Diesel-Fuel Price Plunges; Will Engines Be Revived?
May 27, 2009
By Bill Visnic
The price of diesel fuel dipped to less than the price of a gallon of regular unleaded gasoline earlier this month, according to the Energy Information Administration (EIA).
The price inversion followed what the EIA said is a "traditional" spring transition for the price of the two fuels. But it also ends extensive auto-industry hand-wringing about the price of diesel, which for some time has not followed historic patterns and many blame for derailing ambitious plans to launch diesel-powered light vehicles in the U.S. market.
The EIA said diesel fuel's national-average price drop to less than gasoline on May 11 -- $2.24 for regular unleaded gasoline, $2.22 for diesel -- was the first time since July 23, 2007 that diesel fuel sold for less than gasoline.
The price relationship for the two fuels in the U.S. was counter to most other regions around the globe, particularly Europe, where diesel fuel's tax-advantaged price is always markedly less than gasoline -- a situation that figuratively fueled Europe's explosive growth of new-generation diesel engines for passenger vehicles. Diesel engines now power approximately 60 percent of all new passenger vehicles in Western Europe.
With mounting concern in the U.S. about energy independence and improved fuel economy, many automakers initiated plans to adopt diesel engines for U.S.-market vehicles. The domestic Big Three automakers all penned product plans that included new diesel power for light pickups, in particular, while European makers arranged to sell U.S.-spec versions of diesel-engine cars and SUVs. Even Japan's Honda Motor Co. Ltd. said its Acura premium division was going to make diesel a cornerstone of its future powertrain strategy.
But almost two years of pricey diesel fuel -- including last summer's explosion to more than $5 per gallon in some states -- hammered many makers' diesel ambitions. General Motors Corp. canceled development of its innovative new V8 diesel. Ford canceled plans to fit an in-house designed diesel V8 in the F-150 pickup and Chrysler LLC backed off on diesel power for the light-duty Dodge Ram.
Acura said it was indefinitely postponing its U.S.-market diesel. And the European makers have forged ahead -- BMW has two models on sale, Mercedes-Benz has four, and Volkswagen AG has a diesel-engine Jetta -- but it is widely believed in the industry that apart from Volkswagen's comparative success, diesel-engine vehicle sales so far have been a disappointing fraction of what BMW and Mercedes had hoped.
With the U.S. economy still staggering, Chrysler in bankruptcy and GM expected to be and auto-industry sales continuing at drastically depressed levels, the return of cheap(er) diesel fuel is unlikely to be the factor that revives the prospects for the now-dormant diesel engines. But most automakers took pains to say their plans were shelved, not canceled.
Just-announced new Corporate Average Fuel Economy targets proposed by the Obama administration set goals of 39 miles per gallon for passenger cars and 30 mpg for light trucks, as well as an aggressive timeline of 2016 to comply. Diesels may yet prove a cost- and time-efficient solution to achieve those mandates -- particularly for larger vehicles American buyers might be expected to continue to prefer.
Posted by Michelle Krebs at 7:27 AM under Analysis , Companies , Technology | Comments (2) | digg this | Seed Newsvine
VW has been successful with its diesel Jetta because it only adds about $1000 over a well-equipped gas version. Although Mercedes' E 320 Blu-Tec has the same price difference, I suspect its target market is not as concerned about the mileage numbers, which may explain why it is not doing as well. BMW's problem is that the 335d is priced $3000 more than the 335i and $10,000 more than the 328i. I ran the numbers and found that with the Jetta and E-Class the cost difference would be amortized after (depending fuel price differential) about 22,000 miles, but it would take 73,000 and 253,000 miles over the 335i and 328i, respectively, to break even. Consequently, BMW dealers are discounting several thousand below invoice, but VW dealers are getting MSRP.
Posted by: offroadbob1 | May 27, 2009 at 3:07 PM
"With mounting concern in the U.S. about energy independence and improved fuel economy, many automakers initiated plans to adopt diesel engines for U.S.-market vehicles."
This make little sense. The reason the price of diesel fuel exploded last year was that in 2007 the US became a net importer of diesel fuel instead of a net producer. Much of the rest of the developed, and less-developed, world already switched to the diesel economy, thus the market for imported diesel is much more competitive than for gasoline, which we also import. In the worst recession in 50 years, the amount of long-distance transport by diesel truck and diesel-electric locomotives has decreased substantially, and yes, the seasonal demand for heating oil which is also technically "diesel" fuel, is lower in summer.
If people expect diesel fuel to remain less expensive than gasoline (and it still isn't where I live) in several years after the economy improves, they will be surprised. Either we will be importing more refined diesel, importing more oil to refine into diesel, or investing more money to change refining processes and feed stocks to ones which produce marginally greater proportions of diesel vs. gasoline. All of which will tend to increase the cost of diesel relative to gasoline.
While diesel vehicles may be more efficient, any large-scale displacement of gasoline-powered vehicles by diesel-powered ones is probably going to mean importing more oil, not less. This will also increase the supply/lower the price of gasoline relative to diesel--because you get both when you refine a barrel of crude, so more diesel means more gasoline, and more ethanol production means more blended gas/ethanol and not more diesel.
Diesel vehicles may make good choices for individuals, but it is far from clear that it is a good strategy for the country as a whole. And it probably makes more sense to switch vehicles to diesel where you get the biggest increase in efficiency/most bang for buck vs. gasoline.
Posted by: bc1960 | May 27, 2009 at 8:33 PM