Diesel Fuel: Use, Manufacturing, Supply and Distribution
Jim Williams
American Petroleum Institute
Presentation at 2007 Diesel Engine Efficiency &
Emissions Research Conference
August 15, 2007
Diesel Fuel : Use, Manufacturing, Supply and Distribution
Diesel Fuel: Use, Manufacturing, Supply and Distribution
• Key Considerations
• Diesel Fuel Manufacturing and Supply
¾US vs Europe ¾Diesel production technologies
• Diesel Fuel Markets • Vehicle Issues ¾Light Duty Diesel (LDD) vehicle markets
• Summary/Conclusions
Diesel Fuel: Use, Manufacturing, Supply and Distribution
Key Considerations z
US refineries are designed to maximize gasoline production ¾ To respond to consumer demand ¾ US diesel demand is driven by heavy-duty applications
z
European refineries are designed to maximize diesel production ¾ Diesel as the primary transportation fuel ¾ Heavily influenced by tax incentives for diesel ¾ Europe now importing diesel and exporting gasoline
Diesel Fuel: Use, Manufacturing, Supply and Distribution
Key Considerations (Continued) z
Refinery design and equipment differences ¾ Between refineries designed for maximum gasoline production versus those designed for maximum diesel production
z
A major switch to diesel production in the US would require significant refinery re-design
z
There are many options other than increased LDDs for improving fuel economy
Refinery “Cut of the Barrel”: US vs Europe vs Japan
US Refineries Are Designed and Constructed for Gasoline Production
Gasoline (~47%)
Gasoline
Gasoline
Kero/Jet Diesel/Distillate
Kero/Jet Diesel/Distillate
Kero/Jet Diesel/Distillate
Other
Other
Other
US
Europe
Japan
Fuel Manufacturing and Supply:
US vs Europe
z
Refinery design and equipment differences ¾ Between refineries designed for maximum gasoline vs those designed for maximum diesel ¾ Gasoline: Catalytic cracking → Volume & Octane 9 37% of US crude capacity 9 15% of Europe’s crude capacity ¾ Diesel: Hydrocracking→ Volume & Cetane 9 Increased by approx. 60% between 1995 and 2005
z
A major switch to diesel production in the US would: ¾ Require significant refinery re-design and major process unit installations ¾ Cost $500 million to $1 billion at many refineries ¾ Require substantial lead time, e.g., 5 - 10 years
Diesel Fuel Markets
Several Factors Have Caused a Tightening of Worldwide Diesel Supply z
Diesel demand in Europe has grown as diesel vehicles replaced gasoline vehicles. ¾ Different tax treatment ¾ Less severe vehicle emissions standards ¾ Improved diesel vehicle performance
z
Diesel demand has also been growing worldwide ¾ Heavy duty diesel demand grows as the economy grows
z
US highway diesel demand has been growing at a faster rate than gasoline demand
Demand Trends: Gasoline Versus Highway Diesel US 1980 - 2006
350 Gasoline Diesel
300
1980 = 100
250 US diesel demand trending higher at faster rate than gasoline
200 150 100 50
Diesel estimated for 2006
0 1980
1985
1990
1995
2000
Source: EIA and API Statistics
2005
As Diesel Demand Grew in Europe, Gasoline Became Surplus and Was Exported, Much to US Production versus Demand of Motor Gasoline and Diesel in Europe and the US
(million barrels per day) 7
United States
10
9
8
6
Gasoline Demand
Europe
Diesel Demand Imports
Imports
7
Diesel Production
5
Gasoline Production
6
4
Gasoline Production
5
3
4
Gasoline Demand
Diesel Demand
3
Imports
Exports
2
Diesel Production
2
1
1
0
Source: IEA, EIA Assumed constant stocks
2005
2000
1995
1990
2 0 05
2 0 00
1 9 95
1 9 90
0
EU-15 Demand Mix Forecast Shows Continued
Declining Gasoline Demand Which Benefits US
EU-15 Demand Mix Diesel Fuel
3500
Thousand Barrels Per Day
4000
3000 2500 2000
Gasoline
1500 1000 500
Source: EIA, History IEA; Forecast Purvin & Gertz
2015
2010
2005
2000
1995
1990
0
Challenges to US Light Duty Diesel Growth
z
EPA and CARB emissions standards are challenging
z
Consumer acceptance is uncertain
z
Diesel fuel consumer cost savings advantage over gasoline vary
US Diesel Prices Are Sometimes Higher Than Gasoline
