing the wave down and to try to do that as profitably as possible.

That means keeping their margins high, too, and so they wanna calibrate their production based on that margin and not really based on, you know, what the overall need is. Because one of the You know, one of the things that Lynn mentioned too, is that we still use a lot of fossil fuels. We talk about the big energy transition which we are in the middle of right now, and we're talking about peak gasoline, but if you look at the level of where gasoline has peaked out, it's

really high compared to twenty years ago. Even so, we are using a ton of gasoline even though it's at a peak. And then that's the disconnect that's really driving the supply bumps and things. And they also make stuff like diesel and JEFF fuel and petro chemical components and all of that, which diesel is the highest margin. Refiners make much more money making diesel nowadays than they do gasoline.

And of course there's the huge export market that they've tapped into in over the past two In one or two decade, they're just sending everything to Latin America, and those countries use it not only for world fuel but for power generation and all that. So do you think that we're gonna now start to see a big shift away from gasoline and toward making plastics, diesel, jet fuel and all the other things that are still worth investing in. Over a longer period of time. I think that's already

happening elsewhere in the world. Um, I think in the US, gasoline is still the most in demand fuel, and about half of the crew that's process in the US has turned into gasoline. That's a much higher percentage than anywhere else in the world. But I think, yeah, last year, we already started to see refiners kind of tote more toward making diesel, which has been higher demand globally, and Russia exports a lot of so that shift is already

kind of happening. Then when you look down the road, we're talking about how it's going to be kind of a slow decline, it's going to be bumping and messy. What do you see, let's say five years from now, ten years from now, what is the overall picture of

US gasoline use? Look like? The good thing about it is that ch did that work for us in this story, and there's a forecast in the story by a very well respected energy outfit saying that just what through seven, we're talking about like a fifteen percent decline in gasoline demand. So if you paste that out a little further, maybe in a couple of decades we're talking about like a very considerable cut and not just like the hey, we're peaking where we are at now, but like an actual

halving or even more than that. I don't know, what do you think, Millie. Am I a fortune teller? Your crystal ball might be shinier than mine. But I think that you're right in that if you look at some of the forecasts, that we are peaking or half peaked and we're never going to hit those pre COVID levels again. I think that's one of the things that's really interesting is that you know, there was this idea that two would be a year that we would hit those pre

COVID levels again. Everybody was going out and seeing family and going back to offices. But the latest data that is a little bit backward looking. But so it's just come in and it shows that actually, No. Two, we did not hit those levels again. We didn't even hit I didn't even hit twenty one levels. That's crazy, right, So even though you know people are out there driving,

it's the efficiency that's driving that decline. Overall, that momentum I think is only going to accelerate, right, because we know that evs are a large part of what consumers are going to be buying in the next few years. We know that the current administration has put an even tougher efficiency standards, and so that will continue to mean that the cars that are getting put on the road today are using less and less gasoline. Ena milly Lynn, thanks for taking the time to talk with me today.

Thank you, Thank you for having Thank you so much. Gasoline is bumpy right down. We'll bring with it all kinds of disruptions and complications. Mark Finley is a fellow in Energy and Global Oil at Rice University's Baker Institute for Public Policy. He is with me now from Houston to tell us what we're in for. Mark, thanks so much for being here. Thanks for having me. Wes, we've been talking about how gasoline dependence is just starting to look like it's taking downward in the US, and yet

we are still really dependent on it. You study this all the time. Can you kind of give us a broader picture of what it means that our dependence on gasoline is like slowly loosening its script. It's slowly loosening its script, but it's likely to be a bumpy road.

And I think that the experience of the last year shows us that even as we push for a rapid transition away from fossil fuels, we need to make sure that the current system continues to function because we need, in the meanwhile for our economic and our national security to have an energy system that is functional and provides affordable, secure,

reliable energy throughout the transition. While in reality, there's not a lot that any president can do to affect short term gasoline prices, it's screamed at you from every street corner in foot high numbers, and so it becomes a kind of a general indicator of how the world is going. And so I think we economists, if we crunch the numbers, gasoline doesn't look like it's that big of a deal.

I mean, it's only four or five percent of the consumer spending basket that's used to calculate inflation, but it has an outsized impact because of its volatility and the centrality to our life, and the fact that it's so widely known. I can't tell you what I paid for milk last week, but I can tell you that I've paid three o nine point nine a gallon. You know, on our drive down to South Carolina yesterday, one thing you touched on was the national security implications of gasoline.

