why is diesel so expensive when its a by product of unleaded

Submitted: Tuesday, Apr 15, 2008 at 14:37
ThreadID: 56665 Views:7147 Replies:18 FollowUps:30
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driving to work today and i noticed the BPs around southern adelaide are $165.9
Why is it so much dearer than unleaded when its a by product. Caltex was $160.09.
Unleaded is around $143.09


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Reply By: Notso - Tuesday, Apr 15, 2008 at 14:41

Tuesday, Apr 15, 2008 at 14:41
The official explanation is that our price is set by the Singapore refinery prices????

Because there is a shortage of diesel over there we pay???

Now I doubt whether even the Lord would know why we have to suffer for their diesel shortage??

Anyhow I doubt anything is going to change it much, just back off on the speed a bit and travel less I guess.
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Follow Up By: Nomadic Navara - Tuesday, Apr 15, 2008 at 17:10

Tuesday, Apr 15, 2008 at 17:10
"Now I doubt whether even the Lord would know why we have to suffer for their diesel shortage??"

We are in a world market, we have to compete with the rest of the world for our oil products.

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Follow Up By: Notso - Tuesday, Apr 15, 2008 at 17:19

Tuesday, Apr 15, 2008 at 17:19
So you'd probably also agree we should be paying 1 pound 10 pence per litre as they do in Great Britain.
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Follow Up By: Dasher Des - Tuesday, Apr 15, 2008 at 17:28

Tuesday, Apr 15, 2008 at 17:28
Since we are tied to the almighty american dollar, I'd rather be paying there fuel prices than ours. I think about 50% of ours. at the moment but dont quote me as it was heresay from a US citizen. LOL
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Follow Up By: Nomadic Navara - Tuesday, Apr 15, 2008 at 17:45

Tuesday, Apr 15, 2008 at 17:45
Most of the difference in price between countries is in the tax component. Shell produced a comparison between world prices of petrol for March 06. See it on this page

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Follow Up By: Ianw - Tuesday, Apr 15, 2008 at 20:22

Tuesday, Apr 15, 2008 at 20:22
Unlike petrol, diesel price is based on the Saudi price of oil.
Ian
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Follow Up By: Member - Graeme (NSW) - Wednesday, Apr 16, 2008 at 06:11

Wednesday, Apr 16, 2008 at 06:11
Here in Luanda, Angola we pay $0.40 per litre unleaded, diesel is $0.55 per litre. I wish I could bring in every six weeks I come back home 200ltr duty free. Would keep the Patrol going nicely.
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Reply By: KSV. - Tuesday, Apr 15, 2008 at 14:52

Tuesday, Apr 15, 2008 at 14:52
You would be surprise to find that petrol is “by-product”. Diesel and jet fuel (sort of kerosene) accounts for vast majority of refinery products.

Serg
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Follow Up By: Nomadic Navara - Tuesday, Apr 15, 2008 at 17:12

Tuesday, Apr 15, 2008 at 17:12
Yes - the product with the highest demand is never the by-product.

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Follow Up By: The Landy - Tuesday, Apr 15, 2008 at 17:35

Tuesday, Apr 15, 2008 at 17:35
It is neither. Diesel is a mid-distillate and is refined in a completely separate process; it is not a by-product of any other petroleum product.
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Follow Up By: Waynepd (NSW) - Wednesday, Apr 16, 2008 at 10:37

Wednesday, Apr 16, 2008 at 10:37
Diesel is a product straight out of the crude distillation unit and petrol is a blend of various streams from the distillation process plus products from the Crackers.

Diesel is Distilled from Crude oil then desulphured and and dried then off to market. Simplest product to produce compared to petrol.

Petrol production involves a number of different plants treating different cuts of product to conform to the specs required ie Octane, Flash, Vapour Pressure etc. a much more involved process with a higher energy/ resources cost to the company to produce.

The result is that from a barrel of crude you probably get more petrol because there is more of the barrel involved in the final product. Whereas Diesel is a defined single cut from a limited range of the Distillation.
Meaning that less of the barrel is actually Diesel


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Reply By: rooooboy - Tuesday, Apr 15, 2008 at 14:52

Tuesday, Apr 15, 2008 at 14:52
GOVERNMENT!!!!!

