Keywords

gasoline, demand, model, United States, OLS, regression, MPG, VEH, PRICE, VMT, MBD, ARIMA, normality, heteroskedasticity, serial correlation, multicollinearity, forecasting, light vehicles, fleet, Energy Independence Act

Abstract

The United States is the world's largest oil consumer demanding about twenty five percent of the total world oil production. Whenever there are difficulties to supply the increasing quantities of oil demanded by the market, the price of oil escalates leading to what is known as oil price spikes or oil price shocks. The last oil price shock which was the longest sustained oil price run up in history, began its course in year 2004, and ended in 2008. This last oil price shock initiated recognizable changes in transportation dynamics: transit operators realized that commuters switched to transit as a way to save gasoline costs, consumers began to search the market for more efficient vehicles leading car manufactures to close 'gas guzzlers' plants, and the government enacted a new law entitled the Energy Independence Act of 2007, which called for the progressive improvement of the fuel efficiency indicator of the light vehicle fleet up to 35 miles per gallon in year 2020. The past trend of gasoline consumption will probably change; so in the context of the problem a gasoline consumption model was developed in this thesis to ascertain how some of the changes will impact future gasoline demand. Gasoline demand was expressed in oil equivalent million barrels per day, in a two steps Ordinary Least Square (OLS) explanatory variable model. In the first step, vehicle miles traveled expressed in trillion vehicle miles was regressed on the independent variables: vehicles expressed in million vehicles, and price of oil expressed in dollars per barrel. In the second step, the fuel consumption in million barrels per day was regressed on vehicle miles traveled, and on the fuel efficiency indicator expressed in miles per gallon. The explanatory model was run in EVIEWS that allows checking for normality, heteroskedasticty, and serial correlation. Serial correlation was addressed by inclusion of autoregressive or moving average error correction terms. Multicollinearity was solved by first differencing. The 36 year sample series set (1970-2006) was divided into a 30 years sub-period for calibration and a 6 year "hold-out" sub-period for validation. The Root Mean Square Error or RMSE criterion was adopted to select the "best model" among other possible choices, although other criteria were also recorded. Three scenarios for the size of the light vehicle fleet in a forecasting period up to 2020 were created. These scenarios were equivalent to growth rates of 2.1, 1.28, and about 1 per cent per year. The last or more optimistic vehicle growth scenario, from the gasoline consumption perspective, appeared consistent with the theory of vehicle saturation. One scenario for the average miles per gallon indicator was created for each one of the size of fleet indicators by distributing the fleet every year assuming a 7 percent replacement rate. Three scenarios for the price of oil were also created: the first one used the average price of oil in the sample since 1970, the second was obtained by extending the price trend by exponential smoothing, and the third one used a longtime forecast supplied by the Energy Information Administration. The three scenarios created for the price of oil covered a range between a low of about 42 dollars per barrel to highs in the low 100's. The 1970-2006 gasoline consumption trend was extended to year 2020 by ARIMA Box-Jenkins time series analysis, leading to a gasoline consumption value of about 10 millions barrels per day in year 2020. This trend line was taken as the reference or baseline of gasoline consumption. The savings that resulted by application of the explanatory variable OLS model were measured against such a baseline of gasoline consumption. Even on the most pessimistic scenario the savings obtained by the progressive improvement of the fuel efficiency indicator seem enough to offset the increase in consumption that otherwise would have occurred by extension of the trend, leaving consumption at the 2006 levels or about 9 million barrels per day. The most optimistic scenario led to savings up to about 2 million barrels per day below the 2006 level or about 3 millions barrels per day below the baseline in 2020. The "expected" or average consumption in 2020 is about 8 million barrels per day, 2 million barrels below the baseline or 1 million below the 2006 consumption level. More savings are possible if technologies such as plug-in hybrids that have been already implemented in other countries take over soon, are efficiently promoted, or are given incentives or subsidies such as tax credits. The savings in gasoline consumption may in the future contribute to stabilize the price of oil as worldwide demand is tamed by oil saving policy changes implemented in the United States.

Notes

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Graduation Date

2009

Advisor

Al-Deek, Haitham

Degree

Master of Science (M.S.)

College

College of Engineering and Computer Science

Department

Civil and Environmental Engineering

Degree Program

Civil Engineering

Format

application/pdf

Identifier

CFE0002539

URL

http://purl.fcla.edu/fcla/etd/CFE0002539

Language

English

Release Date

May 2009

Length of Campus-only Access

None

Access Status

Masters Thesis (Open Access)

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