Retail Diesel vs. Gasoline Prices 370
Cents per Cents pergallon gallon
320
270
regular, all types diesel periods when regular, diesel higher all types diesel than gasoline
220
170
120
Jan-04
Jan-05
Source: Energy Information Administration
Jan-06
Jan-07
8/6/07
z
Consumers will decide on acceptance of options based on the: ¾ Cost of vehicles ¾ Cost of fuels ¾ Potential for recovery of incremental vehicle costs through improved fuel economy
z
Cost – Effectiveness of Some Potential Options Fuel Economy Benefit, %
Cost, $
Improved Conventional Gasoline
26 - 28
800 -1,000
Hybrids
25 - 55
3,900 -5,600
Diesel
33 - 50
2,200 – 3,400
Source: K. G. Duleep, Energy and Environmental Analysis, Testimony at House Science Committee, and 2005 SAE Government/Industry Presentation
LDD Vehicles Are One of Several Possible Options for Improved Fuel Efficiency
Cost Recovery Scenarios
Gasoline = Diesel
z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine » 5-year payback target
700
Target
600 500
Annual 400 Savings 300 200 100 0 $2
$2.50 Fuel Costs
$3.00
Cost Recovery Scenarios
Gasoline < Diesel
700 z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine » 5-year payback target
Target
600 500
Annual 400 Savings 300 200 100 0 $2/2.25
$2.50/2.75 Fuel Costs
$3/3.25
Cost Recovery Scenarios
Gasoline > Diesel
z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine
» 5-year payback target
800 700 Target 600 500 Annual
400 Savings
300 200 100 0 $2.25/2.00
$2.75/2.50 Fuel Costs
$3.25/3.00
Summary/Conclusions
z
US refineries are designed to maximize gasoline production
z
European refineries are designed to maximize diesel production
z
A major switch to diesel production in the US would require significant investment and many years for design and construction.
z
Significant challenges exist for increased passenger car diesel growth in the US
z
Consumers will decide on acceptance of options based on:
» Cost of vehicles » Cost of fuels
» Potential for recovery through improved fuel economy
American Petroleum Institute
Presentation at 2007 Diesel Engine Efficiency &
Emissions Research Conference
August 15, 2007
Diesel Fuel : Use, Manufacturing, Supply and Distribution
Diesel Fuel: Use, Manufacturing, Supply and Distribution
• Key Considerations
• Diesel Fuel Manufacturing and Supply
¾US vs Europe ¾Diesel production technologies
• Diesel Fuel Markets • Vehicle Issues ¾Light Duty Diesel (LDD) vehicle markets
• Summary/Conclusions
Diesel Fuel: Use, Manufacturing, Supply and Distribution
Key Considerations z
US refineries are designed to maximize gasoline production ¾ To respond to consumer demand ¾ US diesel demand is driven by heavy-duty applications
z
European refineries are designed to maximize diesel production ¾ Diesel as the primary transportation fuel ¾ Heavily influenced by tax incentives for diesel ¾ Europe now importing diesel and exporting gasoline
Diesel Fuel: Use, Manufacturing, Supply and Distribution
Key Considerations (Continued) z
Refinery design and equipment differences ¾ Between refineries designed for maximum gasoline production versus those designed for maximum diesel production
z
A major switch to diesel production in the US would require significant refinery re-design
z
There are many options other than increased LDDs for improving fuel economy
Refinery “Cut of the Barrel”: US vs Europe vs Japan
US Refineries Are Designed and Constructed for Gasoline Production
Gasoline (~47%)
Gasoline
Gasoline
Kero/Jet Diesel/Distillate
Kero/Jet Diesel/Distillate
Kero/Jet Diesel/Distillate
Other
Other
Other
US
Europe
Japan
Fuel Manufacturing and Supply:
US vs Europe
z
Refinery design and equipment differences ¾ Between refineries designed for maximum gasoline vs those designed for maximum diesel ¾ Gasoline: Catalytic cracking → Volume & Octane 9 37% of US crude capacity 9 15% of Europe’s crude capacity ¾ Diesel: Hydrocracking→ Volume & Cetane 9 Increased by approx. 60% between 1995 and 2005
z