Have a look at your next racv article and see the tax's placed on each litre of diesel!!!
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Reply By: MrBitchi (QLD) - Tuesday, Apr 15, 2008 at 14:59

Tuesday, Apr 15, 2008 at 14:59
It's because of refinery margins. Currently the refinery margin on ULP is about 5c/lt, while on diesel its about 30c/lt.
Why? Because they can. Officially its because there's less competition in the diesel market.
Excise is about the same on both so nothing to do with the RuddBot.
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Follow Up By: Kumunara (NT) - Tuesday, Apr 15, 2008 at 16:39

Tuesday, Apr 15, 2008 at 16:39
John


Prior to GST Diesel was always cheaper than petrol.

Since GST is has been more expensive.

We can thank lille Johnny for the price. I doubt whether Kevin Dudd will do anything about it. The government makes too much out of it.

The government also could do something about the refinery margins you quoted but neglect doing so.



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Follow Up By: Saharaman (aka Geepeem) - Tuesday, Apr 15, 2008 at 20:21

Tuesday, Apr 15, 2008 at 20:21
John is absolutely correct - the refineries are making their profit out of diesel not petrol. You could say petrol is far too cheap (with a gross margin of 5c) not that diesel is too dear (as far as refinery margins go).

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Follow Up By: MrBitchi (QLD) - Wednesday, Apr 16, 2008 at 07:48

Wednesday, Apr 16, 2008 at 07:48
Tjilpi,
GST is applied equally to both products. Has nothing to do with the difference in price.

The refinery margin is the oil companies profit. Would YOU want the Govt butting in and telling you how much markup you could put on an item??

The price of fuel has SFA to do with the govt of the day. They had the same amount of excise on fuel when it was 70c/lt as they do now. The increase is purely down to the price of crude oil on the world market. If you want to blame someone then blame the Arab sheik who has a solid silver Audi and a gazillion room mansion and a personal airbus 380 for his wife and .... blah blah blah...
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Follow Up By: Kumunara (NT) - Wednesday, Apr 16, 2008 at 17:15

Wednesday, Apr 16, 2008 at 17:15
John


I am not disputing what you have said in relation to the profits of the oil companies.

I am making a simple observation that prior to GST diesel was cheaper than petrol and since is more expensive. That is a fact.

The GST is 10 percent. As part of the implementation of the GST something else change to increase the price.




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Follow Up By: Member - Davoe (Yalgoo) - Thursday, Apr 17, 2008 at 07:56

Thursday, Apr 17, 2008 at 07:56
Kumunara
disal hasnt regulary been cheaper than petrol for many years - certainly from the early 90s
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Reply By: Philip A - Tuesday, Apr 15, 2008 at 15:07

Tuesday, Apr 15, 2008 at 15:07
Mobil's Queensland diesel cracker has just broken down, so there will be a shortage in the market everywhere.
I think this may be the answer , as I noticed the difference between ULP and diesel has risen to 30 CENTS in Kincumber Shell ( Diesel 167.5 and ULP 137.9 before the discount day of Tuesday) on the NSW Central Coast.
Regards Philip A
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Follow Up By: blue one - Tuesday, Apr 15, 2008 at 20:02

Tuesday, Apr 15, 2008 at 20:02
Mate,
Buy from the Mobil servo at west gosford on the Pacific hwy. They only push the envelope sometimes, generally they are cheaper.

Cheers
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Follow Up By: Member - Kevin J (QLD) - Wednesday, Apr 16, 2008 at 16:01

Wednesday, Apr 16, 2008 at 16:01
Mobil does not have a refinery in Queensland. The current problem is due to a malfunction in the Caltex (formally Ampol) refinery.

Kevin J
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Reply By: Mr Pointyhead - Tuesday, Apr 15, 2008 at 15:19

Tuesday, Apr 15, 2008 at 15:19
Raise a complaint with the ACCC.

