Diesel Deficit Impending for Europe
12 August 2005
A new study by energy and life-sciences consultancy Wood MacKenzie concludes that Europe faces a substantial deficit of diesel by 2015 which will not be satisfied by imports from Russia or the Middle East.
The study, The Long and Short of It—European Product Imbalances and their Implications, finds that although a number of large-scale hydrocracking projects are currently planned in Europe, they will not be sufficient to meet the growing deficit.
Fundamentally, demand for middle distillates is forecast to continue to grow rapidly, outpacing any increases in supply from current, planned investments. Where this supply comes from in the future, and what impact this has on refining margins for Europe, is fundamental for the industry and investors to understand.—Aileen Jamieson, Downstream Managing Consultant
The analysis suggests that while Europe is going to become increasingly dependent on importing diesel from other regions, so will the Asia Pacific and the US. Even taking into account planned investment in the Russian refining industry and export refineries geared towards Europe in the Middle East, the additional forecast supply of gas/diesel oil will not meet requirements.
You have to take into account that, at the same time, both Asia Pacific and the US will also be deficit diesel. This means we will need to see further investment in upgrading projects globally, as well as additional refining capacity in Asia.
Help a brotha out:
So you buy a 55 gallon drum of oil from the market. Brent crude, or whatever.
If you only wanted to generate standard quality gasoline from that barrel, how many gallons would you get?
If you only wanted to generate standard quality diesel from that barrel, how many gallons would you get?
Is the tradeoff 1:1, or is it the case that some parts of the refining process generate diesel and others gasoline, and they can't substitute? Is the shortage due to requiring too much diesel generation from each barrel, or is it from there just not being enough barrels of anything?
Posted by: stomv | 12 August 2005 at 11:35 AM
refineries, as I understand (and that's not counting for much), seperate the various compounds in crude oil to generate gasoline, kerosene, diesel, etc. So I think this means that there's not enough production capacity for diesel in Europe.
Posted by: Shelby Davis | 12 August 2005 at 12:38 PM
In petro-land, it’s 42 gallons per barrel. :-)
Crude oil consists of a welter of different hydrocarbon molecules that vary in size, structure and characteristics. Refining is basically the process of separating them out into different "fractions", or types of molecules. Light gases (butane, propane) and gasoline are lighter fractions out of the barrel. Diesel is a "middle distillate"--not as heavy as heavy fuel oil and lubricants, heavier than gasoline.
What you end up with depends (a) on the composition of the oil you use as a feedstock and (b) on the different number of process steps you add distill and crack the hydrocarbons--and remove contaminants that would otherwise end up as pollutants, such as sulfur.
Refineries, to put it another way, upgrade crude oil to higher-value products. And not only is not all oil equal, there are big differences between the different types.
So, for example, to tackle your first question, a barrel of sweet crude (light, low sulfur) will give me a basic yield of about 30% gasoline; a barrel of medium sour about 21% gasoline, and a barrel of heavy sour crude of about 14% gasoline.
Overall refinery yield in the US in 2004, though, saw about 49% gasoline yield. The increase from the basic yield comes from the upgrading processes.
Similarly, sweet crude will yield about 34% middle distillates (diesel, jet fuel, heating oil); medium sour, about 26%; heavy sour, about 22%. Average 2004 US refinery distillate production: 32%.
That's the reason why "light crude" with less sulfur is more valuable than heavier crude with more sulfur. It's easier (i.e., cheaper, fewer steps) to refine gasoline from the lighter crude.
Delivering more diesel will require the upgrading of refineries with additional processing capability to upgrade the heavier segments for diesel processing specifcally ("dieselization")--and to desulfurize it to the coming norms of ULSD.
And yes, swinging the needle more to the diesel side would come at the expense of gasoline yield.
Posted by: Mike | 12 August 2005 at 03:49 PM
Thank you for the great explanation Mike. I've been looking for a clear breakdown.
I understand that we get more of a return from diesel engines. Is the yield higher from diesel? Do you have percentages that you could give us for diesel?
I keep wondering if we are all going to be pushed in the direction of diesel (not just because of efficiency, bio-diesel, diesel hybrid efficiency), but because Diesel will be a better return per barrel as most of the new finds worldwide are in heavy sour crude.
In other words, in a post peak world focused on conservation, will it become important to route production toward diesel in an effort to extend the remaining oil supply another 5%, 10% in addition to other conservation methods? Thanks in advance for any education you can provide.
