Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
The US consumer’s past aversion to diesel operated light duty vehicles is subsiding as evidenced by rising vehicle sales and a broader offering of models by auto manufacturers. Despite this evolution, domestic diesel demand is expected to trend lower in 2017 and thereafter, as heavy duty vehicles increasingly transition to natural gas.
Despite their popularity in Europe, US consumers historically have shunned diesel-operated passenger vehicles, which were loud and belched clouds of black smelly smoke many years ago. As manufacturers cured these ailments and the federal government mandated a reduction in sulfur content to the current 15 parts per million rating since 2006, consumers were still slow in giving up their gasoline operated vehicles and adopting diesel vehicles.
As the negative stigma of diesel vehicles subside, their higher cost is an impediment to sales, with diesel engines far pricier than gasoline’s. Moreover, diesel’s per gallon retail price holds well above the pump price for gasoline owing to diesel’s greater energy density that pushes comparable miles per gallon well above that of gasoline.
In 2012, the Energy Information Administration shows retail diesel fuel averaged $3.97 gallon in the US compared to gasoline’s $3.63 gallon, with the difference in 2013 at 41cts when diesel averaged $3.92 gallon. This year, retail diesel in the US is expected to average $3.85 gallon to gasoline’s $3.45 gallon average, and 42cts more in 2015 at $3.80 gallon.
Diesel-powered vehicles get more mileage out of each gallon of fuel however, typically achieving 30% to 35% more miles per gallon than comparable vehicles powered by gasoline. Diesel engines are more energy efficient, and diesel fuel contains 10% more energy per gallon than gasoline.
The New York-based PIRA Energy Group assessed the US diesel market in a recent report, showing the share of annual LDV diesel sales doubling from 2% in 2000 to 4% in 2010 with expectations for a 5% share in 2015. PIRA projects diesel’s share to reach 10% in 2020 and 14% in 2030, with increased competition from hybrids and electric operated vehicles curtailing its penetration. Climbing sales of diesel, hybrids and electric LDVs are seen cutting into the share of gasoline LDVs with gasoline’s share seen dropping from 97% of all LDV sales in 2000 to 91% in 2015 and 69% in 2030.
As LDV diesel sales ramp up, the fleet will consume more diesel fuel seen by PIRA increasing from less than 300,000 bpd currently to more than 1.0 million bpd by 2030. However, HDVs using diesel fuel is estimated to drop from 2.6 million bpd now to roughly 1.8 million bpd by 2030 despite expectations for an increase in freight ton-miles. HDV fuel demand is seen declining 0.5% each year through 2020.
Efficiency gains in HDVs are part of the reason for the lower fuel demand, but so is a switch to natural gas powered vehicles. The move to CNG and LNG HDVs is expected to be limited near term, with greater penetration projected after 2020. PIRA believes this transition translates into a 3% decline in diesel demand annually from 2020 to 2030.
PIRA estimates total diesel demand in the United States will decline from a near-term peak of about 4.0 million bpd in 2015-2016 to 3.5 million bpd by 2030.
PIRA’s report can be found here: http://www.fuelsinstitute.org/