Go to

This Link
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Reply By: robak (QLD) - Tuesday, Apr 15, 2008 at 15:39

Tuesday, Apr 15, 2008 at 15:39
Why do you think it's a byproduct of unleaded? I thought it was the other way around.
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Reply By: AdlelaideGeorge - Tuesday, Apr 15, 2008 at 15:40

Tuesday, Apr 15, 2008 at 15:40
The .38 cents per litre credit for some business activities is the reason. They decided some years ago to just start whacking it on top! It's the same with any rebate/grant/credit etc that the Govt gives business-business just whacks it straight on top. Why it took the oil companies so long to do it with diesel is a mystery.
From this July business can claim 38 cents per litre for petrol for the same activities as has been the case for diesel and also from July this year 19.0715 cents per litre for just about any activity for diesel and petrol-from 2012 that credit will jump to 38 cents per litre.
Fuel is going to get progressively even more expensive in Australia that's for sure!

Happy (?) days

George
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Follow Up By: DIO - Tuesday, Apr 15, 2008 at 17:23

Tuesday, Apr 15, 2008 at 17:23
There exists an unprecedented demand for diesel throughout the world - particularly in developing countries. Like any commodity, such demand for any product generally makes it a sellers market. that is exactly what we are now seeing in the market place. Better get used to it because we won't see any changes likely to benefit consumers in our lifetime. Remember the percentage of diesel sold to private motorists is very small compared with that used by commercial/mining users. They get rebates, private motorists don't.
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Reply By: Member - DOZER- Tuesday, Apr 15, 2008 at 15:48

Tuesday, Apr 15, 2008 at 15:48
Its the other way around, crude oil is refined to seperate diesel from oil, which is refined to seperate kero and more oil, terps and more oil, ulp and more oil, metho and more oil....yada yada...something like that anyway.
The Government has put gst on excises on taxes on levies so on, so out of $1.60, $1.10 is tax on tax on tax on tax.
Andrew
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Follow Up By: JimDi - Tuesday, Apr 15, 2008 at 16:11

Tuesday, Apr 15, 2008 at 16:11
Fair go, Kevin said he would fix it. Perhaps we could all chip in and send him a mirror so he can "look into it".
Jim
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Follow Up By: Wazza - (Vic) - Tuesday, Apr 15, 2008 at 20:23

Tuesday, Apr 15, 2008 at 20:23
Andrew, and also there is the tax you had to pay on your income to get the $200 in the hand to fill your tank!
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Reply By: The Landy - Tuesday, Apr 15, 2008 at 16:08

Tuesday, Apr 15, 2008 at 16:08
Some of the facts……as distinct from the myths.

Diesel is a mid-distillate similar to heating oils, kerosene and jet A1 fuel. It is not a by-product of any other refining process such as petrol. As such the production of diesel is in competition with these other products. Demand for the various products is cyclical. For example, the Northern Hemisphere has been in winter and demand for heating oils and consequently production has been higher. There are only so many products a refinery can produce and it will be directed according to demand. Supply can also be affected by maintenance shutdowns at refineries, which due to the capital cost of building, are in short supply globally.

The cry that often goes out as to why pricing in Australia is linked to the price of the product in Singapore and what has demand in other countries got to do with the price in Australia. The answer is simple; fuel, in any form, is a commoditised product and therefore supply and demand issues, no matter where they occur will affect the price of the fuel. We live on an island for sure, but we are part of a global economy.

Other considerations include the fact that the use of diesel powered vehicles is higher in other countries than it is in Australia, and this, combined with surging demand from industry, both in Australia and abroad is putting pressure on the supply of diesel from the refineries.

Many question why it is the case in Australia that diesel is more expensive than petrol. Well it isn’t! In the US, for example, the price of diesel is more expensive than petrol. The UK is similar, that is on average diesel costs more than petrol.

On April 7 the average price of petrol across America was US$ 3.35 per gallon, whilst the price of diesel was US$ 4.01 per gallon. Expressed as a percentage the average price of diesel was 16% higher than petrol.

The Exploroz fuel watch on 10 April (acknowledging 3 days later) had the average cost of diesel in Australia at 9% higher than petrol. So the spread between diesel and petrol in America was 16%; Australia was only 9% higher, debunking the myth that we pay a greater spread between the petroleum products.

Importantly, another factor affecting the price of diesel is the new emission standards that have been introduced across a wide number of industrialised countries. These standards require lower sulphur content in diesel fuel and this has changed the refining process for diesel and increased the cost of its production significantly.

