Yahoo Autos Csaba Csere: Is This Any Time for American Vehicles to Go Diesel?
Diesels are on the brink of making a big comeback. The Detroit show in January featured all manner of diesel-powered machines, ranging from the Jeep Renegade diesel hybrid concept to the Audi R8 supercar concept with its 500-hp oil-burning V-12. A bunch of diesels will come to market later this year, and I believe Americans will happily buy good diesels, as Mercedes-Benz discovered in 1982 after the second gas crisis, when 79 percent of the cars it sold in the U.S. were powered by diesel engines.
But there are a couple of major differences between the diesel market today and the one 25 years ago. Modern diesel engines are far more complicated because they must meet today’s stringent emissions regulations. Fitted with 20,000-psi fuel-injection systems, particulate traps, oxidation catalysts, and urea-activated NOx catalysts, the upcoming 2009 diesels are expected to cost from one to two grand more than their gasoline equivalents. Since most vehicle purchases are motivated by economics rather than environmental ideology, buyers will look closely at this price increment to determine how quickly a diesel’s improved mpg will pay off.
And that brings us to the other big change over the past 25 years: Diesel now costs more than gasoline. As this is written, the average price of regular gasoline in America is $3.11 per gallon. Diesel is $3.38. That’s quite a switch from the early ’80s, when diesel fuel was cheaper, averaging 13 percent less a gallon than gas.
Let’s say that one of those early Mercedes diesels was getting about 26 mpg. That translates to roughly 4.3 cents per mile at 1981 fuel prices. A comparable gasoline car would have gotten about 20 mpg, costing 6.4 cents per mile in ’81. Fast forward to today’s fuel prices. With cars getting the same 26 and 20 mpg, a diesel driver would spend 13.0 cents a mile, and the gasoline driver would spend 15.6 cents. So, in per-mile fuel saving over the past 25 years, diesels have gone from having a 33-percent advantage over gasoline engines to just a 17-percent spread.
The advantage of a diesel is half what it once was. Is it likely to be further eroded over the next few years? According to Ron Planting, an economist at the American Petroleum Institute (API), most of the world’s rapidly growing economies, such as China’s and India’s, use more diesel and less gasoline from each barrel of oil than we do in America, where 40 to 45 percent of each barrel ends up being refined into gasoline. Although the energy demand of these growing economies is one of the causes of today’s record-high crude-oil prices, that growth is putting even greater pressure on the world’s diesel supplies.
Today’s expensive fuel encourages conservation worldwide, but since diesel fuel is used more in manufacturing and commercial applications than is gasoline, the push for energy conservation tends to reduce gasoline use more than diesel use.
Then there’s Europe, where governments have used various incentives, including much higher taxes on gasoline than diesel, to encourage customers to purchase diesel-powered cars. (At this writing, gasoline costs about $7.50 a gallon in Germany; diesel is about a buck cheaper.) This program has been wildly successful—diesels today comprise about half of new-car-and-truck sales. In Europe, the demand for diesel equaled gasoline demand about 10 years ago and has since surged well ahead.
The arrival of low-sulfur regulations has also added a few cents to the price of a gallon of diesel due to the more complex refining process required to extract the sulfur.
Basic economics dictates that when one commodity has higher demand than another, its price will rise faster, and that’s exactly what we’ve seen with diesel fuel and gasoline. So why don’t the oil companies simply produce more diesel than gasoline from each barrel of crude oil? Unfortunately, it’s not as simple as twisting a few dials at the world’s oil refineries.
Al Mannato, a fuel-issues manager at API, explains that oil refineries tend to fall into two categories: catalytic cracking and hydrocracking. Most U.S. refineries are set up for catalytic cracking, which turns each barrel of crude oil into about 50-percent gasoline, 15-percent diesel, and the remainder into jet fuel, home heating oil, heavy fuel oil, liquefied petroleum gas, asphalt, and various other products. In Europe and most of the rest of the world, refineries use a hydrocracking process, which produces more like 25-percent gasoline and 25-percent diesel from that barrel of oil. So the rest of the world is already maximizing diesel production. In fact, despite using a refining strategy that minimizes the production of gasoline, Europe still ends up with too much of the stuff, so it exports it to America—about one of every eight gallons of gasoline that we consume.
Meanwhile, Americans are already using most of the diesel fuel that our refineries produce, so if sales of diesel cars take off, keeping the diesel flowing here will put further demands on tight worldwide diesel supplies and probably cause the price to rise even more. Our oil industry could, of course, start converting its refineries from catalytic to hydrocracking and start producing more diesel and less gasoline.
Doing so—and here’s the Catch-22—would reduce the output of gasoline and likely increase its price. Moreover, such a switch, Mannato explains, amounts to a major refinery change that would take 5 to 10 years to accomplish. Building some new hydrocracking refineries would add diesel capacity without squeezing gasoline supplies, but due to their nearly universal unpopularity, there hasn’t been a new refinery built in America since 1979.
Despite the merits of modern diesels, anyone who expects them to solve our energy problems stands to be disappointed.
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