U.S. Liquid Fuels

U.S. Consumption. We forecast that petroleum and liquid fuels consumption in the United States will average 20.6 million barrels per day (b/d) in 2022, which would slightly surpass consumption from 2019. In 2023, we forecast that consumption will surpass 2019 levels and reach 20.9 million b/d. The forecast growth in petroleum and liquid fuels consumption is led by increases in gasoline consumption in 2022 and by hydrocarbon gas liquids (HGLs) in 2023.

We forecast that U.S. consumption of HGLs will increase by 0.2 million b/d in 2022 and by 0.1 million b/d in 2023, to reach annual averages of 3.6 million b/d in 2022 and 3.7 million b/d in 2023. We expect all of the HGL consumption growth in 2022 and nearly all of the growth in 2023 to be from increased use of ethane as a petrochemical feedstock. We expect two additional petrochemical crackers to come online in the United States during the next two years, both of which will exclusively use ethane as a feedstock. As a result, our forecast of ethane consumption rises by 0.3 million b/d in 2022 and by 0.1 million b/d in 2023.

In this STEO, we expect that continuing effects from the COVID-19 pandemic will limit U.S. gasoline consumption and that consumption through 2023 will remain below levels seen before the pandemic in 2019. We forecast that gasoline consumption will increase by almost 0.3 million b/d (3.1%) from 2021 levels to an average approaching 9.1 million b/d in 2022. In 2023, we expect that consumption growth will slow to 0.1 million b/d (1.0%) and that annual consumption will average more than 9.1 million b/d, below the 2019 consumption level of 9.3 million b/d.

Although we expect U.S. gasoline consumption will remain below 2019 levels, we forecast that vehicle miles traveled (VMT) will exceed 2019 levels in 2022 and 2023. In the first half of 2022 (1H22), we expect VMT will be below 1H19 levels. We expect that people’s responses to the COVID-19 pandemic will continue to limit driving activity, particularly in 1Q22. We assume the effects of the COVID-19 pandemic on gasoline demand will decrease after 1Q22, and driving activity will increase over the summer season, with personal travel and employment growth bringing VMT above 2019 levels in 2H22. Annual VMT in our forecast for 2022 is about equal to 2019 levels. We expect that VMT growth will continue in 2023 and that VMT will increase by 2.2% compared with 2022.

We expect increasing vehicle fuel efficiency, measured in miles per gallon, to offset some of the increased VMT. In 2022 and 2023, vehicle efficiency will likely increase 1%–2% each year. On December 20, the Biden administration released a final rule for greenhouse gas emissions from cars and trucks for model years 2023–26. The final rule increases the stringency of emissions standards by 5%–10% for each model year and replaces the previous standard that increased 1.5% annually. Because the new rule only applies to new cars and because car manufactures have a great deal of flexibility of when they announce a new model year, we expect that the new rule will have limited effects on fleet-wide vehicle efficiency during 2023.

U.S. distillate consumption increased by almost 0.2 million b/d (4.3%) in 2021. We expect that distillate consumption will increase by more than 0.1 million b/d (3.1%) in 2022 and by less than 0.1 million b/d (1.4%) in 2023, largely because of slowing U.S. GDP growth. Based on forecasts from IHS Markit, annual GDP growth in 2021 averaged 5.7% and is expected to fall to 4.3% in 2022 and 2.8% in 2023. The decreasing rate of GDP growth in our forecast largely slows demand growth for distillate fuel, which includes diesel fuel. Distillate demand, particularly diesel fuel, is closely tied with economic activity and freight movement (such as trucking and rail). We assume that the effects of supply chain bottlenecks on distillate demand will generally decrease compared with 2021, contributing to annual distillate demand growth. If supply chain bottlenecks worsen, however, actual distillate fuel consumption may be less than forecast. Conversely, if supply chain bottlenecks improve, distillate demand could rise above the current forecast.

U.S. jet fuel consumption in the forecast rises from 1.4 million b/d in 2021 to 1.6 million b/d in 2022 and 1.7 million b/d in 2023. We expect responses to the COVID-19 pandemic will have decreasing effects on jet fuel consumption moving further into the forecast period. Jet fuel demand, however, has been the most affected by the pandemic, decreasing from 1.7 million b/d in 2019 to 1.1 million b/d in 2020. Variants of COVID-19 (such as Omicron) could deter people from flying, which may lead to jet fuel consumption being less than forecast.

