Why Diesel costs more - from the New York Times

Submitted: Friday, May 23, 2008 at 22:35
ThreadID: 57934 Views:2524 Replies:3 FollowUps:0
This Thread has been Archived
So You Think Gas Costs a Lot?
Published: May 18, 2008

INCREASING its longstanding appeal to mileage-conscious drivers, diesel fuel has for years cost less than gasoline, and even as recently as last summer the two were no worse than equal in price. Since then, a gallon of diesel has become more expensive than unleaded regular — now 16 percent more and poised to go higher still.

Pulling Away: Diesel Prices Outstrip Regular

Times Topics: Diesel Vehicles
It’s because higher prices affect demand for each oil product differently, and diesel is “the one product the world really wants,” said Lawrence J. Goldstein, a director of the Energy Policy Research Foundation, a nonprofit group financed by oil producers, refiners and marketers, with some government help.

The price spread has attracted the attention of Congress. This month, John Felmy, chief economist of the American Petroleum Institute, an industry trade association, testified before the highway subcommittee of the House Transportation Committee. “U.S. overall petroleum demand, including demand for gasoline, has flattened,” he said. “However, in the U.S., demand for diesel has remained strong.”

He added: “This follows a long-term trend here and around the world. Over the past five years, U.S. demand for highway diesel has been rising at triple the rate of gasoline.”

Part of the American demand for transportation fuel is met by refineries in Europe, a link that usually helps keep prices down. But demand for diesel is rising in Europe as passenger car ownership and use there grow; many of those newly purchased vehicles are diesel-powered, a choice that had been encouraged by tax policy there.

As a result, production at European refineries is geared toward processing crude oil to meet the demand for diesel. That produces surplus gasoline, which the refineries export to the East Coast of the United States, experts said. That does nothing for diesel supply here.

A related problem is that while American demand for gasoline and demand for diesel are fluctuating separately, the supply is linked.

Each 42-gallon barrel of crude oil yields about 19 gallons of gasoline, according to the Energy Department, and about 10 gallons of diesel fuel and heating oil combined. (The two are chemically similar.) Refineries can crack the big hydrocarbon molecules found in the heavier part of the crude oil feedstock into diesel, gasoline or other products, and thus have some flexibility, but there are limits to how much the ratios can be adjusted.

“There is some ability to do that, but it’s not by huge percentages,” said Ronald J. Planting, the manager of information and analysis at the American Petroleum Institute.

Diesel production was actually up for the first few months of this year compared with the period a year earlier, Mr. Planting said. But the outlook is cloudy. With gasoline prices high, demand has fallen; for March, April and the beginning of May of this year, inventories were running nearly 10 percent higher than a year earlier, according to the Energy Department.

Mr. Goldstein’s interpretation is that refineries have thus decided to process slightly less crude oil than they would otherwise have used, which would result in less production of diesel as well. It is as if sirloin had become so expensive that demand dropped, so farmers raised fewer cows, reducing the supply of hamburger — but hamburger remained as popular as ever.

Mr. Goldstein said that the increased production of ethanol was also pushing up diesel prices by offsetting some of the need for gasoline, because as refiners make less gasoline they produce less diesel as well. “Refiners, for more than 50 years, have been configured to make gasoline,” he said. “Their hardware is geared to make gasoline; that’s what they know how to do.”

He pointed out that several refineries had lost money in the last quarter and thus were cutting back operations, further restricting diesel supply, although gasoline inventories are ample.

Shifting to diesel engines had been promoted as one way to save oil and meet coming fuel economy standards; because diesel engines operate at higher cylinder pressures, they deliver more power for each B.T.U. of energy they use (and each gallon has more B.T.U.’s than gasoline). But while they may have a big edge in fuel efficiency, their cost efficiency, in cents a mile, is shrinking.

The shift in fuel prices is coming just as automakers, after years of work to make diesel engines cleaner, are preparing to sell diesel-powered passenger vehicles. The strategy now looks iffy because diesel models cost more than the equivalent gasoline vehicles.

Automakers understand that high costs will make the vehicles harder to sell. “In the marketplace, the consumer has to have a compelling economic reason to put a premium on fuel economy, or any particular engine technology,” Greg Martin, a General Motors spokesman, said.

So is it a good idea to buy a diesel? “It’s a very good question when you consider the current price of diesel,” he said. For a car shopper to buy a diesel model, he said, the perceived benefit must always equal or exceed the cost. “Right now that would be problematic.”

Mercedes-Benz is slightly more optimistic. Customers may still buy because of the long range on a tankful — 700 miles in the E320 diesel sedan, the company said. And that model’s fuel economy — 23 in town and 32 on the highway compared with the gasoline-powered E350 at 17 and 24 m.p.g. — is enough of a gain that there is still a cost advantage, though smaller than in the past.

The diesel E-Class costs $1,000 more than the gasoline model, said Nicole Weiss, a spokeswoman. And “the luxury market typically lags behind in terms of reacting to changes in the economy,” she said.
Terry Slocum, director of the energy program at Public Citizen, a consumer advocacy organization founded by Ralph Nader, said the problem was that the oil industry, despite record profits, had not invested enough in refining capacity for diesel fuel. “There’s really no excuse why we’ve got this shortage of capacity, which in turn is driving prices far higher than for gasoline,” he said.

He added that the economic downturn should be depressing the demand for truck fuel, which should relieve strains on the diesel market. "But I haven’t really seen that,” he said. “I’m not convinced there’s justification for the level of diesel we’re seeing today.”

The above came from Site Link

Add to what was said above the higher cost now of producing cleaner diesel - I think the days of cheap diesel are over

Retired radio and electronics technician

Lifetime Member
My Profile  Send Message

Back Expand Un-Read 0 Moderator

Reply By: Member - David P (VIC) - Friday, May 23, 2008 at 22:59

Friday, May 23, 2008 at 22:59
Hi Peter,
I used to think that the US would discover the economy benefits of diesel passenger vehicles - it amazed me that you could not get my Wrangler in diesel over there, and now with the increasing gap in petrol/diesel I think they might never get the diesel version.
On another but related subject, I have just been watching the CNBC business channel and on the panel two senior ex Fed members have just called for a RECESSION. They say that the USA is in an unsustainable financial mess that cannot begin to be addressed until their people are subjected to financial pain, unemployment followed by an attitude of saving, if not THEY ARE SCREWED.
Glad I am not American.....cheers,
AnswerID: 305540

Reply By: happytravelers - Saturday, May 24, 2008 at 07:07

Saturday, May 24, 2008 at 07:07
Americans are crying because their petrol prices have hit $4 a US gallon. A US gallon is about 3.8 litres and the US and Australian dollars are now almost level at 0.96. That makes their petrol just over a dollar a litre, still a long way short of our $1.60/l. Mind you we're still a lot cheaper than the fuel prices in Europe.
AnswerID: 305560

Reply By: Outa Bounds - Saturday, May 24, 2008 at 08:10

Saturday, May 24, 2008 at 08:10
We have just traded in one of our cars for a more efficien 4 cylinder petrol for this very reason.

It's crazy, diesel needs less refining than petrol yet now costs more. Isn't demand a funny thing - namely an excuse for manufacturers to charge more!

But having driven the diesel Curuizers for a significant amount of time I expect it will take a little while to get used to not stalling the petrol car!

I wonder once everyone (or a significant amount of people) switches to Gas, how much the price will go up and how quickly.
AnswerID: 305565

Sponsored Links