The Golden Age of Gasoline | Green Energy News

October 3, 2004 – Vol.9 No.28

THE GOLDEN AGE OF GASOLINE.

Record high oil prices. Gasoline demand outstripping supply. Huge profits. Oil refiners love crude at $53 - and rising - per barrel. It’s the Golden Age of Oil.

But is there a storm on the horizon for oil companies? Something could happen in the marketplace that could lower the demand in the U.S. for gasoline and threaten refining and auto industries. High fuel prices, regulatory changes and technology could lessen consumption, throwing a monkey wrench into Big Oil’s Golden Age.

In a report entitled – U.S. Refining Trends: The Golden Age or the Eye of the Storm – consultants at Booz Allen Hamilton have outlined three scenarios, and the impacts they feel the oil and auto companies should be focused on.

Scenario 1: Consumers continue to pay high prices at the pump, due to fundamental or geopolitical impacts on crude oil pricing or refining structural changes.

Impact: In the short term, drivers drive less; in the medium term, drivers trade down to smaller, more fuel efficient vehicles. Depending on how quickly the price changes in this scenario, gasoline demand could fall below domestic supply as soon as 2007.

Scenario 2: Government changes to Corporate Average Fuel Economy (CAFE) requirements force light trucks (including vans and SUV’s) to meet the same fuel economy standards as cars by 2015.

Impact: As they reach the limit on gasoline technology, vehicle manufactures turn to diesel engines to meet the new mandates while continuing to sell highly profitable light trucks. The impact on gasoline could be substantial in the long term. Diesel vehicles become 46 percent of sales by 2015. Gasoline demand falls below production in U.S. by 2010.

Scenario 3: Hybrids take off in the marketplace and become 80 percent of all new vehicles sold by 2016, as consumers get fed up with high gas prices.

Impact: Hybrids become a mainstream product. Hybrid drive becomes standard equipment on all new autos, creating a substantially more fuel efficient average fleet. Depending on the rate of adoption gasoline production could fall short of demand by 2010.

The authors of the report say none of their scenarios is likely to occur exactly as laid out.

War. Climate change. Waning crude oil supplies. Unrest in the Middle East. Phenomenal economic (and vehicle) growth of China and India. More fuel efficient technologies. Booz Allen thinks refining and auto industries should sit up and take notice. And, of course, read their report. Contact Karen Guterl for more information by email at guterl_karen (at) bah.com .