Diesel Fuel: Use, Manufacturing, Supply and Distribution
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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 • 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 Kero/Jet Diesel/Distillate 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 937% of US crude capacity 915% of Europe’s crude capacity ¾ Diesel: Hydrocracking→ Volume & Cetane 9Increased 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 350 US 1980 - 2006 300 Gasoline Diesel 250 US diesel demand trending 0 200 higher at faster rate than gasoline 150 1980 = 10 100 50 Diesel estimated for 2006 0 1980 1985 1990 1995 2000 2005 Source: EIA and API Statistics 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) United States Europe 10 7 9 Gasoline Demand 6 Diesel Demand 8 Imports Imports Diesel Production 5 7 Gasoline Production 6 4 Gasoline Production 5 3 Gasoline Demand 4 Diesel Demand Exports 3 Imports 2 Diesel Production 2 1 1 0 0 0 5 0 5 1 9 9 9 1 9 9 1 0 0 2 0 0 2 1990 1995 2000 2005 Source: IEA, EIA Assumed constant stocks EU-15 Demand Mix Forecast Shows Continued Declining Gasoline Demand Which Benefits US EU-15 Demand Mix 4000 Diesel Fuel 3500 3000 2500 2000 Gasoline 1500 1000 500 Thousand Barrels Per Day Per Barrels Thousand 0 1990 1995 2000 2005 2010 2015 Source: EIA, History IEA; Forecast Purvin & Gertz 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 regular, all types diesel 320 n periodsregular, when dieselall types higher 270 thandiesel gasoline Cents per gallo Cents per gallon 220 170 120 Jan-04 Jan-05 Jan-06 Jan-07 8/6/07 Source: Energy Information Administration LDD Vehicles Are One of Several Possible Options for Improved Fuel Efficiency 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 Cost, $ Benefit, % Improved Conventional 26 - 28 800 -1,000 Gasoline 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 Cost Recovery Scenarios Gasoline = Diesel z Assumptions: » 15,000 mi/yr 700 Target 600 » Diesel vs Gas MPG = 500 26 vs 20 (30%) » $3,000 price premium Annual 400 Savings 300 for diesel engine 200 » 5-year payback target 100 0 $2 $2.50 $3.00 Fuel Costs Cost Recovery Scenarios Gasoline < Diesel 700 z Assumptions: Target 600 » 15,000 mi/yr 500 » Diesel vs Gas MPG = 400 Annual 26 vs 20 (30%) Savings 300 » $3,000 price premium 200 for diesel engine 100 » 5-year payback target 0 $2/2.25 $2.50/2.75 $3/3.25 Fuel Costs Cost Recovery Scenarios Gasoline > Diesel z Assumptions: » 15,000 mi/yr 800 700 Target » Diesel vs Gas MPG = 600 26 vs 20 (30%) 500 Annual » $3,000 price premium 400 Savings 300 for diesel engine 200 » 5-year payback target 100 0 $2.25/2.00 $2.75/2.50 $3.25/3.00 Fuel Costs 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 .