U.S. Liquid Fuels

Consumption. EIA estimates that in 2020, U.S. consumption of liquids fuels averaged 18.1 million b/d, down 2.5 million b/d (12%) from 2019 consumption levels. Reduced travel because of the COVID-19 pandemic drove consumption in the second quarter of 2020 down to 16.1 million b/d, the lowest level for any quarter since 1986. Total liquids consumption then increased, reaching approximately 18.5 million b/d in the fourth quarter of 2020, down from 20.6 million b/d in the fourth quarter of 2019.

As the vaccines for COVID-19 become more widely distributed, however, EIA expects the effects of the pandemic on liquids fuels consumption to moderate. EIA forecasts that total liquids consumption will average 19.5 million b/d in 2021 and 20.5 million b/d in 2022. Although EIA forecast liquids fuels consumption to increase from 2020, consumption in 2021 is forecast to remain lower than 2019 levels of 20.5 million b/d largely because consumption of transportation fuels including gasoline, distillate, and jet fuel is expected to remain lower than 2019 levels. EIA forecasts consumption in 2022 to almost return to 2019 levels; forecast gasoline and jet fuel demand that is less than 2019 levels is offset by distillate and hydrocarbon gas liquids (HGL) consumption that is forecast to be greater than 2019 levels.

In the second quarter of 2020, U.S. gasoline consumption fell to 7.1 million b/d, the lowest quarterly value in EIA data since 1993. Consumption increased to 8.5 million b/d in the third quarter before falling to 8.1 million b/d in the fourth quarter as seasonal declines and responses to increasing COVID-19 cases decreased demand. EIA expects continued responses to COVID-19 in the first half of 2021 to limit gasoline demand, which is forecast to average 8.5 million b/d, about 0.8 million b/d less than the first half of 2019 level. EIA expects consumption to increase to an average of 8.9 million b/d in the second half of 2021, but still almost 0.5 million b/d lower than consumption in the same period in 2019.

In 2022, EIA forecasts that vehicle miles traveled in the United States will be nearly equal to 2019 levels, but, because of increasing fuel efficiency, it expects gasoline consumption to average 0.3 million b/d (3.6%) less than in 2019. EIA assumes that work-from-home options in the future will remain more available than before the pandemic, limiting gasoline demand growth due to reduced commuting needs. EIA forecasts that gasoline consumption will average 8.7 million b/d in 2021 and 9.0 million b/d in 2022.

Distillate consumption in the United States in 2020 was less affected by responses to the COVID-19 pandemic than gasoline and jet fuel because it is driven more by economic activity and freight movement and is less affected by travel restrictions. In the second quarter of 2020, distillate consumption fell to 3.5 million b/d, and annual consumption averaged 3.8 million b/d in 2020, down 8% from 2019 levels. EIA expects forecast U.S. GDP growth rates of 4.2% in 2021 and 3.8% in 2022 to support growth in distillate consumption. In 2021, EIA forecasts distillate fuel consumption will average 4.0 million b/d, which is about 97% of 2019 consumption. EIA forecasts distillate consumption in 2022 will average 4.1 million b/d, about even with 2019 consumption.

EIA forecasts that U.S. consumption of hydrocarbon gas liquids (HGL) will increase by 170,000 b/d in 2021 and 210,000 b/d in 2022, to reach annual averages of 3.3 million b/d and 3.5 million b/d, respectively. EIA expects that nearly all of the HGL growth in 2021 and 2022 to stem from increased ethane use as petrochemical feedstock. EIA also expects additional ethane cracking capacity to come online in the next two years. The increase in HGL consumption in 2021 also reflects EIA’s forecast of increased propane demand as a result of a return to more normal winter weather after mild winter temperatures in the first quarter of 2020.

Crude Oil Supply. EIA estimates that annual U.S. crude oil production averaged 11.3 million b/d in 2020, down 1.0 million b/d from 2019 as a result of well curtailment and a drop in drilling activity related to low oil prices. EIA expects production to again decline in 2021, averaging 11.1 million b/d before increasing to an annual average of 11.5 million b/d in 2022, as prices and drilling conditions become more favorable.

