Congratulations America, Trend Lines to be Proud of
The two trend lines are the decline in gasoline consumption and the decline in miles driven. These two are obviously connected and are obviously caused by the price of oil. For the first time in close to 30 years, we have something to be proud of when it comes to our driving behavior.
Two different reports last week documented this profound turnaround. A report by the Cambridge Energy Research Associates documented that, should recent behavior continue, gasoline demand will likely decline in 2008 for the first time in 17 years. Over the course of the last 25 years gasoline demand in the U.S. increased by 40% due to the popularity of SUVs, minivans, increasing number of vehicles per household and the ever lengthening distance of driving commutes. All subsidized by cheap oil. This growth slowed significantly in the last two years and then in the first quarter of 2008, actually dropped 1.3 percent compared to the first quarter of 2007. While this percentage drop is slight, this observer believes it will be a historic turning point that, in just a few years will be seen as the turning point from the constant increase in gasoline consumption to the constant decrease that will the reality from now on.
The second report, from the Transportation Department stated that in the month of April, Americans drove 1.8 percent fewer miles that the same month a year ago. This was the sixth consecutive month of driving decline. This trend, also a reaction to the price of gasoline, is due to an increase in use of public transportation, written about here, and also the beginning of much more conscious driving behavior in this country. People are combining driving errands, carpooling, and just thinking a bit more before an impulsive trip in the car. There has even been a documented increase in commuting via bicycle.
In the last column I documented the dramatic and wonderful shift in vehicle buying behavior in America as consumers have stopped buying trucks and SUVs and are now demanding hybrids and small cars that have significantly better MPG. This new purchasing behavior will further decrease the demand for gasoline. This behavior is similar to what occurred in the 1970s after the first oil shock of the OPEC oil embargo. The significant difference is that the price of gasoline collapsed in the 1980s and Americans could buy ever bigger vehicles with no economic consequence. That will not happen again.
I have long stated that we are beginning to pass through Peak Oil, a time when both global demand has, and will continue to outstrip supply, and half of all petroleum has been extracted from the earth. This translates into gasoline prices that will not significantly drop below $4 a gallon and will most likely continue to increase to the $6-7 a gallon range over the next few years. This means that 2008 will become a significant year in the history of America. It will be the turning point, when, after a century of increases, America will have an ongoing decline in gasoline consumption. There may be blips to this trend, but the long term trend line will drift lower and lower over the next 12 years.
To have the peak year of gasoline consumption in our rear view mirror as we enter Peak Oil is a very good thing.