Posted by: Seth | 12 August 2005 at 05:55 PM
Thanks, Seth. I don’t know what the theoretical maximum diesel yield you could wring out of different types of crude might be given a focus on maximizing that particular product.
The numbers in the comment above reflect current US refinery configurations, which worked out in 2004, to yields of 49% gasoline, 32% distillate (diesel, jet fuel, heating oil).
There were a series of studies done about 10 years ago on the impact of a projected "dieselization" in the US--I’ll rummage around and see if I can find those, and if they shed any light on your question in the sense of maximizing remaining petroleum resources while working toward a different fuel solution.
Posted by: Mike | 12 August 2005 at 06:44 PM
Thanks for the reply Mike. I'm very interested in what you're able to come up with, as I'm currently crunching some of the math in a big spreadsheet.
BTW, Shelby's link to http://www.eia.doe.gov/ led to a lot of interesting data. The historical data is fascinating to look at and I've never seen the analysis by fuel type that's available there.
It's interesting to see that our own government's analysis on the site says that though they see a later peak — 2026 to 2037 — they see no justification for delay or complacency.
Posted by: Seth | 12 August 2005 at 10:54 PM
Thanks. I've seen charts like that before. But, here's my (second?) question:
From the barrel in the linked page. diesel is 10 gallons, gasoline is 19.7.
If one wanted to squeeze 11 gallons of diesel from the barrel, what would the quantity output of the other forms of oil? What would be the net additional refining cost? How about 12? 13? etc.
So, I'm interested in the marginals. What's the marginal cost (in both dollars AND other products of the barrel) for an additional gallon of diesel. This is the critical question. If, for example (and I'm making this up), the marginal cost of going from 10 gallons diesel to 15 gallons diesel (+5d) was 5 gallons gasoline (-5g), and a net added cost of $0.10, then we're not running out of diesel anytime soon, since all that's really needed is to increase the refining capacity of the diesel output.
But, if the marginal cost of going from 10 gallons diesel to 12 gallons diesel (+2d) was 5 gallons gasoline (-5g) and a net added cost of $5.00, then we're in a heap of trouble, since the added fuel cost actually makes a barrel of oil move vehicles a shorter distance, and at a higher cost.
Obviously, both examples are extremes. But, these are the essential questions when asking are we running out of diesel?.
Posted by: stomv | 13 August 2005 at 05:52 AM
Europe experiencing deficit of diesel was projected sometime ago and is related to Russia and North Sea running out of oil simultaneously. They are not running out completely but having bigger declines in less sulfurous crude. Trend it against higher growth for diesel consumption and mind that EU diesel is nothing like US diesel (it has a lot less sulfur and thus could only be economically refined from sweet crude) and it would become quite apparent that it would happen sooner or later.
Now the problem is that it takes time and money to retool refineries to refine Russian sour sulfurous crude and at the end you'll end up with a product that is more expensive then refined from light sweet middle eastern crude - not very business proposition. It is cheaper to obtain enough of light sweet to keep old refineries at capacity. The only spare sweet crude that EU could tap for its looming diesel problem is in Iran.
Posted by: Aleksey | 15 August 2005 at 07:34 PM
Much of europe is in deep poop because bio isnt very viable and tranporting bio is expensive.. add to that they mostly dont have enough coal to convert to fuel and well .... heck in a handbasket...
And to make matters 100 times worse they depend on fuel taxes for a huge amount of revenue...
Posted by: wintermane | 15 August 2005 at 08:28 PM
You deal quite clear with a difficult topic. But what I'm wondering what kind of european refineries are better equiped to deal with the changing demand barrel (diezelisation) then others and why. Are diesel yields of refineries with hydrocrackers higher than with cat crackers?? Is there a difference in results concerning sulphur? What have refineries to do stay competitive?
Posted by: Louis | 15 September 2005 at 10:11 AM
Can someone answer the following: Out of a barrel of LS crude, how many gallons of gasoline or how may gallons of low sulfur diesel can be produced? Is there a substantive difference in mileage per gallon for each of these products? Is part of the 'solution', albeit temporary, to our energy deficit, the production of fuels that have higher yields per barrel, higher mileage per gallon or some combination?
Posted by: george | 26 May 2007 at 06:05 AM
how many gallons of gasoline can we get out of a 55 gallon barrel of oil?
Posted by: john | 06 February 2008 at 07:45 AM