Oil consumption at the tipping point in U.S.?

Working on a Chief Oil and Gas natural gas rig in Mifflin Township, Pa., last month, Gregg Stiles, left, and Kevin McCannon positioned a tool on a length of drilling pipe.

Photo: Mike Mergen, Bloomberg News

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Oil consumption in the United States dropped nearly 2 percent in the first quarter of 2008. If that trend holds, it would be the biggest percentage decline since the 1991-92 recession.

The U.S. Energy Information Administration (EIA) this month predicted that U.S. consumption will drop by 1 percent this year, to 20.6 million barrels of oil per day. In 2007, consumption was basically flat. Typically demand has risen by 1 to 2 percent annually during good economic times.

The statistics have some folks wondering whether the country has hit a consumption tipping point, amid $3.50-per-gallon gasoline and historically high crude oil prices.

"We're seeing a price high enough so that consumers are responding with practical alternatives such as more conservation, more mass transit," said J. Drake Hamilton, science policy director at St. Paul-based Fresh Energy. "I was just at an Earth Day celebration at Boston Scientific in Arden Hills, and the most popular display was about biking to work."

In 1981-82 and in 1990, dips in U.S. consumption were followed by supply surges that lowered prices. As a result, demand at the pump grew again, and consumers continued to drive more every year.

But the EIA and the American Petroleum Institute, an industry group, expect global demand for oil will grow 30 percent by 2030. The reason? Surging demand from India and China, whose economies are growing fast and adding hundreds of thousands of cars annually. That means that, even if the U.S. economy slows, the world price of oil is not likely to decline as it once did.

Today, the world gulps 85 million barrels daily. And most of world's oil is controlled not by "Big Oil," but by the likes of Saudi Arabia, Iran, Mexico, Iraq, Venezuela, Russia and Nigeria, whose state-owned oil companies collectively hold most of the world's reserves.

John Felmy, chief economist of the American Petroleum Institute, pointed out that every time gasoline prices go up, Congress and the public scream about exorbitant profits for investor-owned companies such as ExxonMobil Corp., Chevron and Conoco Phillips.

But even the biggest U.S. companies can't do much to influence crude oil prices.

Felmy acknowledged that the investor-owned oil companies have made record profits in recent years. But the industry's after-tax profit margin of 8.3 percent is middling among U.S. industries. The leader is beverage and tobacco products, at 19.1 percent in 2007.

"We understand that [higher gas and diesel prices] are a burden and that they have doubled in price [since 2004]," he said. "But Congress has the idea to tax the oil industry. And how does raising taxes help consumers at the pump?"

With most of the known oil reserves in the volatile Middle East, it takes the U.S. military to protect our oil imports, which total 60 percent of U.S. consumption.

The Environmental Defense Fund, a lobby and research organization, criticizes the oil industry because of a "hidden subsidy," in that it doesn't have to pay for the environmental damage done by its emissions of carbon dioxide. Many environmental and industry groups, including the U.S. automakers and British Petroleum, have joined with the defense fund in calling for a U.S. law that will cap carbon emissions, the leading cause of global warming.

"The overall arc is moving toward other fuels that have a lower carbon impact," the Defense Fund's Miriam Horn said. "All three presidential candidates support a carbon cap. Globally, the upward pressure on oil supplies is going to continue.

"We don't like government approaches that pick winners. We think the market will do that. But the beauty of a cap is that it's about performance. And a low-carbon alternative will win."

The anti-oil crowd says hybrid vehicles, tougher mileage standards, alternative fuels and, eventually, plug-in electric cars will deliver a gradual reduction in U.S. oil consumption.

Neal St. Anthony • 612-673-7144

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    Thursday April 24, 2008

    -1.9% The change in overall U.S. petroleum consumption between fourth-quarter 2007 and first-quarter 2008.

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