U.S. Crude oil supply. U.S. crude oil production averaged 11.2 million b/d in 2021, down 0.1 million b/d from 2020 as a result of well freeze-offs during extreme cold in February and well shut-ins during Hurricane Ida in late August and early September. Production in 2021 was 1.1 million b/d lower than the annual record of 12.3 million b/d set in 2019. We expect annual average U.S crude oil production to increase to 11.8 million b/d in 2022 and to 12.4 million b/d in 2023, which would set a new record. Despite our forecast of record annual average crude oil production in 2023, we do not expect production in any month in the forecast will surpass the monthly record of 12.97 million b/d set in November 2019. Production growth reflects oil prices that we expect will be sufficient to lead to continued increases in upstream development activity, which we forecast will proceed at a pace that will more than offset decline rates.

Annual average production numbers can conceal important monthly trends in oil production. For example, in February 2021, monthly average crude oil production from the Lower 48 states (L48) fell by 14% from January, from 8.8 million b/d to 7.6 million b/d, as a result of extreme cold. This event disrupted production operations across the country, particularly in Texas, which experienced widespread well freeze-offs. L48 production increased to 8.9 million b/d in March, as normal operations resumed. Because most L48 production is unconventional tight oil, we expect drilling activity and decline rate dynamics to mainly drive L48 production going forward. Tight oil wells have steep declines in the early years of their production, requiring continuous drilling of new wells to maintain unchanging production rates.

We expect production to increase for most of 2022, as more new wells come online to offset decline rates. For U.S. tight oil production, our models include a four-to-six-month lag between a change in oil price and change in production. We expect that WTI crude oil prices above $70/b during most of 2H21 and 1H22 increase the number of active drilling rigs and contribute to L48 production growth. We expect annual average L48 production of 9.6 million b/d for 2022.

We expect the WTI crude oil price to average $71/b in 2022. This price is up $3/b from the 2021 average and is sufficient for producers to realize positive cash flows in many areas, particularly the more productive areas of the Permian Basin. Producers saw increased cash flow in 2021, having held back on capital investments and cut costs, as crude oil prices rose significantly. Restrained investment led to fewer rig additions than what we have observed at similar crude oil price levels in previous years. With financial conditions among operators improved, we expect development to proceed at a modest pace. We expect average month-over-month L48 production growth to be 50,000 b/d in 2022. Most of L48 growth in the forecast comes from the Permian Basin. We expect L48 production growth to slow to a monthly average of 40,000 b/d in 2023, as a decline in oil prices in our forecast slows rig additions. Annual average L48 crude oil production for 2023 is 10.2 million b/d.

From 2020 to 2021, annual average production in the U.S. Federal Gulf of Mexico (GOM) increased from 1.6 million b/d to 1.7 million b/d. This increase occurred despite Hurricane Ida, which affected the GOM in late August 2021, causing monthly average crude oil production from the region to decline from 1.9 million b/d in July 2021 to 1.1 million b/d in September 2021. At the peak of the hurricane-related disruptions, 96% of GOM crude oil production was shut in, according to estimates by the U.S. Department of Interior’s Bureau of Safety and Environmental Enforcement. We expect annual average GOM production of 1.8 million b/d in 2022 and remain near that level in 2023, still below the record 1.9 million b/d of 2019.

Alaska’s crude oil production in the forecast stays near the 2021 level of 0.4 million b/d in both 2022 and 2023.

Hydrocarbon gas liquids supply. We forecast U.S. production of hydrocarbon gas liquids (HGLs) to increase by 0.5 million b/d in 2022 to an average of 5.9 million b/d and then increase to an average of 6.1 million b/d in 2023. HGL production will increase as a result of rising production of natural gas in 2022 and 2023, higher rates of natural gas processing plant utilization, and continuing efficiency improvements in the U.S. natural gas processing plant fleet. Ethane production will rise to meet growing demand from the domestic industry and global importers for ethane as a petrochemical feedstock. We expect U.S. ethane production to increase by 0.3 million b/d and by 0.2 million b/d in 2022 and 2023, respectively, reaching an average of 2.6 million b/d in 2023. We expect net ethane exports to grow by 40,000 b/d in 2022 and by 20,000 2023 as a result of rising global petrochemical demand and additional capacity to ship U.S. ethane overseas. We forecast propane production will rise by almost 0.1 million b/d in both 2022 and 2023.

Liquid biofuels. After COVID-19-related responses reduced demand for transportation fuels in 2020, U.S. biofuels consumption returned near to pre-pandemic levels in 2021. We forecast biofuels consumption will increase further in 2022, based on our expectation of increased demand for transportation fuels and the current targets in the Renewable Fuel Standard (RFS) program. Based on the current RFS targets, we forecast increases in biomass-based diesel production, consumption, and net imports.

U.S. biodiesel production increases in 2022 and 2023 in our forecast. U.S. biodiesel production decreased by 10% from 2020 to 2021, averaging an estimated 107,000 b/d in 2021. We expect biodiesel production will increase by 7% to average 114,000 b/d in 2022 and increase to 115,000 b/d in 2023. These production increases follow our expectation of growing U.S diesel consumption, along with higher RFS targets and the continuation of the $1/gal biodiesel and renewable diesel tax credit through December 2022.