A major switch to diesel production in the US would: ¾ Require significant refinery re-design and major process unit installations ¾ Cost $500 million to $1 billion at many refineries ¾ Require substantial lead time, e.g., 5 - 10 years
Diesel Fuel Markets
Several Factors Have Caused a Tightening of Worldwide Diesel Supply z
Diesel demand in Europe has grown as diesel vehicles replaced gasoline vehicles. ¾ Different tax treatment ¾ Less severe vehicle emissions standards ¾ Improved diesel vehicle performance
z
Diesel demand has also been growing worldwide ¾ Heavy duty diesel demand grows as the economy grows
z
US highway diesel demand has been growing at a faster rate than gasoline demand
Demand Trends: Gasoline Versus Highway Diesel US 1980 - 2006
350 Gasoline Diesel
300
1980 = 100
250 US diesel demand trending higher at faster rate than gasoline
200 150 100 50
Diesel estimated for 2006
0 1980
1985
1990
1995
2000
Source: EIA and API Statistics
2005
As Diesel Demand Grew in Europe, Gasoline Became Surplus and Was Exported, Much to US Production versus Demand of Motor Gasoline and Diesel in Europe and the US
(million barrels per day) 7
United States
10
9
8
6
Gasoline Demand
Europe
Diesel Demand Imports
Imports
7
Diesel Production
5
Gasoline Production
6
4
Gasoline Production
5
3
4
Gasoline Demand
Diesel Demand
3
Imports
Exports
2
Diesel Production
2
1
1
0
Source: IEA, EIA Assumed constant stocks
2005
2000
1995
1990
2 0 05
2 0 00
1 9 95
1 9 90
0
EU-15 Demand Mix Forecast Shows Continued
Declining Gasoline Demand Which Benefits US
EU-15 Demand Mix Diesel Fuel
3500
Thousand Barrels Per Day
4000
3000 2500 2000
Gasoline
1500 1000 500
Source: EIA, History IEA; Forecast Purvin & Gertz
2015
2010
2005
2000
1995
1990
0
Challenges to US Light Duty Diesel Growth
z
EPA and CARB emissions standards are challenging
z
Consumer acceptance is uncertain
z
Diesel fuel consumer cost savings advantage over gasoline vary
US Diesel Prices Are Sometimes Higher Than Gasoline
Retail Diesel vs. Gasoline Prices 370
Cents per Cents pergallon gallon
320
270
regular, all types diesel periods when regular, diesel higher all types diesel than gasoline
220
170
120
Jan-04
Jan-05
Source: Energy Information Administration
Jan-06
Jan-07
8/6/07
z
Consumers will decide on acceptance of options based on the: ¾ Cost of vehicles ¾ Cost of fuels ¾ Potential for recovery of incremental vehicle costs through improved fuel economy
z
Cost – Effectiveness of Some Potential Options Fuel Economy Benefit, %
Cost, $
Improved Conventional Gasoline
26 - 28
800 -1,000
Hybrids
25 - 55
3,900 -5,600
Diesel
33 - 50
2,200 – 3,400
Source: K. G. Duleep, Energy and Environmental Analysis, Testimony at House Science Committee, and 2005 SAE Government/Industry Presentation
LDD Vehicles Are One of Several Possible Options for Improved Fuel Efficiency
Cost Recovery Scenarios
Gasoline = Diesel
z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine » 5-year payback target
700
Target
600 500
Annual 400 Savings 300 200 100 0 $2
$2.50 Fuel Costs
$3.00
Cost Recovery Scenarios
Gasoline < Diesel
700 z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine » 5-year payback target
Target
600 500
Annual 400 Savings 300 200 100 0 $2/2.25
$2.50/2.75 Fuel Costs
$3/3.25
Cost Recovery Scenarios
Gasoline > Diesel
z
Assumptions: » 15,000 mi/yr » Diesel vs Gas MPG = 26 vs 20 (30%) » $3,000 price premium for diesel engine
» 5-year payback target
800 700 Target 600 500 Annual
400 Savings
300 200 100 0 $2.25/2.00
$2.75/2.50 Fuel Costs
$3.25/3.00
Summary/Conclusions
z
US refineries are designed to maximize gasoline production
z
European refineries are designed to maximize diesel production
z
A major switch to diesel production in the US would require significant investment and many years for design and construction.
z
Significant challenges exist for increased passenger car diesel growth in the US
z
Consumers will decide on acceptance of options based on:
» Cost of vehicles » Cost of fuels
» Potential for recovery through improved fuel economy
