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Weekly U.S. Product Supplied of Petroleum Products

Tracking U.S. Oil Consumption

#Tracking-U.S.-Oil-Consumption

Work in progress

By: Marcus Larsson

Email: mla@inocean.se

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Abstract

#Abstract

In this notebook, I present a short overview of the trend in U.S. petroleum consumption. In order to evaluate the trend, I decompose U.S. oil consumption into six categories; Finished Motor Gasoline, Distillate Fuel Oil, Other Oils, Propane & Propylene, Kerosene-Type Jet Fuel and Residual Fuel Oil. Contrary to popular belief, I find no evidance supporting a slow down in U.S. oil consumption. My result suggests that the variance in real GDP is the main driver of U.S. oil consumption in the long-term.

Introduction

#Introduction

Any living system grows larger conditional on its available energy supply; population growth is limited by its available food supply and plants cannot grow without sun light. The U.S. economy is no exception to this rule as it depends on continual growth and an uninterrupted flow of affordable energy in order to function. The theory that the U.S. will someday become to rely less on oil is not new. Some analysts go as far to say that U.S. oil demand is going to flat out or even decline in the next years. The justification for falling demand is related to efficency gains, fuel switching, demand growth and EV penetration. In this notebook, I present a short overview of the trend in U.S. petroleum consumption. Contrary to popular belief, I find no emperical data supporting a slow down in U.S. oil demand.

Data

#Data

A database covering petroleum consumption is a prerequisite for this work. The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) provides the most comprehensive data in terms of quality, consistency of reporting and detailed used. I will use the EIA Weekly Petroleum Status Report, as the data is readily available online for anyone to reach. The EIA data set is published on a weekly basis, and covers U.S. petroleum consumption by product category. In this section, I present the definition of each petroleum product, ordered chronologically from most consumed to least consumed.

Weekly U.S. Product Supplied of Petroleum Products

#Weekly-U.S.-Product-Supplied-of-Petroleum-Products

Product Supplied of Petroleum Products approximately represent consumption of petroleum products because it measures the disappearance of these products from primary sources, i.e., refineries, natural gas processing plants, blending plants, pipelines, and bulk terminals. Product Supplied of Petroleum Products can be decomposed into six categories, Finished Motor Gasoline, Distillate Fuel Oil, Other Oils, Propane & Propylene, Kerosene-Type Jet Fuel and Residual Fuel Oil. In general, product supplied of each product in any given period is computed as follows: field production, plus renewable fuels and oxygenate plant net production, plus refinery and blender net production, plus imports, plus net receipts, plus adjustments, minus stock change, minus refinery and blender net inputs, minus exports.

Weekly U.S. Product Supplied of Finished Motor Gasoline

#Weekly-U.S.-Product-Supplied-of-Finished-Motor-Gasoline

Finished Motor Gasoline consist of a complex mixture of relatively volatile hydrocarbons with or without small quantities of additives, blended to form a fuel suitable for use in spark-ignition engines. Motor gasoline, as defined in ASTM Specification D 4814 or Federal Specification VV-G-1690C, is characterized as having a boiling range of 122 to 158 degrees Fahrenheit at the 10 percent recovery point to 365 to 374 degrees Fahrenheit at the 90 percent recovery point. Motor Gasoline includes conventional gasoline; all types of oxygenated gasoline, including gasohol; and reformulated gasoline, but excludes aviation gasoline. Volumetric data on blending components, such as oxygenates, are not counted in data on finished motor gasoline until the blending components are blended into the gasoline.

Weekly U.S. Product Supplied of Distillate Fuel Oil

#Weekly-U.S.-Product-Supplied-of-Distillate-Fuel-Oil

Distillate Fuel Oil is a general classification for one of the petroleum fractions produced in conventional distillation operations. It includes diesel fuels and fuel oils. Products known as No. 1, No. 2, and No. 4 diesel fuel are used in on-highway diesel engines, such as those in trucks and automobiles, as well as off-highway engines, such as those in railroad locomotives and agricultural machinery. Products known as No. 1, No. 2, and No. 4 fuel oils are used primarily for space heating and electric power generation.

Weekly U.S. Product Supplied of Other Oils

#Weekly-U.S.-Product-Supplied-of-Other-Oils

Other Oils includes aviation gasoline, kerosene, natural gas plant liquids and LRGs (except propane/propylene), unfinished oils, other hydrocarbons and oxygenates (except fuel ethanol), aviation gasoline blending components, naphtha and other oils for petrochemical feedstock use, special naphthas, lube oils, waxes, coke, asphalt, road oil, and miscellaneous oils. Propane/propylene was included with other oils prior to 2004. Ethanol was included with other oils prior to June 4, 2010. Other oils stocks includes unfinished oils beginning on June 4, 2010.