I’m all for informed debate on the subject and I can understand the frustration at increasing fuel prices especially as it hits the hip pocket, however there is plenty of misinformation that tends to lead to a greater misunderstanding of some of the issues.

I wrote a ‘blog’ on fuel pricing the other day, but it relates more about pricing discount cycles for petrol.
Fuel Blog
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Follow Up By: Best Off Road - Tuesday, Apr 15, 2008 at 16:23

Tuesday, Apr 15, 2008 at 16:23
That was a good read Landy. Made a lot of sense.

Thanks.

Jim.


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Follow Up By: The Landy - Tuesday, Apr 15, 2008 at 16:27

Tuesday, Apr 15, 2008 at 16:27
typing error....Many question why it is the case in Australia that diesel is more expensive than petrol...

Should read why it is the case only in Australia that diesel is more expensive than petrol...

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Follow Up By: Fazz - Tuesday, Apr 15, 2008 at 20:23

Tuesday, Apr 15, 2008 at 20:23
Landy "What discount cycle for Diesel" ????

So how come 7 Eleven can at times sell fuel for 10 to 15 cents a litre cheaper than Shell when I believe that Shell are the same supplier????

I also still believe that Diesel is the first part of the refinery process (Can't see the reasoning in your statement that it could be more expensive to manufacture)

Also why can't the refineries around the world simplly manufacture more Diesel if it is such demand???

Noticed over Easter, when there was a lot of publicity about the price of unleaded, it actually went down in price but guess what Diesel went up (considerably)

Sorry, you can't convince me that we are being ripped.

Fazz
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Follow Up By: The Landy - Tuesday, Apr 15, 2008 at 21:47

Tuesday, Apr 15, 2008 at 21:47
Hi Fazz


"Landy "What discount cycle for Diesel" ????"

My post indicates that the discount cycle relates to petrol.

"So how come 7 Eleven can at times sell fuel for 10 to 15 cents a litre cheaper than Shell when I believe that Shell are the same supplier????"

They can sell it for what they like, the question is whether they get an adequate return on what they sell it for. This is a key point, if we didn't have refineries making an 'adequate' return on their investment we wouldn't have refineries in Australia. Once you loose the refineries we will be totally dependent on imported petroleum products and the security of supply may well become a serious issue.

"I also still believe that Diesel is the first part of the refinery process (Can't see the reasoning in your statement that it could be more expensive to manufacture)"

If you have read my posts correctly you'll see I have said that diesel is not a "by-product" of the refining process of any other refined petroleum product, it is a mid-distillate. I also highlighted that the cost of refining diesel has gone up considerably as refineries are now required to produce diesel with a much lower sulphur content. These are undisputed facts.

"Also why can't the refineries around the world simplly manufacture more Diesel if it is such demand???"

They can, but diesel competes with other refined petroleum products such as kerosene, jet a1, heating oils, and ULP. Global refining capacity is already stretched and this is one of the reasons why you are now paying more for diesel.

"Noticed over Easter, when there was a lot of publicity about the price of unleaded, it actually went down in price but guess what Diesel went up (considerably)"

You've chosen one small sample period, but it could highlight any number of things, one being that pricing support was being offered to retailers for ULP, it could highlight supply constraints for diesel. Either way I can't offer you a precise explanation other than to say, there could be a number of factors at play.

"Sorry, you can't convince me that we are being ripped."

It was never my intention to do so, however there is so much misinformation on the subject that it simply leads to far greater misunderstanding. I'll give you some facts, how you deal with them is up to you.

