CR-V Diesel in the USA - When?

[bernithebiker]

Originally Posted by Black Pearl

Interesting post. You mentioned something that I have been curious about, but not enough to research. On the average, how much flexibility do refinererys have to change the product mix? Remembering 7 th grade science, a given volume of crude had so much light gases, naptha, gasoline, kerosene, diesel, fuel oil, lighter lubricating oils, heavier oil, parafin, tar, and asphalt and God knows what else. The mix could be changed with cracking but only by so much. (7th grade was a long time ago--early 60's.) The other question that comes to mind, do you sacrafice BTUs or calories of energy by changing the natural mix, both in processing and in the resulting products? In other words if a given volume of crude wants to naturally give you X volume of gasoline and Y volume of diesel, are you throwing away calories of energy to change that to more gasoline less diesel and vice versa. I guess the overall point of this is how accurately does market forces use the available energy in a given volume of crude? (It is a question and not a statement.) Could we do better? Will there always be a place for gasoline engines simply because there is a certain volume of natural gasoline in crude and converting it to something else consumes too much energy? Or is gasoline an expensive habit that sucks away energy from more efficient mixes of fuel? When you look at the relative inefficiency of the North American CR-V compared to what you have in Europe it is not encouraging. I think this has much more to do with our love for accelleration rather than fuel economy. Except for car sales, one would never know that gasoline costs almost twice as much as this time last year. On the interstates I now drive the speed limit. I pass absolutely no one with the exception of an occasional truck on a hill. Everyone flies past me in huge pickup trucks and SUVs. Ironically, if I do pass a car, it is usually a fuel efficient model.

If you look back to the seventies and before, many refineries were just 'simple' ones, i.e. a simple distillation tower that distills the crude into it's various fractions - LPG, naphtha, distillate and 'straight run', a heavy fuel oil type product.

With this type of refinery, there is no variation possible - what comes out the other end simply depends on the crude you put in. (for example, Nigerian and Algerian crudes are sweet and light and will give you a high distillate yield).

The strong rise in demand for gasoline from the seventies onwards (mainly driven by the US) meant that refiners started to look at ways of increasing the gasoline yield. Vacuum distillation and Fluid Catalytic Crackers were added to refineries to do just that. (In the old days, the straight run was just used as a fuel, but by further processing, the 'good stuff' still hidden in it can be further extracted).

Now I am not a qualifed refinery engineer, I was a cargo trader, but I do know that the most complex refineries with hydrocrackers (a new improved version of the FCC mentioned above) can dramatically increase their yields of gasoline, jet or diesel. This demands a supply of hydrogen and yes, some energy, but how much I couldn't say.

(N.B. Naphtha is the raw component of gasoline. Extra clean naphtha goes to the petrochemical industry to make plastics, etc. The heavier stuff goes to gasoline. Some LPG also goes into gasoline, and as jet is the next cut down, you can skim a bit off of that too).

Market forces drive refinery production very efficiently. If gasoline becomes very expensive, refineries will switch to maximise it, and vice versa.

The worrying thing is that diesel has been way above gasoline for some time now, and even though refineries are maximising production of it, the price difference has still not reduced. So diesel demand is clearly still outpacing that of gasoline. Eventually if gasoline starts to get hard to find and stocks get run down, then gasoline will simply be bid up above diesel to try and address the difference. So you will get a kind of tug of war effect - gasoline running low? has to bid up above diesel - so refineries switch to max. gasoline, diesel gets low, so diesel has to get bid up again.....etc. kind of a leapfrog effect.

One thing is sure - prices will keep going up, there is nothing anyone can do about it.

[Black Pearl]

Your commentary is excellent! Thanks for the explanation. Its great to have an insider's understanding.

[Hughesy]

Originally Posted by bernithebiker

There are some inaccuracies here. I used to be a senior oil trader for a major oil company.

The prices of diesel and gasoline are set by international markets and there is no 'artificial' situation.

