1. The Road Ahead for Light Duty Vehicle Fuel Demand Joanne Shore Energy Information Administration July 7, 2005

2. Refining Capacity Surplus Shrank As Demand Grew, Creating Future Challenges Gross Inputs Operable Capacity Source: EIA

3. Demand – A Crucial Factor Affecting Capacity Decisions Transportation is major growth sector What could affect future growth? Source: EIA

4. Future: U.S. Transportation Demand Growth Drives EIA’s Reference Case Source: EIA, Annual Energy Outlook 2005

5. Presentation Overview U.S. history and factors affecting light duty vehicle fuel demand European experience: Can diesel-fueled vehicles play a similar role in the U.S.? U.S. future: Reference Case & variations –Modest changes in vehicle technology can slow demand growth significantly – but not quickly –Hybrids and diesel vehicles can add to this impact –But stopping demand growth is unlikely –Policy changes are needed to slow growth

6. Factors Affecting Light Duty Vehicle (LDV) Petroleum Fuel Consumption Efficiency (MPG)Miles Traveled -Driving population -Miles driven per driver -Personal Income -Cost to drive -Other (Age, sex, etc.) -Technology -Power Train -Hybrids -Diesel -Vehicle Mix (Cars v trucks) Alternative Fuels -Hydrogen, All Electric, All Ethanol, Natural Gas

7. VMT: More Vehicles Per Driver and More Miles Per Driver Note: VMT – Vehicle miles traveled. Source: Summary of Travel Trends, 2001 National Household Travel Survey, ORNL Vehicles per Driver

8. MPG: Efficiency Improvements Leveled Off Fleet Weight 4060 lbs Fleet Weight 3271 lbs Fleet Weight 3612lbs Note: LDV weights are for 1975, 1985, 1995, 2004 Source: U.S EPA, Light-Duty Automotive and Fuel Economy Trends: 1975-2004, April 2004. Fleet Weight 4066 lbs

9. MPG: Historical Efficiencies Affected Demand Relatively Quickly Source: Department of Transportation, FHA, Highway Statistics 2001, Table VM-1.

10. MPG: LDV Performance & Weight Countered Efficiency Source: U.S EPA, Light-Duty Automotive and Fuel Economy Trends: 1975-2004, April 2004.

11. MPG: Growing LDV Truck Share of Sales Hindered Fleet Efficiency Source: Oak Ridge National Laboratory, Light Vehicle MPG and Market Shares System, Oak Ridge, TN, 2004, Wards AutoInfoBank Jan-May Ward’s Sales 20042005 Cars45.5%46.2% Light Trucks 54.5%53.8%

12. Hybrid Vehicle Sales Picking Up Toyota Prius –2002 sales 20,119 –2003 sales 24,627 –2004 sales 53,991 –2005 projected sales ~100,000 Toyota introducing Hybrid Lexus RX and Highlander Source: Automotive News Market Data Book 2004, 2005

13. Recent Trends European Union-15 & U.S. Source: Data Transportation Data Book (ORNL); ACEA (Michael Walsh)

14. European Model Goal to reduce demand, carbon dioxide emissions (greenhouse gas) concerns Increased diesel preference over gasoline –Fuel savings while preserving performance (35% more efficient than gasoline vehicles) –New LDV diesel penetration more than doubled in 6 years: 22% in 1997 to 44% in 2003 Tax incentives plus targets –High fuel taxes and taxes favoring diesel –Purchase incentives for more efficient vehicles –Economics favor technology improvements Voluntary industry CAFÉ standards

15. Diesel PM and NOx Standards Higher in U.S. than Europe Source: Michael Walsh, Motor Vehicle Pollution Controls, European Conference of Ministers of Transport, January 2000