Cheers
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Follow Up By: Member - John A (SA) - Tuesday, Apr 15, 2008 at 22:03

Tuesday, Apr 15, 2008 at 22:03
A couple of points I would like to make
1. Why is it that there is such a deafening silence from the trucking industry as to the parity pricing between petrol & diesel?
Methinks they have got so much of what they want from lobbying the Feds for higher axle loads and B triples etc that they have gone to water on the subject of diesel pricing.
2. In Turkey & other European countries last year, diesel was consistently 8 - 10 cents per litre cheaper than ULP.
This reflects the reality that diesel is a cheaper product to refine than petrol.
Our federal government has a lot to answer for on this matter.
3. The manufacturers of the modern small capacity common rail diesel cars and vans (& our 4WD's) need to make a MUCH BIGGER NOISE in the promotion of the diesel disparity. The 10 - 15cents/litre extra we pay for diesel now has completely eliminated the benefit of reduced fuel consumption that attracted a good number of people to these vehicles. As I see it, there is now no benefit of paying $3 - 7K extra for the priviledge of having a diesel powered vehicle over a petrol vehicle. Some may say that you will recoup the extra price of a diesel car when you trade it in / sell it but if this margin continues to exist that theory will be consigned to the waste bin!
The advantages of the torque characteristics of the diesel engine & its superior availability in remote & outback areas will keep us purchasing these engines however why should we be a milking cow for KRUDD etc in Canberra!
There now, I feel better for having got that off my chest!

JohnA
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Follow Up By: The Landy - Tuesday, Apr 15, 2008 at 23:17

Tuesday, Apr 15, 2008 at 23:17
John

Less than one week ago the average price of diesel across America was 16% higher than ULP. In Australia during the same period the average price of diesel was only 9% higher than ULP. You'll find that diesel will be higher than ULP in most industrialised countries at present, adjusted for government excise and taxes.

Prices will reflect, amongst other things, supply and demand imbalances.
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Follow Up By: Member - John (Vic) - Wednesday, Apr 16, 2008 at 00:15

Wednesday, Apr 16, 2008 at 00:15
Careful John A, calling Rudd, KRUDD will get up the goat of Jim.

Not withstanding that he appears to be selective about who he takes to task over the use of various derivatives of the name Rudd.
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Reply By: Zebra400 - Tuesday, Apr 15, 2008 at 16:43

Tuesday, Apr 15, 2008 at 16:43
I am more interested why in suburban Melbourne, Shell charge more for diesel than other brands. Yes, I know there are a couple with similar pricing (Shell near Westgate bridge for example), but on the whole they appear to be around 5c/lt more expensive than others. I can only assume they dont want us diesel users to take space in their stations where they have more ulp sales.

I used to have a Coles Myer source card and could get 8c off per litre. Even with the 8c off, I found a BP card better value with 5% off.

What do other people do for the best value for diesel?
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Follow Up By: Member - Mark E (VIC) - Thursday, Apr 17, 2008 at 10:03

Thursday, Apr 17, 2008 at 10:03
I looked into the BP card some time ago, but calculated that the cost of the card charges outweighed the advantage of the 5% discount they offered.

Perhaps it would be different if one drove a greater number of km each year...may check it out again as the BP place just near me is mostly the cheapest diesel around.

Cheers,

Mark
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Reply By: Cape York Connections - Tuesday, Apr 15, 2008 at 17:53

Tuesday, Apr 15, 2008 at 17:53
Because they can.

All the best
Eric
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Reply By: Garbutt - Tuesday, Apr 15, 2008 at 18:39

Tuesday, Apr 15, 2008 at 18:39
When I bought my diesel car, diesel was about 2 cents/litre dearer than petrol, it is now 20 to 25 cents dearer. Years earlier it was always cheaper. The excuse is always that it is in less demand so is therefore dearer, now demand is increasing through the increased popularity of the fuel, it is getting even dearer. I smell rip off no matter what the economists says. There is also no discount cycle for diesel, as there is for city petrol buyers, in the country areas there is no discount cycle for anyone.

GB
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Follow Up By: Member - John G- Wednesday, Apr 16, 2008 at 12:34

Wednesday, Apr 16, 2008 at 12:34
G'day GB

According to the Australian Bureau of Statistics' latest available figures, diesel fuel only accounts for 8% of total fuel consumption for passenger vehicles. Aside from the economics of production, it seems to me that that level of supply / demand ration not only allows fuel companies to keep the price up, but it also means that motoring organisations are unlikely to lobby on our behalf.

I think that somewhere in this long thread discussion someone expressed the view that maybe we are paying under the odds for ULP.

At the end of the day, most of us are going to keep affording the cost. There is also the argument that the cost of fuel is not the major cost in running any vehicle.