You clearly know a lot more about this subject than me!
My information only comes from the press, but here's a few more p's of my thoughts:

Virtually all (95%) of diesel in the US is refined locally. So there is a slightly artificial situation, because the price of diesel in the US depends on the ability of the US refineries to produce distillates (but specifically ULSD), not exactly the global demand / price drivers. Of course, US diesel prices are somewhat equalised with world prices by exports of diesel, something which has increased dramatically in the last year but is still relatively small volume.

Most oil refined in the US is light crude, which produces more gas (and less distillates like diese) than heavy crude elsewhere.

US refineries have not had time to increase their diesel yields due to a number of other projects, like Ultra Low Sulpher Diesel and Ethanol blending.

Hydrogen treatment to produce ultra low sulpher diesel in the US since 2006 has caused a lot of headaches for the US refineries. New plant and maintenance issues related to ULSD has affected the US diesel yield in the last few years, and increased cost. Logistics and transportation of ULSD is a problem because of contamination. This is not an issue for Europe, where ULSD has been produced since 1990, with 100% use in the UK by 1997.

According to the DOE, additional refining costs make up most of the extra retail cost of diesel over gas. Refining costs for diesel are two and a half times higher than gas at $0.93 /gallon compared to $0.38 for gas (May 08).


I suppose additional tax in Europe also makes the difference between diesel and gas relatively smaller. As of May 2008 the average retail prices for the US and UK are:
US: $4.43 / gallon diesel; $3.77 / gallon gas
UK: $9.90 / gallon diesel; $8.90 / gallon gas

The diesel premium is 17.5% in the US but only 11.2% in the UK (and only this large in recent months).

Rising oil prices will only favour diesel over gas!

[vet22]

I'm new to this so please bear with me. I just bought my 2004 CR-V on 1 july. Looking through the articals about diesel engine in these vehicals i would have to agree that the wait will be vary long. Especialy for them to meet the 2009 and 2010 emission standards here in the US. However in 1993 Toyota made a seris of Rav 4s electric vehicals as did the Satern div of GM. (EV-1). All EV-1s went to the crusher in 1994/95 and EXON bought up the battery rights. I am only aware of one Rav 4 left, in Southern Cail. with aprox. 200,000 miles and still going strong. The CR-V seems to me to be a perfict platform for electrics. Which is do able now. With diesel fuel at aprox $6/7 a gal it will be intersting to see how this plays out.

[bernithebiker]

Originally Posted by Hughesy

You clearly know a lot more about this subject than me!
My information only comes from the press, but here's a few more p's of my thoughts:

Virtually all (95%) of diesel in the US is refined locally. So there is a slightly artificial situation, because the price of diesel in the US depends on the ability of the US refineries to produce distillates (but specifically ULSD), not exactly the global demand / price drivers. Of course, US diesel prices are somewhat equalised with world prices by exports of diesel, something which has increased dramatically in the last year but is still relatively small volume.

Most oil refined in the US is light crude, which produces more gas (and less distillates like diese) than heavy crude elsewhere.

US refineries have not had time to increase their diesel yields due to a number of other projects, like Ultra Low Sulpher Diesel and Ethanol blending.

Hydrogen treatment to produce ultra low sulpher diesel in the US since 2006 has caused a lot of headaches for the US refineries. New plant and maintenance issues related to ULSD has affected the US diesel yield in the last few years, and increased cost. Logistics and transportation of ULSD is a problem because of contamination. This is not an issue for Europe, where ULSD has been produced since 1990, with 100% use in the UK by 1997.

According to the DOE, additional refining costs make up most of the extra retail cost of diesel over gas. Refining costs for diesel are two and a half times higher than gas at $0.93 /gallon compared to $0.38 for gas (May 08).


