NEW YORK (Dow Jones)--U.S. gasoline demand will drop by around 35,000 to 38,000 barrels a day this summer from a year-earlier, in the first decline since 1991, the Energy Information Administration said Tuesday.
The drop is tied to expectations of continued record high prices and sluggish U.S. economic growth. National average gasoline prices are expected to peak at $3.624 a gallon in June and average at a record $3.54 a gallon this summer. On Monday, EIA said the price in the latest week averaged $3.332 a gallon, up 4.2c from a week earlier and 53 cents above a year ago.
EIA said April-September gasoline demand is expected to drop by 0.4%, to 9.4 million barrels a day this year.
On average, EIA data show, summer gasoline demand has increased by an average of 129,000 barrels a day since 1992.
On Monday, EIA Administrator Guy Caruso said summer gasoline demand would drop by 85,000 barrels a day from a year ago.
EIA said Tuesday that Caruso's comments referred to what would be the decline in gasoline demand this summer, if not for the greater use of ethanol in the motor fuel pool.
In a supplement to the Short-Term Energy Outlook issued Tuesday, EIA said, available data for 2008 show the decline in gasoline demand begun during the second half of 2007 accelerating so far this year.
"For the first three months of the year, consumption is estimated to be about 0.6% lower than during the same period in 2007," EIA said.
Personal disposable income in the period rose by an estimated 0.3%, while gasoline prices rose 31.8% from a year earlier, to average $3.11 a gallon.
"For the summer season, which comprises the second and third quarters of 2008, motor gasoline consumptionis projected to average 9.40 million barrels per day, down 0.4% from the previous summer," EIA said.
"Adjusting for the Btu content of the growing ethanol share of the motor gasoline pool, the year-to-year decline would be closer to 0.9%" this summer, or the 85,000 barrels a day figure cited by Caruso on Monday.
The net energy content of ethanol is only 76,000 Btu per gallon, or about 67%, of the 114,000 Btu per gallon content of gasoline, EIA said.
EIA said ethanol output this summer will rise by 33% from a year ago to average 550,000 barrels a day, trimming needed gasoline imports and refinery gasoline output.
"Once regarded primarily as an oxygenate and as a supplement to conventional gasoline consumed primarily in the Midwest, (ethanol) has become a major fuel component intended to reduce the dependence on crude oil," EIA said.
The Energy Independence and Security Act of 2007 mandates the use of 9 billion gallons (214 million barrels) of renewable fuel in motor gasoline this year and 11.1 billion gallons in 2009, of which a minimum of 600 million gallons must be advanced biofuel. By 2022, 36 billion gallons of renewable fuels must be used, including 21 billion gallons of advanced biofuels.
"Fuel ethanol is expected to comprise the bulk of that mandate," EIA said.
Because of the Btu shortfall in ethanol versus gasoline, EIA said "the increase in ethanol's share of the total motor gasoline pool will therefore reduce average automobile fuel efficiencies.
"In fact, the substantial increase in the ethanol market share projected for 2008 indicates that, even though motor gasoline consumption is projected to decline by 0.1% for that year on a volumetric basis, it is expected to decline by about 0.6% on a Btu basis.
"The weakness in gasoline consumption is expected to continue, even as the economy recovers from its current slowdown and prices begin to subside," EIA said.
"For the foreseeable future, demographic shifts, the impact of high prices on vehicle efficiency, and the more recent shifts characterized by reduced impact of income on vehicle miles traveled are likely to keep growth in gasoline consumption well below that seen for much of the post-war period," EIA said.
Source: David Bird, Dow Jones Newswires, 1-201-938-4423; david.bird@dowjones.com