CERA: U.S. Gasoline Demand Likely Peaked in 2007

Americans are driving less and demanding greater fuel efficiency as a result of sustained high prices

Cambridge, MA June 19, 2008; Gasoline demand in the United States may have reached its peak, as rising prices lead consumers to make long-term decisions that will weaken demand in the years to come, according to a new analysis by Cambridge Energy Research Associates (CERA), an IHS Inc. company.

The report, Drivers Turn the Corner in the United States, conducted by CERA’s global oil service predicts that U.S. gasoline demand will likely decline in 2008 for the first time in 17 years. If petroleum prices stay at or near their current levels, 2007 could prove to have been the peak year for U.S. gasoline demand.

“Americans are now driving less and demanding greater fuel efficiency from their vehicles when they do drive,” said Aaron Brady, CERA director, global oil. “Automakers are responding by accelerating the shift in their model mix. Both short- and long-term signals are all pointing toward decreasing future demand.”

U.S. gasoline prices are already at their highest level ever, even in inflation-adjusted terms. Increases in real income over the past 30 years mean that gasoline prices are not yet causing as much economic pain as they did during the 1980s. But that level is now quickly approaching. CERA estimates that such a “pain point” would be an annual average price of just over $4.20 per gallon—not far from current levels.

Though the current U.S. economic slowdown explains some of the decline in gasoline demand, long-term shifts in consumer behavior that began as much as two years ago in response to high prices are the key drivers to lower demand, the report says.

Growth in total vehicle miles traveled (VMT) by American drivers slowed substantially in 2005 and 2006 and VMT is now trending downward for the first time since the oil shocks of the 1970s and 1980s.

U.S. vehicle sales have been decreasing since mid-2005, and sales of light trucks—which tend to get fewer miles per gallon—have dropped significantly. Light truck sales (a category which includes sports utility vehicles) are now less than half of total light vehicle sales for the first time since 2001.

Consumer preference has begun to shift toward more fuel-efficient vehicles. Hybrid vehicle sales increased by more than a third from 2006 to 2007. Last year, Americans bought more Toyota Prius hybrids than they did Ford Explorers, which was the best selling sport utility vehicle in the country for more than a decade.

“The impact of this shift towards greater fuel efficiency is only beginning to be felt,” says Samantha Gross, CERA associate director, global oil. “The change is evident in the strategies of car makers and in the new focus on electric batteries. Stricter government efficiency standards, set to begin in 2011, will continue the trend.”

For more information about Drivers Turn the Corner in the United States, contact Bethany Genier at +1 617 866 5000 or bgenier@cera.com

For more information on CERA’s Driving the Future Forum , contact Dalton Perras at dperras@cera.com or visit our website, www.cera.com.

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About CERA (www.cera.com)

Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, MA, and has offices in Bangkok, Beijing, Calgary, Dubai, Johannesburg, Mexico City, Moscow, Mumbai, Oslo, Paris, Rio de Janeiro, San Francisco, Tokyo and Washington, DC.

About IHS (www.ihs.com)

IHS is a leading global source of critical information and insight for customers in a broad range of industries. Our customer product and service solutions span four major areas of information: energy, product lifecycle management, environmental and security. By focusing on our customers first, we deliver data and expertise that enable innovative and successful decision-making. Customers range from governments and multinational companies to smaller companies and technical professionals in more than 180 countries. IHS has been in business since 1959 and employs more than 3,500 people in 35 locations around the world.