I suppose additional tax in Europe also makes the difference between diesel and gas relatively smaller. As of May 2008 the average retail prices for the US and UK are:
US: $4.43 / gallon diesel; $3.77 / gallon gas
UK: $9.90 / gallon diesel; $8.90 / gallon gas

The diesel premium is 17.5% in the US but only 11.2% in the UK (and only this large in recent months).

Rising oil prices will only favour diesel over gas!

Hughesy, you make some valid points, but at the end of the day, if US diesel prices become attractively high then the US will start to draw in diesel cargoes, whether from Europe, Middle East or wherever.

When we had cargoes on the water, we would send them wherever the price was highest (subject to specification, port constraints, etc).

The reason the US is able to import so much gasoline is simply because it's prices are higher. Occasionally, this 'arbitrage' shuts down as when US prices drop, but never for very long.

Diesel demand in the US is still fairly limited, as the car pool is almost all gasoline, but this will change slowly.

I would disagree that most crude refined in the US is 'light'. West Texas Intermediate crude is the price marker for crude traded in the US, and is indeed a light crude. But US refiners import all kinds of crude from around the world. Alot of heavy crude from the Middle East, light and heavy grades from the North Sea, ALOT of heavy Venezuelan crude, etc.

The US has been much slower to move to ULSD than Europe, and yes, the move to it does create logistical headaches. But Europe has NOT been ULSD since 1990. The term ULSD (Ultre Low Sulphur Diesel) is quite recent. In the mid nineties, diesel in Europe was 2000ppm. It then moved to 500ppm, and then 350ppm. Only quite recently did it move to 50ppm (a few years ago), and only now is it moving to 10ppm. So ULSD as a standard in Europe is relatively new too. At least Europe was able to move in graduated steps (2000/500/350/50/10), whereas the US is having to take larger steps.

It is true that US refineries are tweaked to produce as much gasoline as possible as this is what the US market demands most of. But as diesel prices rise, they will inexorably switch to making more of that, whether for export or internal consumption.

Again, the big driver for high diesel prices is; China/India, strong jet fuel growth, strong diesel car sales growth.

[Hughesy]

The UK first introduced a lower duty on ULSD (50ppm) in 1997. The benefit was steadily raised until 1999, by which time ULSD was the majority fuel. Here is a report by the UK government about how this went.
Sweden started with ULSD in 1990.

Here is an interesting paper about the disparity between diesel and gas prices from the Congressional Research Service.
It pretty much covers the issues we have already mentioned, with some figures.

I noticed this week that in Denmark diesel is still cheaper than gas.

With the diesel CR-V getting 35 to 40 US mpg, you would have to be as mad as a horse (or do very few miles) to buy a petrol one (in the UK).

[bernithebiker]

The UK was indeed an 'early adopter' of ULSD due to government incentives, as was Germany and Scandinavia, but France, Spain, Italy and all the rest of Europe were much slower to move to ULSD, and only did so when the EU decreed it compulsory.

The paper from the Congressional Research Service is clearly written by someone outside of the oil industry, although it does contain some interesting facts. One thing to be aware of is the oil industry and it's figures are not necessarily to be believed 100%. When ULSD was being pushed through in Europe, oil companies were up in arms, screaming it wasn't possible, that it would cost a fortune, etc. etc., but suprise suprise, they managed it OK, and at no great extra cost. I sniff some of the same thing in these somewhat inflated US figures too. For sure, if they are including their capital investment in new refining equipment to make ULSD, then the cost per gallon of ULSD looks expensive.....

Diesel in France is still much cheaper than gasoline simply because the French apply a favourable tax regime to it.

The rise in diesel prices is inexorable. If you heat your home with heating oil (kerosene in the UK), you should seriously think about changing it. Diesel is a precious transport fuel. Burning it for heat is becoming plain silly.

I agree, I see no point whatsoever in buying the petrol CRV in the UK. But if, next year, diesel moves another 20% higher than gasoline, driving a diesel may start to feel like a luxury.....!!