# Presentation: 925263

## Petroleum Gasoline & Distillate Needs Including the Energy Independence and Security Act (EISA) Impacts

**NPRA Annual Meeting 2008**
**Energy Information Administration**
**Joanne Shore**
**John Hackworth**
**John Maples**

**Notes:**
These charts are based on the EIA Annual Energy Outlook Reference Case for 2008.  This case includes the EISA 2007 requirements, which take us down a variety of paths that do not have historical information to guide us.  

As a result, this scenario is driven by many assumptions, due to uncertainty in such factors as regulatory specifics and technology costs. 

 For today, I would like you to present this information as a potential path that meets the EISA requirements.  While our outlook will likely change over the next few years as more is known, this path lays out a number of issues of importance to refiners for later discussion in this panel. 

## Gasoline Demand Increases, But Petroleum Gasoline Declines Due to Increased Biofuels, Switch to Diesel, & Efficiency

**Source: AEO 2008 Reference Case**

**Notes:**
EISA has two major provisions that affect the need for petroleum-based products – the increased vehicle efficiency requirements, and the increased biofuel use from the new Renewable Fuel Standard, which I will refer to as RFS2 (versus RFS1 from the Energy Policy Act of 2005).  These provisions have a large effect on gasoline.  

This figure doesn’t separate out EISA impacts from other changes.  But it shows the general impact that increasing biofuels use and efficiency have on the need for petroleum-based gasoline.  The comparison is how 2022 would look if no biofuel or efficiency changes occurred after 2007.

In EIA’s Reference Case, the vehicle miles traveled increase between 2007 and 2022 at an annual average rate of 1.8%.  If we had no improvement in light-duty vehicle efficiency after 2007, the increased miles driven would require about 11.6 million barrels per day of fuel in 2022.  But the efficiency improvements reduce that requirement down to about 9.4 million barrels per day.  There also is a little increase in diesel penetration in the light-duty fleet.  The net growth in gasoline demand is only about 0.2% per year in this time period.

Although demand for gasoline (including the ethanol component) is increasing slightly, the need for petroleum-based gasoline is declining over 600 thousand barrels per day when the increased use of ethanol is taken into consideration.

## Renewable Fuels Requirement Mainly Met with Ethanol

**Source: AEO 2008 Reference Case**

**Notes:**
In the EIA Reference Case, ethanol use grows rapidly to meet the EISA renewable fuel requirements.  It is the major fuel that will be used to meet the RFS2.  In 2022, this scenario is using about 26 billion gallons of ethanol.

EISA requires that 36 billion gallons of renewable fuels be used in 2022, with 21 billion gallons coming from advanced biofuels.  Advanced biofuels includes 16 billion gallons of cellulosic biofuels and 1 billion gallons of biodiesel.  

EIA’s Reference Case meets a target lower than 36 billion gallons in 2022. There are two reasons:
The biodiesel and diesel fuel from biomass is assumed to count 1.5 times their physical volumes as credit towards the 36 billion gallons.  This is due to the higher energy content of diesel over ethanol.  
Based on current technology, EIA’s views of the rate of technology development, and market penetration, the Reference Case generates less cellulosic biofuel than the current stated target.  Consistent with EISA, EIA assumed that the total advanced biofuel requirement and total renewable requirement would be reduced. . 

By 2022, about 59% of the ethanol is coming from corn feedstock, 28% from cellulosic material, and 13% from imports (compared to 5% imports in 2007).  The increase in imports is due in large part to the expiration of the current import tariff in 2009.  (EIA’s Reference Cases only incorporate existing legislation.)

## New Light-Duty Fuel Efficiency is 36 MPG in 2022 Versus 28.4 in Early Release Case

**Source: AEO 2008 Reference Case**

**Notes:**
Both cars and light trucks show significant improvement in efficiency to meet the EISA’s light-duty vehicle 35-miles-per-gallon (MPG) requirement by 2020.  In this scenario, the average new light-duty sales efficiency is 36 MPG by 2022. In EIA’s Early Release Case for 2008 (which the Reference Case replaced), the new light-duty sales efficiency averaged 28.4.   

Efficiency improvements derive both from improvements in the traditional gasoline-engine cars and trucks being sold, as well as an increased penetration of efficient hybrids and diesel-fueled vehicles.  

