Why is Diesel More Expensive Than Gas?

Why is diesel more expensive than gas? If you’ve priced diesel fuel recently, you’re well aware of the reason why, while the fuel mileage of diesel vehicles may kick the crap out of a gasoline powered vehicle in most cases, the overall fuel economy, once the higher price of diesel fuel is taken into account,  may not. That’s because the price of diesel fuel is only slightly less than that of Grey Goose vodka. You can expect to pay north of $4.50 a gallon in for this refined black gold.

There are a few reasons that diesel fuel is considerably more expensive than gasoline in the U.S., although as kids we remember it being cheaper, and it’s easier to refine. If you run a fleet of vehicles that burn diesel, I wish I had some good news for you, but unfortunately you can expect the situation to remain the same for some time. Here are 5 key reasons why diesel costs you more per gallon than gasoline, even though many people expect the opposite should be true.

Reason Number 1 for Diesel being More Expensive than Gasoline –

The US government mandated ultra-low sulfur diesel (ULSD) to replace conventional diesel fuel  in 2007. This transition began in 2006. The new variety of diesel fuel  contains 97% less sulfur than conventional diesel—sulfur is reduced from 500 parts per million (ppm) to 15 ppm. While a boon to air quality in the Untied States, this stuff is more expensive to manufacture. It does have the advantage of allowing the clean burning diesel technology that’s available in Europe to come over here. Without the ultra low sulfur diesel fuel, diesel power plants could no longer meet U.S. emissions regulations.

Reason Number 2 for Diesel being More Expensive than Gasoline –
U.S. oil refineries are normally optimized to produce about 20% diesel fuel, while those producing fuel for the European market are optimized to turn out more than twice that proportion. This means that as the demand for diesel fuel grows, thanks the recent tremendous improvement in diesel engines that has led it’s adoption for SUVs and many more pickups, U.S. refineries can’t keep pace with the growing demand.

Reason Number 3 for Diesel being More Expensive than Gasoline –
Your federal government in action – the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline. Viola! An instant 6 cent per gallon price disadvantage for diesel. I’m sure the nation’s truckers, farmers, and ranchers appreciate that.

Reason Number 4 for Diesel being More Expensive than Gasoline –

Growing demand for diesel fuel, especially in the growing economies of Asia, such as India and China. Economies are built with diesel burning machines, from road graders and trucks, to railroad locomotives and heavy lifting cranes. As economies in former 3rd world countries emerge from the psuedo-dark ages from whence they’ve come, their appetite for diesel will only continue to increase, even if they slow down once in a while to curb pollution for athletic events.

Reason Number 5 for Diesel Being More Expensive Than Gasoline –
An increased quantity demanded of anything tends to exert upward pressure on prices, and another factor causing more and more gallons of diesel fuel to be demanded is the European drivers wholesale change to diesel powered vehicles (NOTE: This is another effect of increased fuel taxes in Europe, a partial side effect of the Kyoto Treaty, that aims to reduce carbon emissions, which a change to higher fuel economy diesels will help accomplish. Ironically, although much cleaner than in the past, diesels actually emit more air pollution, especially particulate matter, than the latest gasoline engines, which are incredibly clean burning. Be careful what you wish for….. ). According to the 2007 EU Economic report, the percentage of diesel powered cars registered in 2007 is more than 400% higher than it was in 1990. In addition, there are more total cars registered in Europe, so the demand for diesel at European filling stations has skyrocketed.

As you’ve doubtlessly noticed, most of the reasons for the increase are actually behind the real reason; increased demand for diesel fuel. If the demand is increased, the quantity demanded will also increase at every price point. This is a boon for refiners, as their percentage profit on diesel is usually greater than for equivalent quantities of gasoline. For U.S. diesel consumers this is especially troubling, because usually this situation would lead to increased production, eventually causing prices to fall. As mentioned above however, there’s an imbalance between US and overseas production. In the U.S. however more refineries use a gasoline production oriented catalytic cracking process, where European refineries tend to rely more on a process known as hydorcracking and produce a greater percentage of diesel fuel. It is extremely expensive to retask a refinery to significantly change it’s output to favor more of one fuel versus the other, so the refiners are kind of stuck.

That’s why the price of diesel is more expensive than gas, and likely to remain so for the foreseeable future.

Until next time……

3 Responses to “Why is Diesel More Expensive Than Gas?”

  1. Gary Brixner

    It is hard to believe that with the billions in proffits the Gas companies are making, that they can not aford to retool to make more diesel and bring down the price. But then bringing the price down is not in their best interest is it?

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