Diesel policy (not the fleet kind)

You hear a lot these days about how the oil fracking revolution is turning the US into 'Saudi America'.

Take the chart below, for example, which was made a few days ago by geologist Art Berman, based on data from the US Energy Information Administration.

us-oil-chart-berman.png

Starting in 1900, it shows how conventional US crude in 1970. Fracking (the red area) took off around 2010 and has already pushed total US oil production beyond its previous peak. What's not to like?

Well, as one commenter on Art Berman's Twitter feed wrote:

"Given the quality of that crude oil, i.e. lots of gasoline and not much else, how in the world will we be able to use it?

How indeed? As noted in yesterday's post, what the world needs now is diesel, sweet diesel. The type of light tight oil (LTO) the frackers are producing isn't the answer.

A piece in Forbes magazine last September summarised the pressure this situation is putting on diesel supply:

The yield of gasoline from refineries is to grow at a time when gasoline demand growth is stalling ... and growth is shifting to middle distillates [aviation fuel and diesel];

Refiners in Asia struggle to secure their design feedstock, which is heavy sour crude, as only light/sweet crude supplies are growing;

A shortage of diesel/gas oil, as upgrading units [a kind of blender] will be under-utilized due to the lack of residue.

In a nutshell, demand for refined diesel keeps growing and growing, but fracked LTO – the only major new source of crude oil supply in the world today – is the wrong stuff for the job.

That's the primary reason why the UK and Europe are turning the screw on diesel cars. Our region wants to chase car users into petrol models so as to free-up diesel supplies (i.e. hold down fuel costs) for the good of essential commercial transport and the wider economy .

Of course, per Forbes's second and third bullet points, above, there is another way to help balance fracking output with demand for diesel.

The US could 'rearrange the availability' of heavy sour crude to its refineries while exporting its LTO to a country already configured to blend LTO with its own huge supply of heavy oil to make diesel.

crude-americas-map.png

As usual oil seems to be the underlying dynamic behind the US’s relentless ramping-up of economic pressure on Venezuela in recent years, which is now coming to a head. It would have been nice to believe it could be sorted out through a trade deal but unfortunately that isn’t the way the game of Empires is played.

Diesel’s high price isn’t only paid at the pumps. Fleets should use it wisely and well.