Market Narratives

Written By Nathaniel Bullard

No. 03 | March 11, 2024

 

For decades the US was the world’s largest producer and consumer of electrical power. It is still the world’s largest consumer of oil, though because it is also the world’s largest oil producer (ever) it is no longer the world’s biggest oil importer. The 21st-century data on two essential end use energy sources - electrons and motor gasoline - have a pleasing similarity.

But data are only available about the past. Data are the market that was, not the market that will be. And markets think in narratives, as a former colleague was fond of saying.

Here is one narrative: after decades of steady growth, US electricity and gasoline consumption became range-bound in the 2000s.

US electricity consumption, for which we have good monthly data since the early 1970s, more than doubled on a trailing 12 month basis from 1973 to 2023. Its peak in that time was in December 2022, but that peak was also a rounding error away from similar levels since the mid-2000s.

Gasoline demand grew much more over a longer period of time, increasing by a factor of six since 1950. As with electricity, it peaked in the mid 2000. Unlike electricity, it declined following the global financial crisis and stayed low for years, before reaching an apparent plateau in the late 2010s. We know what happened then - precisely four years ago today - and what it did to road transport fuel demand. What we also know now is that US vehicle miles traveled are at an all-time high, while gasoline consumption has not fully recovered to its pre-Covid days.

 

Neither data series, though, tells us about the future. For electricity, that future is a return to growth, and then some. Electric power executives, planners, and policymakers who have spent their formative career years in an essentially post-growth paradigm must now prepare for quite the opposite:

 

The throughlines in every analysis and commentary are the same, and with those throughlines comes another narrative. The US has a massive surge in AI-related power demand, and it is also experiencing a manufacturing boom. I covered both in my annual presentation, but suffice to say that this chart is something new in my time.

Here is a second narrative: we should anticipate more electricity demand growth, and we should expect it to be higher for longer.

US motorization, on the other hand, is staring into the potentially structural maw of reduced gasoline demand thanks to greater efficiency and electrification. Electrification is the prime factor in increasing US passenger fleet efficiency this decade, and is also the prime mover in US reductions in per-mile carbon dioxide emissions intensity.

This, then, is a final narrative: efficiency and electrification are changing the shape of fuel demand in ways that may be hard to undo. If returning the US power sector to sustained demand growth requires non-linear economic input changes in the form of data center demand, a surge in manufacturing, and an incipient urge to electrify everything, then that same electrification provides a dampener on gasoline demand, and durably so.

That is not to say that the strategy implications of either trend are easy. We need to build our way to the future of the power grid, and we cannot just wish away the businesses, and business models, embedded in a nearly 10 million barrel per day gasoline market. The next market narrative, then, will require squaring it all away to incorporate growth, change, strategy, and investment where some or all are required.

Media

Thank you to all who have read and shared my annual presentation.

I recorded one more podcast on it, released last week: Energy 360° with Cy McGeady of the Center for Strategic & International Studies.

Worth reading

 

QUIZ QUESTION

The world’s first megawatt-scale wind turbine.
What year was it built, and where, and how long would it be before the next megawatt-scale turbine was built?

Nathaniel Bullard
Previous

Past Futures, Futures Past
Next

Suspension of Disbelief