Annual average production numbers can mask monthly trends in oil production. Most crude oil in the U.S. Lower 48 (L48) states excluding Gulf of Mexico (GOM) is tight oil production. L48 production fell from a record 10.4 million b/d in November 2019 to 8.0 million b/d in May 2020. The decline in production not only reflected a decline in drilling activity but also well curtailments because of very low oil prices. L48 production increased to 8.9 million b/d in August, largely because operators reduced curtailments. However, because much of the curtailed production is back online, EIA expects drilling activity and decline rate dynamics to again be the main drivers of production levels going forward. Because tight oil wells have steep decline curves in early years of production, continuous drilling of new wells is required to maintain average production in a region.

EIA expects L48 crude oil production to decline through February 2021 because declining legacy well production will offset production from new wells. For U.S. tight oil production, EIA analysis shows that changes in oil prices affect changes in crude oil production with about a six-month lag. EIA expects that recent increases in the oil price and in active drilling rigs will contribute to L48 production beginning to grow in the second quarter of 2021. Despite the steady increase in L48 crude oil production from the second quarter of 2021 forward, EIA expects that average 2021 L48 production will be 8.9 million b/d, or 3% lower than 2020 production levels.

EIA’s forecast WTI prices remain close to $50/b through the forecast period, and with an uncertain capital environment, domestic oil production growth could be limited. As operators’ financial conditions and drilling activity improve from the pressure they saw earlier in 2020, EIA expects L48 production in 2022 will rise by 0.4 million b/d on an annual average basis and reach more than 9.5 million b/d by the end of 2022. Most of the L48 onshore growth will occur in the Permian region. A combination of relatively high average production per well combined with high rig counts make the Permian region’s growth higher than the Eagle Ford or Bakken. In 2022, EIA expects almost two-thirds of L48 onshore growth to come from the Permian.

U.S. GOM production fell in 2020 because of an active hurricane season. EIA estimates that annual 2020 GOM production averaged 1.6 million b/d, down 0.3 million b/d from the 2019 average level. In 2020, according to daily estimates from the U.S. Bureau of Safety and Environmental Enforcement (BSEE), Hurricane Laura reduced GOM crude oil production an estimated 14.4 million barrels over a span of 15 days, the most of any hurricane since the combined effect of Hurricanes Gustav and Ike in 2008. GOM crude oil production fell below 1.1 million b/d in October 2020, the lowest monthly value since October 2008. EIA expects 2021 GOM production to average 1.8 million b/d in both 2021 and 2022.

EIA expects little change in Alaska’s crude oil production, which will average more than 0.4 million b/d in both 2021 and 2022, down slightly from 2020 levels.

Hydrocarbon Gas Liquids Supply. EIA estimates that natural gas production of HGLs increased in 2020. The commissioning of new, efficient natural gas processing plants allowed HGL production to increase in 2020 even as natural gas production declined. EIA forecasts natural gas plant production of HGLs to increase by 130,000 b/d in 2021 to an average of 5.3 million b/d and increase to 5.6 million b/d in 2022. EIA forecasts ethane production at natural gas processing plants will rise to meet growing demand for ethane as a petrochemical feedstock, increasing by 260,000 b/d and 240,000 b/d in 2021 and 2022, respectively, to an average of 2.5 million b/d in 2022. Propane production at natural gas plants is expected to decline by 80,000 b/d from 2020 to 1.6 million b/d in 2021 and increase by 60,000 b/d in 2022.

Liquid Biofuels. COVID-19-related reductions in economic activity in general, and decreased demand for liquid fuels in particular, had a significant effect on U.S. biofuels markets in 2020, and EIA expects this trend to persist throughout the forecast period. The forecast reflects current targets in the Renewable Fuel Standard (RFS) program, and EIA assumes future RFS targets will primarily affect biomass-based diesel production and net imports, which help to meet multiple RFS targets for biomass-based diesel, advanced biofuel, and total renewable fuel.

EIA estimates that U.S. biodiesel production increased in 2020 and was less affected by COVID-19-related restrictions than many other fuels, despite production capacity that declined slightly. U.S. biodiesel production increased by an estimated 5% from 2019 to 2020, averaging an estimated 118,000 b/d last year. EIA expects biodiesel production will increase by nearly 4% to average 122,000 b/d in 2021 before increasing by an additional 6% to average 130,000 b/d in 2022, driven largely by increasing RFS targets and the existence of the biodiesel production tax credit through 2022.

U.S. net imports of biomass-based diesel increased by an estimated 10% to an average 23,000 b/d in 2020, and EIA expects net imports to increase to an average of 34,000 b/d in 2021 and 47,000 b/d in 2022. Increased net imports of biomass-based diesel are driven primarily by increased volumes of renewable diesel imported to meet both California Low Carbon Fuel Standard requirements and the rising RFS targets.

