State of the Union

In his speech, President Bush addressed U.S. gasoline consumption, the use of alternative (bio) fuels and a continued build of the SPR.  Starting with gasoline consumption, President Bush called for a 20% reduction in gasoline consumption. As current consumption is about 9.8 mb/d this corresponds to about 2 mb/d - in other words an annual reduction of about 200 kb/d per year, or 2.2% p.a. (CAGR). As the U.S. output of finished gasoline is about 9.1 mb/d, imports about 1.0 mb/d and exports about 0.14 mb/d, the United States would become self sufficient in gasoline supply in 10 years. This is a  dramatic change from the situation we have seen during the last decade and would have a great impact on the product tanker market.  The biggest challenge is naturally to change the behaviour of the average U.S. consumer and motorist. It is quite improbable that the U.S. motorist will reduce driving substantially, thus, the road to reduced gasoline consumption is probably through leaner burning cars (as increased taxation of gasoline is something akin to political hara-kiri in the U.S.A.).

The average fuel consumption of the U.S. passenger car park is about 11 l/100 km compared to the European average of 6.5 l/100 km. About 7.1 million new passenger cars are sold annually in the U.S.A. and given the average driven distance (abt. 20,000 km), the potential of fuel savings is 120,000 b/d per year. Is an abrupt reduction in specific gasoline consumption realistic? We don´t believe so.

The President also called for a quintupling of the current goal for the usage of alternative and renewable fuels during the coming decade. This calls for great advances in cellulosic ethanol production. Current technologies available are too energy-intensive and result in large amounts of byproducts. Another path is through genetically modified yeasts which might carry great risks in case these are released into nature. Assuming that technology makes the necessary advances and that risks linked to genetically modified yeasts are acceptable, the goals set by President Bush for 2017 indicate a supply of 2.3 mb/d of alternative fuels. Thus, conventional gasoline as well as diesel consumption will come under even more pressure. One must allow for increased demand during the coming decade, however, following this vision, one must assume that both future growth in demand as well as parts of current gasoline consumption will be covered by alternative fuels. This will also have a negative impact on product tankers.

Finally, President Bush called for a doubling of the current capacity of the SPR from the current 700 mb capacity to 1,400 mb capacity. One could see the argument for security in oil supplies, but on the other hand why would one increase storage at the same time as one signals dramatic cuts in consumption of petroleum products combined with a surge in the supply of alternative fuels?  Nevertheless, if such a build-up in the SPR materializes, crude carrier owners expect a period of increased demand for transportation.

The vision presented is a bold one, and for the sake of the environment it is positive news, however, we do not expect any immediate changes so it will be business as usual for quite some time (except for the SPR build-up - this is good news).