When we watch gasoline prices climb steadily higher some of us are stunned when we see how high diesel is going. The U.S. average today for unleaded regular gas is $3.68 per gallon and for diesel it's $4.06. It makes a lot of people ask why diesel is so high.
Back in 2008 when we saw the national average for regular gasoline hit a record of $4.12 per gallon, diesel hit a record too, $4.85 per gallon... both of those records are likely to be broken this year.
Diesel fuels most of the country's buses, trucks, trains and farm equipment. According to a new report produced by National Asssociation of Convenience Stores, diesel is powering an increasing number of passenger vehicles in the U.S. and abroad and there was a 27% incease in clean disel vehicle sales in 2011.
NACS says the increased cost of diesel is a function of four factors.
First, the price of diesel is pushed higher by strong demand outside of the U.S. The U.S. is a gasoline-dominant motor fuels market. 98 percent of passenger vehicles are powered by gasoline with fewer than 2 percent powered by diesel fuel. Consequently, the refining infrastructure is designed for optimum efficiency in producing gasoline. From a typical 42-gallon barrel of oil, the refining process delivers around 18 to 21 gallons of gasoline and 10 to 12 gallons of distillate (diesel fuel) plus some other refined products. Refinery yields can be tweaked but to produce significantly more distillate they would need to undergo significant upgrades costing billions.
Outside of the U.S. other countries are much more reliant on diesel. In Europe, for instance, diesel is used in the majority of new passenger vehicles sold there. Strong international demand for diesel --for both passenger vehicles and industrial machinery-- has placed a premium on diesel fuel imports.
Second, here in the U.S. the Energy Dept. says overall gas consumption has declined by 5 percent since 2004 while diesel demand has increased by 29 percent over the same period. In response, refineries have increased diesel production 15.1 percent, boosting diesel yield from a barrel of oil from 23.9% to 27.5%.
Third, the introduction of Ultra-Low Sulfur Diesel(ULSD),which was gradually phased into the market between 2006 and 2010 to replace the on-highway diesel fuel known as Low Sulfur Diesel(LSD) mandated by the Environmental Protection Agency, required approximately $8 billion in refinery infrastructure upgrades. Naturally, that cost was passed on to you, the consumer. The Ultra-Low Sulfur Diesel added about 10 cents a gallon to the cost.
And last but not least, taxes. The federal tax on diesel is 24.4 cents per gallon, versus 18.4 cents for gasoline. The last increase was in the early '90s and tht's when diesel was generally less expensive than gasoline.