High price of diesel isn't going away

High price of diesel isn’t going away

Fleets are painfully aware of how expensive ultra low sulfur dieselfuel is today, but what about the future?

Fleets are painfully aware of how expensive ultra low sulfur dieselfuel is today, but what about the future?

Current high-pricedifferentials of ULSD fuels over gasoline are predicted to continue forat least two more years, according to oil industry experts. The currentprice differentials are due to several market forces, which cannot orwill not change direction quickly. Diesel fuel demand keeps increasingworldwide because:

• U. S. demand is increasing approximately 4 to 5 percent per year;

• Worldwide demand also is increasing 4 to 5 percent per year;

• Countries like China and Korea are rapidly industrializing; and

• The war limits supply and increases demand.

To make matters worse, the Freedonia Group recently predictedlight-duty diesel demand growth of 9.6 percent per year in the UnitedStates. In contrast, gasoline demand has increased very slowly the lastfew years.

So, what does this mean to fleet operators and fleet operatingcosts? Refineries are constructed to operate most efficiently atrelatively constant diesel/gasoline production ratios. Think of arefinery as a large cold and hot water faucet. Except the stream comingout of a major refinery is so large (85 million barrels per dayworldwide demand) insufficient tankage is available to store muchgasoline if the ratio of diesel fuel production is increasedsignificantly.

In the past, oil refiners designed facilities to maximize gasolineproduction, but now that business model is changing. Gasoline demandhas slowed considerably. It will take years and an enormous investmentto design and build new refineries that increase relative diesel fuelproduction (particularly when environmentalists place such heavydemands on new construction).

Before you start feeling sorry for the oil refiners, remember theyare a big part of the current problem. They recently spent considerablemoney upgrading facilities to produce ULSD fuel. Rather than investingadditional money in new refinery construction, they’ve chosen tomaximize profits. Margins on diesel fuel in North America have beensignificantly higher than usual for the last 18 months, according toDiesel Fuel News. Now they are asking our government to subsidizeinclusion of biodiesel fuels into their refinery streams to the tune of$1 per gallon.

The incorporation of biodiesel into diesel fuel is supposed to helpease the demand for diesel fuel. However, the United States is waybehind schedule. (Europe already averages 2 to 3 percent biodiesel indiesel fuel). There have been issues with some feedstocks proving to beimpractical because of the energy required to produce biodiesel fromthem. There also have been problems with biodiesel being producedincorrectly. But, most importantly, farmers have been planting corn atthe expense of soy beans due to our legislators’ knee-jerk reactions toethanol as an alternate to gasoline. In fact, the price of corn hasdoubled in some areas from $2 to $4.47 per bushel. However, the farmersare happy, and the politicians have obtained their votes.

This is truly a shame! Cummins has some preliminary tests resultsthat suggest that 20 percent biodiesel blends may actually reduceengine wear rates when compared to typical ULSD fuel. The NationalBiodiesel Board and Caterpillar have teamed up with Decker Truck Linesto validate this preliminary observation in higher mileage field tests.

Several states, like Missouri, are now considering legislation toforce inclusion of biodiesel into diesel fuel to speed up the process.Let’s hope that doesn’t go the way ethanol has.

The only way fleets can significantly slow diesel fuel demandtoday is to haul less freight or improve average fleet fuel economy. Idon’t think anyone likes the first option, so let’s concentrate on thesecond. Each fleet now has to seriously consider ways to reduce fuelconsumption. Our politicians won’t do it for us.

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