Weekly U.S. Product Supplied of Propane and Propylene

#Weekly-U.S.-Product-Supplied-of-Propane-and-Propylene

Propane (C3H8) represent a colorless paraffinic gas that boils at a temperature of -43.67o F. It is extracted from natural gas or refinery gas streams. It includes all products designated in ASTM Specification D1835 and Gas Processors Association Specifications for commercial propane and HD-5 propane. Propylene (C3H6) represent a olefinic hydrocarbon recovered from refinery processes or petrochemical processes.

Weekly U.S. Product Supplied of Kerosene-Type Jet Fuel

#Weekly-U.S.-Product-Supplied-of-Kerosene-Type-Jet-Fuel

Kerosene-Type Jet Fuel is a kerosene-based product having a maximum distillation temperature of 400 degrees Fahrenheit at the 10-percent recovery point and a final maximum boiling point of 572 degrees Fahrenheit and meeting ASTM Specification D 1655 and Military Specifications MIL-T-5624P and MIL-T-83133D (Grades JP-5 and JP-8). It is used for commercial and military turbojet and turboprop aircraft engines.

Weekly U.S. Product Supplied of Residual Fuel Oil

#Weekly-U.S.-Product-Supplied-of-Residual-Fuel-Oil

Residual Fuel Oil is a general classification for the heavier oils, known as No. 5 and No. 6 fuel oils, that remain after the distillate fuel oils and lighter hydrocarbons are distilled away in refinery operations. It conforms to ASTM Specifications D396 and D975 and Federal Specification VV-F-815C. No. 5, a residual fuel oil of medium viscosity, is also known as Navy Special and is defined in Military Specification MIL-F-859E, including Amendment 2 (NATO Symbol F-770). It is used in steam-powered vessels in government service and inshore powerplants. No. 6 fuel oil includes Bunker C fuel oil and is used for the production of electric power, space heating, vessel bunkering, and various industrial purposes.

Long-Run Trend

#Long-Run-Trend

Below, the long run trend of U.S. oil consumption and its six subcomponents are displayed.

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Figure 1 illustrates that real economic growth influences the consumption of oil in the U.S. Commercial and personal transportation activities, in particular, require large amounts of oil and are directly tied to economic conditions. Many manufacturing processes consume oil as fuel or use it as feedstock, and oil still remains an important fuel for power generation.

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Figure 2 displays the relationship between gasoline consumption and vehicle miles traveled (VMT) in the United States. Based on the IHS Baseline economic outlook, total VMT by all vehicle types, is projected to grow at an average rate of 1.2% annually between 2016-2046. This outlook represents continuing moderation from the growth experienced over the past 30 years, when total VMT grew at an average rate of 2.0% annually. In 2009, Rex Tillerson, the former head of ExxonMobil famously forecasted that U.S. gasoline demand had likely peaked in 2007 in stating, “We think going forward that because of the emphasis on energy efficiency, ongoing improvements in vehicle miles standards, and hybrid (cars), that motor vehicle gasoline demand is down, is headed down, and is going to continue to head down.” Gasoline demand did decline for several years, but in 2013 the fuel efficiency improvements began to stimulate purchases of larger vehicles and higher vehicle miles traveled.

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Distillate consumption is mainly used by commercial trucking firms, railroads and to heat homes and other buildings. There are many components within the commercial sector of the U.S. economy which contribute to distillate demand. One of these is U.S. oil drilling activity. Figure 3 illustrates the relationship between distillate consumption and oil drilling activity. Drilling and completion activity in the Permian Basin doesn’t only produce vast quantities of energy, it consumes a lot of energy too, mostly in the form of diesel fuel to power the trucks, drilling rigs, fracturing pumps, compressors and other equipment needed to keep the oil patch humming. In the past few years diesel consumption has been on the rise in the Permian Basin in West Texas, and in neighboring counties in southeastern New Mexico. It powers almost everything: the trucks that haul oilfield equipment, frac sand and water to well sites, the trucks that haul produced water from the lease to disposal wells, and, the trucks that transport crude oil long distances to downstream pipeline injection points.