Cheers
John
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Reply By: autosparky - Tuesday, Apr 15, 2008 at 20:36

Tuesday, Apr 15, 2008 at 20:36
I thought diesel was based on sinapore crude pricing and last fridy diesel in singapore was equivalent of aud .5 or 50 cents!
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Follow Up By: Ianw - Tuesday, Apr 15, 2008 at 22:07

Tuesday, Apr 15, 2008 at 22:07
The price of PETROL is based on Singapore crude price! The price of diesel is based on the SAUDI crude price. (As explained on radio by the chief of the ACCC last week.) This is why diesel prices fluctuate differently to petrol prices.
Ian
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Reply By: Member - Doug T (FNQ) - Tuesday, Apr 15, 2008 at 21:32

Tuesday, Apr 15, 2008 at 21:32
Ask that stupid bloody Ex Democrat leader Megg Lees, that was one of her damn silly enviromental issues she put forward in Parliment to help reduce emissions.....damn fool of a woman .

.
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Follow Up By: Member - Warfer (VIC) - Wednesday, Apr 16, 2008 at 01:53

Wednesday, Apr 16, 2008 at 01:53
damn fool of a woman



Dont Hold Back Dougie lol





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Reply By: Member - John (Vic) - Wednesday, Apr 16, 2008 at 01:08

Wednesday, Apr 16, 2008 at 01:08
Not sure why people may think diesel is a by product of unleaded?? None of it is, so to speak is a by product of anything other than the refining process.

I will try to keep my explanation of a very complex process as simple as I can.

A barrel of crude is cracked or broken down in the refining process to a whole range of products, unleaded, diesel, jet fuel etc etc.

The base product produced by refining is the heavy fuel oils (HFO)and greases, HFO is mostly used in the shipping industry and is called bunker fuel, it then ranges up wards to the lightest stuff, kerosenes of various sorts.
Petrol and diesel are somewhere in the middle of the process.

Older refining process would produce more heavy product and less of the lighter stuff which had a bigger market demand and was a more valued product.
The more heavy stuff produced the less money or yield produced per barrel. This meant the price for the more valued product such as petrol and diesel had to increase to cover the loss.
For quite sometime refineries were selling bunker fuel at a large loss just to get rid of it as they had to store this product and that caused issues on its own right.
(This is why shipping companies almost always prefer to bunker their ships in Singapore as there are so many refineries producing HFO they sell it cheaper than virtually anywhere else in this part of the world)
To try and reduce the heavy oils and improve the yield per barrel of the more valued product most older refineries were shut down and those deemed viable had upgrades to improve the cracking process and reduce the amount of loss making product and increase the yield of the more valued products.
Mobil Altona Refinery in Melbourne was one such refinery upgraded with a new cracker to improve yields, the cost of the upgrade was around $800 million dollars about 10 years ago.
Some refineries undertook cracking upgrades and used a different type of cracker and found that the process did not produce the yield per barrel of valued product as originally planned, this quite often occurred when they discovered the crude being cracked did not do so well in the cracking process. Bass Straight crude is a light crude and does not produce the yields across the range as required.

This meant that to obtain better yields from a particular refinery they needed to use imported crude which obviously caused cost increases due to additional shipping and storage costs.
Sometimes they will even blend crudes from different areas to improve the yield as required.
I believe that Shell Geelong was one such refinery that had issues with its new cracker and so is not as profitable a refinery as others in the market.

Sometimes they will import a "tanker' load of crude from a particular part of the world because that crude will crack to give them even better yield of say diesel per barrel or heating oil etc.
This may be one answer for why one "Brand" or even type of fuel is dearer than another.

I hope this helps.

Cheers
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Reply By: PajeroTD - Thursday, Apr 17, 2008 at 02:35

Thursday, Apr 17, 2008 at 02:35
The laws of Supply and Demand work for diesel as a finished product, just as they do for crude oil. Let's hope GTL diesel (gas to liquid) takes off really soon and that it is cheaper as a finished product than current diesel.
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Reply By: Juzzy - Friday, Apr 18, 2008 at 14:35

Friday, Apr 18, 2008 at 14:35
Supply / Demand

Never the twain shall meet thanks to Dubya!
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