Because of sharp reductions in motor gasoline demand resulting from the COVID-19 pandemic, U.S. ethanol production was significantly lower in 2020. U.S. ethanol production fell for the second consecutive year in 2020, decreasing by an estimated 12% from 2019 to an average of 0.90 million b/d. As a result, EIA forecasts that persistent reductions in domestic gasoline demand and limited higher-blend ethanol growth potential will result in ethanol production remaining lower than 2019 levels throughout the STEO forecast. EIA expects ethanol production to average 0.98 million b/d in 2021, 9% more than in 2020, and to average 1.02 million b/d in 2022, 3% more than 2021, though still slightly below the 2019 level.

U.S. ethanol consumption averaged 949,000 b/d in 2019, and EIA estimates ethanol consumption fell by 13% to an average of 824,000 b/d in 2020. EIA forecasts that ethanol consumption will gradually rise during the forecast period, largely following the recovery in domestic motor gasoline consumption with limited growth in any higher blending levels. EIA forecasts ethanol consumption will average 887,000 b/d in 2021 and 917,000 b/d in 2022. This level of consumption results in the ethanol share of total gasoline, which was an estimated 10.2% in both 2019 and 2020, remaining near this level during 2021 and 2022. This stable ethanol share assumes that growth in higher-level ethanol blends is limited by a combination of lower gasoline prices reducing incentives for increased ethanol blending and limited consumer demand for higher levels of ethanol blending beyond 10% of gasoline (E10).

Product Prices. Changes in travel patterns because of COVID-19- resulted in significant reductions in crude oil prices and demand for liquid fuels in the United States during 2020, which significantly reduced prices for gasoline and diesel fuel during the same period. U.S. retail prices for regular-grade gasoline averaged $2.18 per gallon (gal) during 2020, and retail diesel prices averaged $2.55/gal, down about 42 cents/gal and 50 cents/gal from their respective 2019 averages.

The U.S. gasoline and diesel price declines largely reflect a drop in crude oil prices. Refinery margins, which fell significantly as gasoline and diesel demand fell quickly in March and April, returned to levels within their normal seasonal ranges in the fourth quarter of 2020. During the same quarter, refiners reduced runs and inventory levels for gasoline and diesel fuel largely returned within their previous five-year ranges. EIA expects that any changes in petroleum product prices will largely follow movements in crude oil prices over the STEO forecast period as overall inventory levels remain above the five-year average and upward price pressures related to demand remain limited.

The U.S. refinery wholesale gasoline margin (the difference between the wholesale price of gasoline and the price of Brent crude oil) averaged 21 cents/gal in April 2020, increased to an average of 35 cents/gal in the third quarter of 2020, and fell back to 28 cents/gal in the fourth quarter. Third and fourth quarter margins both fell within normal recent five-year seasonal ranges. EIA expects the U.S. refinery wholesale gasoline margin will average 36 cents/gal in 2021 and 35 cents/gal in 2021, compared with a five-year (2016–20) average of 35 cents/gal.

EIA expects the retail price of regular gasoline in the United States will average $2.33/gal during the first quarter of 2021, 9 cents/gal lower than at the same time last year. EIA expects the U.S. monthly regular retail gasoline price will increase from an average of $2.28/gal in January 2021 to an annual peak of $2.53/gal in May before falling to $2.29/gal in December 2021. The U.S. regular gasoline retail price, which averaged $2.18/gal in 2020, is forecast to average $2.40/gal in 2021 and $2.42/gal in 2022. Regional annual average forecast prices for 2021 range from a low of $2.10/gal in the Gulf Coast region—Petroleum Administration for Defense District (PADD) 3—to a high of $3.10/gal in the West Coast region (PADD 5).

The retail price of diesel fuel in the United States averaged $2.55/gal in 2020, which was 50 cents/gal lower than in 2019. EIA forecasts that the diesel price will average $2.71/gal in 2021 and $2.74/gal in 2022. EIA expects that global economic activity returning to pre-pandemic levels will help drive diesel refinery margins higher than their multiyear lows in 2020 during the forecast period. Diesel refinery margins based on Brent crude oil averaged 30 cents/gal in 2020, which was 11 cents/gal lower than the 2015–19 average and the lowest annual average since 2009. EIA expects diesel refinery margins will average 39 cents/gal in 2021 and 42 cents/gal in 2022.