Can you talk a little bit about that some more, because we've really seen it in the past year, especially since Russia invaded Ukraine. To me and I was once upon a time and energy security specialist at the CIA, it's it's a matter of how dependent our economy is on energy and on fossil fuels, I mean oil. Even though the U s economy has diversified and become more efficient over the decades, oil is still the single biggest

source of energy. And while the United States is broadly self sufficient, that doesn't mean that the US can hide from developments around the world. You know, when Russia invaded the Ukraine, combined with you know, the COVID recovery and production discipline from countries like Saudi Arabia, oil prices rose significantly,

and they rose everywhere. And I think that's the key point, you know, from a national security perspective, is that if something goes wrong anywhere, the price goes up everywhere, including here, We'll be right back. We you start looking at this question of the oil infrastructure that you mentioned at the top, and making sure that the system to both refine and deliver oiling gasoline around the country maintains its integrity. What are your concerns about that? It's a great point, West,

I mean, we don't actually consume oil. You know, the oil has to be made into useful things. And so while people like me focused on the price of crude oil, what really matters is what the things that we turn it into. Gasoline, diesel fuel, jet fuel, petrochemicals for plastics

and pharmaceuticals for example. That entire system needs maintenance. And so you know, while the President last year, you know, was in the Secretary of Energy, we're encouraging US producers to ramp up their investment in domestic production of crude oil. The US has actually lost some refining capacity in recent years. The US used to be the biggest center for refining

in the world. It's now been surpassed by China. And partly the number of US for fine reas that have closed have been because refiners are looking at the advent of electric vehicles and also potentially converting themselves to biorefineries as well. And uniquely, actually, US refineries are built to make gasoline. US refiners are potentially the most at risk because they're built to make the product that's going away, as I suppose the oil industry sees diminishing returns on gasoline.

We're talking about a pretty long time horizon, but they're thinking about the future and what investments they want to make. Do you think that there is going to be less investment in just keeping that system going? I mean, do you worry about things going wrong in a way that has harmful impacts? Well, the continued flow of hydrocarbons is still essential to our economic well being, and I think, you know, both in terms of producing and in terms

of refining. You know, we've seen that financial investors have turned their attention towards, you know, the energy transition to find angial guidance for the domestic oil industry, you know has been don't invest and even if you're making money, return it to shareholders, because we're not convinced that you

guys have a long term market here. But the challenge that that raises is that, as we saw last year, high prices are still a risk to our economy, and we've seen political unrest not only here in the United States but around the world as a result of the spike of energy prices that we've seen over the last year. When you look down the road and think about how gasoline is slowly decreasing, but evs are also only slowly increasing.

At what point did those lines sort of cross where evs or other renewable energies gather speed and then we start really looking at a pretty significant transition. Well, it depends on where you are in the world. In Europe, you know, the share of electric vehicles in new car sales as much higher than the United States. In China, it's dramatically higher. But then in other emerging economies, poorer countries, you know, the share of electric vehicle sales is dramatically lower.

And so we're going to see you know, that crossover west will take place at different times depending on where you are around the world, and that's going to really create headaches for a global marketplace that's going to be trying to reallocate supply. Um. You know, we've seen some major disruptions of crude oil and refined product flows as

a result of the Russian invasion of Ukraine. This change will be dramatically bigger than that in terms of barrels that need to be reallocated, although it will take place on a slower time horizon. Oh and by the way that growth of electric cars, while it reduces our dependence on oil and the energy security risks around that, it

creates new vulnerabilities. For example, China dominates the global production of electric vehicles and of batteries, as well as of the processing and refining of a lot of the metals that are used to make batteries and other modern electronics. And so in the sense, you know, we have to be alert to the potential risk of transferring one vector of vulnerability into another one as we go through this transition, and policy can try to manage that if we're alert

to the rising risks. Can you talk about it a little bit more, because that's a really interesting point. I mean, here we are engaged in a pretty big chip war between the US and China, and if we're now talking about the guts of an e V also being in the middle of that tugger war between the world's two biggest economies, how do you manage that? As you say, well, I mean when I was an analyst at the agency doing energy security, we thought about vulnerability risks and offsets

in terms of how do you manage energy security? Question is, you know, what can you do to manage your vulnerability to a disruption, how do you manage the riskiness of it, and how do you manage in the event of a natural disruption, how can you offset it. So for oil, we've been thinking about us for fifty years. We've tried to diversify our economy away from our dependence on oil.

We've built up capacity to build strategic stocks, and we have allies like Saudi Arabia who holds spare capacity, and other members of the International Energy Agency who helped each other in a time of crisis. We've had fifty years of practice of building an energy security infrastructure, and d u S and its allies are only just beginning the process of doing that for new forms of energy to

manage the risks through the energy transition. We started out this episode talking about how the loosening grip of our dependence on gasoline is gonna be rough and bumpy, and you are really getting a clear picture of just how difficult it is going to be to strike this balance. It's critical. I mean, we have to do it. We have to move to a lower emission world, or or I should say, we need to move to a an outcome that reduces and slows the growth and reduces the

atmosphere countsant rations of c O two. But we can't do it at the expense of economic well being, and certainly not on the basis of putting it on the backs of the lowest income households and the poorest countries around the world, and so it needs continued attention throughout the process. Mark Finley, thanks so much for talking with me today. Thanks for having Wes. You can read more from Millie, Munchy, Linduan and Chens as you at Bloomberg

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