16. European Preference for Diesel Grew Quickly since Late 1990s Source: ACEA www.acea.bewww.acea.be

17. EU-15 Demand Mix Projected to See Declining Gasoline Demand Source: History IEA; Forecast Purvin & Gertz

18. Factors Affecting LDV Efficiency (2003) EUU.S. Diesel Share of New Sales LD Truck Share of New Sales Source: ACEA, ORNL Transportation Data Book, CCFA

19. U.S. & EU Trends Affecting Efficiency Values in 2002 Percent Change 1995-2002 EU-15U.S.EU-15U.S. Population (Millions) 380.4288.42.0%8.3% LDVs per 1000 Population 48876614.8%5.5% Vehicle Weight (pounds) 2,6773,95110.3%9.4% Fuel Economy (MPG) 35.624.715.2%-0.8% Sources: ACEA, ORNL Transportation Data Book, EPA Automotive and Fuel Technology Trends 75-04, Michael Walsh

20. Factors Improving Efficiency Europe (EU-15) Diesel vehicle share growth Commitment to CO2 reduction –Voluntary CAFE by manufacturers –High fuel taxes, but lower taxes for diesel Technology improvements both diesel and gasoline Less stringent PM & NOx standards U.S. Small increase in light truck CAFE Recent fuel cost increases Technology improvements in gasoline vehicles Hybrid interest

21. Factors Decreasing Efficiency Europe Increasing vehicle size and performance Increase in cost for efficiency improvements U.S. Increase in vehicle performance and size Increased share of LD trucks Low fuel tax and few efficient vehicle purchase incentives Manufacturers’ opposition to CAFE Small LD diesel market, strict NOx and PM

22. EU Lessons? Diesel may play larger role in the U.S. future –Environmental emissions being overcome –Consumer issues overcome in Europe, and could become a positive relative to gasoline –But fuel cost advantage may diminish Basic population growth and car-dependency issues will make slowing U.S. demand a larger challenge than in EU. U.S. would need to improve efficiency on large fraction of new vehicles to see impact –Europe’s diesel momentum in 1995 helped produce a 15% improvement in MPG in 7 years –Would unlikely be achievable in the US during next 7 years

23. U.S. Future: Three Cases Reference Case: Continuing trends CAFÉ: Evolutionary (not revolutionary) changes –Technology changes –Affects all vehicles in small ways CAFÉ + Hybrid/Diesel: Extreme case –Early, high penetration of hybrid and diesel vehicles –Affects small number of vehicles in large way –Illustrates practical limits to impacts on demand

24. Reference Case: Future MPG Improvements Hindered by Continuing Shift Towards Trucks Source: EIA, Annual Energy Outlook 2005

25. New Vehicle MPG Profiles Source: EIA

26. CAFÉ+Hybrid/Diesel Case Far Exceeds Even Europe’s High Diesel Penetration Rates Source: EIA

27. MPG: New Cars Represent 7.5%-8.0% of Total Stock Each Year, But Are Driven Slightly More Than Older Cars Fleet Age and Use Distribution Vehicle AgeFleet Share Percent Miles Driven 0-2 yrs 15%21% 3-5 yrs 22%25% 6-10 yrs 28%29% 11 or more 35%25% Source: Summary of Travel Trends, 2001 National Household Travel Survey, ORNL

28. Even Fast Penetration of High Efficiency Vehicles Can’t Change Total Stock Quickly Source: EIA

29. Lower Costs May Result in More Miles Driven (3% Rebound Effect) Source: EIA

30. By 2020, CAFE Case Requires 40% Less Additional Supply Than Reference 2.9 MMB/D 1.7 0.8 2005-2020 Source: EIA

31. Implications for Refinery Investments It takes 10 years to begin to see effects of significant vehicle efficiency changes. Without much hybrid or diesel penetration, within 15 years, technology could reduce need for new capacity by 30-40%. With increased hybrid and diesel penetration, demand growth could be further slowed. But stopping demand growth soon requires unlikely to impossible vehicle/fuel changes. Furthermore, policy changes likely would be required to achieve even the modest CAFÉ Case.