Traditional gasoline-engine cars sold in 2022 improve almost 1/3  over new car sales in 2007 (30.6 to 40.5 MPG).  Gasoline-engine trucks sold in 2022 improve 29% (22.9 to 29.5) over new trucks in 2007.  Diesel-engine vehicles also improve in efficiency about 23% for cars and light duty trucks.  

The next few slides will show the changing mix of vehicles, which serve to help meet both the increased efficiency requirements as well as the need to use more ethanol 

## Shifting Vehicle Mix Needed to Meet Both Increased Efficiency & Ethanol Use

**Note:  ICE – Internal Combustion Engine Source: AEO 2008 Reference Case**

**Notes:**
This slide shows the shift in vehicles being sold into the car and light-duty truck markets as well as the continued shift to light-duty trucks (which includes SUVs).  

The shift to hybrids and diesel-engine vehicles helps to meet EISA’s efficiency target, while the increase in flex-fueled vehicles helps to meet the requirement to use more ethanol.

In this scenario, light duty trucks still gain a bit in market share.  Light trucks also see the largest shift to diesel, hybrid, and flex-fueled vehicles.

## Non-Gasoline Vehicle Sales Penetration Increases from 11% in 2007 to 41% in 2022

**Source: AEO 2008 Reference Case**

**Notes:**
The EIA Reference Case shows that diesel and alternative vehicles may together move from an 11% share of new light-duty vehicle sales to 41% by 2022.  

The remaining 59% in 2022 is the traditional gasoline internal combustion engine vehicles.  Gasoline-engine vehicles comprised almost 90% of new light-duty vehicle sales in the 2007 Annual Energy Outlook.

## Petroleum-Based* Gasoline and Distillate Fuel Needs Shift 

| Million Barrels Per Day | 2007 | 2022 | Growth to 2022 |
| --- | --- | --- | --- |
| Petroleum Gasoline | 8.85 | 8.24 | -0.61 |
| Petroleum Distillate | 4.22 | 4.71   | +0.49 |

*** ****Petroleum-Based excludes ethanol, biodiesel, and distillate from coal-to-liquids and biomass-to-liquids. Source: AEO 2008 Reference Case**

**Notes:**
The increased use of biofuels and efficiency standards over 2007 result in a decline in petroleum based gasoline of about 610 thousand barrels per day.

Petroleum-based distillate, on the other hand, continues to grow.  Increased use of biodiesel is decreasing the need for petroleum-based distillate by about 60 thousand barrels per day.  In addition, distillate from coal-to-liquids (CTL) and biofuels-to-liquids (BTL) processing is decreasing the petroleum distillate need by 210 thousand barrels per day.  If that distillate from CTL and BTL does not materialize, petroleum-based distillate requirements might increase 700 thousand barrels per day versus the 490 thousand barrels per day shown in the table.  

## Issues: Shifting U.S. Demand Mix and Import Availability

**The shifting demand mix of products towards more distillate and less gasoline may be a challenge for refiners**
**Supply Uncertainties:**
**U.S. Refiners Distillate Response – More throughput relative to higher yields**
**U.S. Refiners Gasoline Availability – Function of distillate response **
**World Availability of Export Gasoline – Europe, Asia and Middle East increasing**
**Needs of other countries for “imported” gasoline**

**Notes:**
While exact volumes, vehicle mixes, and other important factors are highly uncertain, the trends are not.  The need for petroleum-based gasoline will likely decline, while the need for petroleum-based distillate will continue to grow.

This shifting mix of products will prove challenging for refiners.  Clearly yields will move towards more distillate.   But how far and how fast remains to be seen.  

One other factor must be mentioned that enters into the ultimate balance -- gasoline import requirements.  
Supply: Gasoline import availability from Europe is expected to increase for some time, and the Reliance refinery in India is expected to be able to provide export gasoline to the U.S.  Increased exports from the MIddle East refinery expansions will also be available, but how fast will the Middle East refinery expansion take place and join in the export market is unclear.
Demand: The needs of other countries for export gasoline may grow to some extent, but the U.S. is the major recipient of gasoline export volumes.
This world supply and need for export gasoline will be balanced against the speed and degree to which US refiners are able to shift gasoline yields.  Much uncertainty remains.  

## Questions