So You Think Gas Costs a Lot?
By MATTHEW L. WALD
Published: May 18, 2008
New York Times
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.
Both fuels are up steeply this year because of the cost of crude oil, which has doubled in the last year and is now around $3 a gallon. But why is the price of diesel, distilled from the same raw ingredient, growing faster?
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.”
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What a crock. Ya' noticed he left the home heating oil, and full spectrum of jet fuels out of the equation. When refining for gasoline the bi-product is a lesser amount of diesel. When refining for diesel, a lot less gasoline is the result because the diesel is a broader spectrum of the oil barrel WHEN THEY REFINE IT THAT WAY.
It's higher because the oil industry is essentially a monopoly and they they can get away with it.
John
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That's all true and understood, but the oil companies have asked Congress to alow them to drill in ANWR and offshore and have been told no. So they have posibly slowed down production to get their attention. They have the publics attention and the public will let the Congress known we want the US drilling to begin ASAP. The fact that they can't drill here makes them sell to the world, as reports indicate other countries are paying 45 cents per gallon more than US wholesalers will pay. Since the refineries can not make profits, due to the high cost of crude bought at world prices, as they would if they had their own wells (which would be at a much lower cost) they keep supply down to drive up prices to a reasonable profit. They will keep doing this until Congress wakes up. They told Congress they would pay the cost to develope new US fields, but Congress won't allow it, (mainly because they are mostly Democrates that don't want things easy for the Republicans to get reelected).
If the cost of gas goes up to an amount that people can not aford it then they will not buy the gas. Now diesel is another thing. The trucks, aircraft, ships, power generating plants, and home heating can not stop using less just because the price goes up. Think about it. No matter the cost, diesel must be used. It's sad to think that in the late 20's and early 30's they found out that a form of diesel could be made from coal and nothing was done. In the 70's the government built a coal liquidfacation plant just to see how coal could be used to make disel and gas. They found that the cost would be too high making the cost of the product go up by 20%. The project was scraped. Boy do they have egg on their faces now. Coal was bought up by the company that owned the refining company. Now they own half of the coal in Kentucky. The sold the rest to a firm in Germany. Think about that: Germany owns over 1/4 of the coal in Kentucky right now. I worked for that oil company during that time and know this to be a fact. Now do you understand why disel cost so much. We, as a nation, have let the boat sail away and now we are finding this island very bleak.
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JUrban wrote: What a crock. Ya' noticed he left the home heating oil, and full spectrum of jet fuels out of the equation. When refining for gasoline the bi-product is a lesser amount of diesel. When refining for diesel, a lot less gasoline is the result because the diesel is a broader spectrum of the oil barrel WHEN THEY REFINE IT THAT WAY.
It's higher because the oil industry is essentially a monopoly and they they can get away with it.
caca I say,IMHO I say when this country decides to change tactics to something more economical the price of that would be so high that we will get the same story that the cost of that is high to make it. Just like corn is hight to make for hybrid e85..crap ,caca , caca, all of it. They have us by the cahones with a tight grip. WE all gettin $crewed...LOL
I'm gonna start riding a bike. problem expensive to make the tires tooo!
The answer is VERY simple, we must increase our Domestic Drilling and Refining Capacities. Which, by the way, one certain party has been trying to do for years.
We have not built a new refinery in the US for over 35 years? Why?
Why are we not pumping our Oil, when we have enough KNOWN crude for the next 60+ years for OUR needs?
The time is now to get the ball rolling....take a gander at how much more your food will cost next year, just due to the price of diesel, let alone the shorter growing seasons many farm belts are getting this year. Oh, and not to mention the Ethanol mandates that our putting our food in the tank....
In the meantime, we can chase our tail with all this "Alternative" fuel research......and have the Oil we will need until such "Alternatives" become available and profitable.
The DoE has estimated that drilling in the ANWR would reduce reliance on imported oil about four percent - from about 70 percent to about 66 percent - in 8 to 10 years. It would be an excellent way to boost oil company profits, but that's about all it would do. Oh, it would also let Alaska avoid higher taxes on its residents for a while longer.
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