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Other Oils represents a collective term for multiple different products; aviation gasoline, kerosene, natural gas plant liquids and LRGs (except propane/propylene), unfinished oils, other hydrocarbons and oxygenates (except fuel ethanol), aviation gasoline blending components, naphtha and other oils for petrochemical feedstock use, special naphthas, lube oils, waxes, coke, asphalt, road oil, and miscellaneous oils. This makes it harder to identify a specific underling driver for consumption of Other Oils. In similarity to the other variables, consumption of Other Oils moves in tandem with real GDP.

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Like all home heating fuels, demand for propane increases during the cold winter months and decreases during the summer months. The propane market is challanging to forecast with both risk and opportunities on the demand side. Propane sales for use in internal combustion engines are projected to grow steadily, as clean propane applications (such as commercial lawn mowers, irrigation pumps, and propane vehicles) become more widespread in the marketplace. The traditional market is however challanged, with continuing improvements in energy efficiency which result in declines in propane sales per residential household. Over the next 10 years a continuing decline in propane sales per customer is forecasted.

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Figure 5 illustrates the relationship between the consumption of Kerosene-Type Jet Fuel and Revenue Passenger-Miles for U.S. Air Carriers. Revenue passenger-miles (RPM) are a measure of the volume of air passenger transportation. A revenue passenger-mile is equal to one paying passenger carried one mile. The FAA forecasts U.S. airline system RPMs to grow at an average rate of 2.5 percent per year between 2017 through 2038, with international RPMs projected too have average annual increases of 3.2 percent per year during the forecast period. A combination of low oil prices and a rapidly expanding middle class are driving major growth in passenger travel, and freight markets are booming on increased world trade, particularly e-commerce. Supported by airport construction and expansion, relief of capacity constraints in key regions can help secure future growth. This sharp increase is in part the result of greater globalization, but also strong economic growth and an expanding middle class. Demand for Jet fuel will support oil demand growth for some time since it cannot be easily displaced, and it will compete with the growing needs in road transport. Downside risks include greater penetration of sustainable aviation fuels (SAF) and efficiency gains, notably under initiatives like the Carbon Offsetting and Reduction Scheme for International Aviation scheme starting 2021.

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Residual fuel is used as fuel for large ships and for electricity generation, industrial process and space heating, and other industrial purposes. After reaching a high point of over three million barrels per day (bbl/d) in the late 1970s, demand for residual fuel oil in the United States has steadily declined. Changes on both the residual fuel supply and demand side of the equation are contributing to the downward trend. The demand-side landscape for residual fuel has changed over the course of the past few decades, particularly in the electric power sector. From 2000 to 2005, natural gas and oil prices tracked closely. Since 2006, the prices of these two fuels decoupled, as rapidly increasing supply drove natural gas prices down. As a result, the power sector began relying more on natural gas and less on residual fuel, except in circumstances where spot natural gas prices soared due to weather-related constraints. Other exceptions include Hawaii, which relies on residual fuel for much of its power generation (58% in 2010). To a lesser degree, Alaska and Florida use residual fuel, and in-city generators in New York City must use a minimum of residual fuel to meet reliability requirements. Risidual fuel consumption represent around 1.5% of total petroleum consumption in the U.S., making the downward trend less relevant.

Short-Run Trend

#Short-Run-Trend

Below, the short run trend of U.S. oil consumption and its six subcomponents are displayed. The seasonal trend is displayed if the correspodning time series are heavily influenced by seasonal movements. The seasonal trend is calculated by regressing each endogenous variable on time dummies over the time period 2010 until today.

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Figure 6 displays the U.S. oil consumption over the last two years. A twenty week moving average is used to separate the signal from the noise.

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Fiure 7 demonstrates that gasoline demand tend to gradually rise in the spring and peak in late summer (Jun-Jul) when people drive more frequently. Gasoline demand is generally lower in winter months and bottom out in January.

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Consumption of Distillate fule oil is displayed in figure 8. It includes diesel fuels and fuel oils. Products and fuel oils are used primarily for space heating and electric power generation. Historically, distillate use in the United States was highly seasonal because of its use as a home heating fuel. However, over the past three decades, its use as a heating fuel has decreased, distallate fuel exports have increased, and its non-seasonal use as a transportation fuel has become the major demand component.

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Figure 9 displays the consumption of Other Oils over the last two years.

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Figure 10 displays the consumption of Propane and Propylene over the last two years. Demand for propane, like all home heating fuels, increases during the cold winter months and decrease during the summer months.

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Figure 11 displays the consumption of Kerosene-Type Jet Fuel over the last two years.

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Figure 12 displays the consumption of Residual Fuel Oil over the last two years.