You need to refill his water bottle on the pitstops. Otherwise when he gets thirsty he has nothing to drink but the fuel...
Otherwise the only explanations I can think of are that he is covering a longer distance than you (more laps between pitstops or you ride kerbs more aggressively or have discovered shortcuts), or you spend a large portion of any lap in a higher gear than him, or on a partial throttle. I've never paid attention to my fuel consumption to see who goes further on a tank. My b-spec driver puts in the lap times of an economy run competitor... so if he's using more fuel than me while accomplishing that, he's in trouble
EDIT: I just thought.... GT4's fuel consumption could be time related, as opposed to related to throttle usage. Soooo each car may simply be programmed to use a certain amount of fuel per minute, like an aeroplane. If this is the case, or if this does have a large effect on fuel consumption, or if the fuel consumption calculation does not accurately represent true life it's entirely possible that if you both do, say, 10 laps of the same circuit in the same car and then pit, and your laps were quicker, he will have used more fuel simply because he was driving for longer. This could be tested by lapping and pitting at different paces.
However, you do say his consumption gets worse at a higher pace setting... so now the question is: Does GT4 take your pace into consideration to calculate fuel consumption? Or does he, on pace 4 or 5, take longer overall to complete his laps because he falls off the circuit more often? This can be tested too.