Net U.S. imports of biomass-based diesel increased by 31% to 28,000 b/d in 2021, and we expect net imports to increase to an average of 46,000 b/d in both 2022 and 2023. Increased net imports of biomass-based diesel primarily reflect increased volumes of renewable diesel imported to meet both California Low Carbon Fuel Standard requirements and the federal RFS targets.

U.S. ethanol production increased in 2021 from 2020 but remained lower than 2019 levels. U.S. ethanol production in 2021 averaged 980,000 b/d, an increase of 8% from 2020. Ethanol production in our forecast rises to an average of 1.02 million b/d in both 2022 and 2023.

U.S. ethanol consumption averaged 910,000 b/d in 2021, an increase of 10% from 2020. We forecast ethanol consumption will average 930,000 b/d in 2022 and almost 950,000 b/d in 2023. The increase in ethanol consumption reflects our expectation of increasing gasoline demand. At the forecast levels for 2022 and 2023, the ethanol share of gasoline consumption would be near 2020 and 2021 levels of 10.3%.

Product prices. Reduced demand for liquid fuels in the United States during 2020 led to low prices for gasoline and diesel fuel during the same period. In 2021, increases in economic activity and personal mobility contributed to increasing prices for crude oil, gasoline, and diesel fuel compared with 2020. U.S. retail prices for regular-grade gasoline averaged $3.02/gal during 2021, and retail diesel prices averaged $3.29/gal, up 84 cents/gal and 73 cents/gal, respectively, from their 2020 averages.

Higher retail prices for gasoline and diesel in the United States reflect an increase in demand for petroleum fuels as well as increasing crude oil prices. After decreasing significantly in 2020, refinery margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) reached their highest levels since 2014 for both gasoline and diesel in 2021. Refinery margins increased significantly beyond their recent five-year averages, driven primarily by rising fuel demand amid still restrained refinery production. Significant increases in renewable identification number (RIN) prices, which are embedded in wholesale product prices, also raised refinery margins.

Supply disruptions also contributed to increased refinery margins for those facilities that continued operations during several instances in 2021. In February, a severe cold weather system in Texas resulted in a reduction in refinery operations along the U.S. Gulf Coast. In May, a cyberattack on the Colonial Pipeline put upward pressure on retail fuel prices because of related logistical constraints. In August, hurricanes along the U.S. Gulf Coast (particularly in Louisiana) caused flooding and temporary refinery shutdowns, which also contributed to lower refinery production at that time.

Wholesale U.S. refinery gasoline margins started 2021 at a monthly average of 27 cents/gal in January, before increasing to 62 cents/gal in August. We estimate margins averaged 49 cents/gal in December, resulting in an average of 48 cents/gal for 2021, up from 31 cents/gal in 2020 and 32 cents/gal in 2019. As forecast refinery runs continue to increase and inventories grow, we estimate gasoline refinery margins will decrease over the forecast period, averaging 42 cents/gal in 2022 and 38 cents/gal in 2023.

Ongoing uncertainty and volatility related to the COVID-19 pandemic, the Omicron variant, and potential future variants all present additional downside risks for refinery margins and wholesale product prices. However, potential short-term disruptions related to inclement weather, like those that took place in February and August 2021, present upside risks for product prices throughout the forecast.

We expect U.S. regular retail gasoline prices will average $3.20/gal in 1Q22, 64 cents/gal higher than at the same time last year, but down 13 cents/gal compared with 4Q21. We expect the U.S. regular retail gasoline price will average $3.28/gal in January 2022 before decreasing through the year as crude oil prices and refinery margins fall, eventually averaging $2.77/gal in December 2022. We forecast the U.S. regular gasoline retail price, which averaged $3.02/gal in 2021, will average $3.06/gal in 2022 and $2.81/gal in 2023.

Regional annual average forecast prices for 2022 range from a low of $2.71/gal in the Gulf Coast region (PADD 3) to a high of $3.86/gal in the West Coast region (PADD 5). Reduced refinery capacity on the West Coast compared with 2019 pre-pandemic levels is likely to contribute to higher refinery margins, wholesale prices, and resale margins in that region in the future.

The retail price of diesel fuel in the United States averaged $3.29/gal in 2021, which was 73 cents/gal higher than in 2020. We forecast the diesel price will average $3.33/gal in 2022 and $3.27/gal in 2023. We expect 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 averaged 42 cents/gal in 2021, which was 4 cent/gal higher than the 2016–20 average and 12 cents/gal higher than levels seen in 2020. We forecast that diesel refinery margins will average 47 cents/gal in 2022 and 45 cents/gal in 2023.