On Thursday October 30th the API’s Jane Van Ryan hosted another blogger conference call. Audio links are at the bottom of the page.

Click here for the pdf.

I led off the questions asking why diesel isn’t following gasoline down in price. It is but only in part and much more slowly.

The answer offered by Lou Pugliaresi, President, Energy Policy Research Foundation, is based in an imbalance in the demand for diesel versus the configuration of the world refining structure capacity, by an increasing dieselization in Europe, and China began a kind of world-wide growth in demand for the “middle of a barrel” of oil from pulling a lot of coal out of industrial uses. These reasons are based in the market having a more distinct demand slowing in gasoline, an effort by Europeans to increase the efficiency of the transport fleet by switching to diesel and China for their own reasons including we’d hope, reducing the pollution from coal use.

Mr. Pugliaresi said, “What’s been happening over the last few years is that as the world refining centers move to hit the diesel targets, they are producing a lot of gasoline for which there is no local market. (Refiners) can swing this production 3 to 4 percent with existing capacity; but in Europe they’re already at the limit. We in the U.S. are importing roughly a million barrels a day of gasoline from the finished gasoline and blend stock, mostly blend stock. And in fact, we have been exporting distillate over the last few months.”

“Of course it’s been exacerbated even in the U.S. If you think about refineries, they’re sort of like producing steaks and leather. You can’t really produce more distillate without producing more gasoline. I mean, as I said, we can swing a little bit. What’s happening is that, in order to meet – until we get more hydro-cracking, hydro-treating, and more distillate capacity online, and the world refining configuration can rebalance itself a bit, we’re going to have this disparity.”

I said, “What’s your time frame? (To a solution.)

Here’s the not so good news:

Mr. Pugliaresi says, “Some of this is going to be related to the pace at which foreign refinery centers come online. The Indians have a million barrels a day of capacity coming online, and some of their – largely aimed at the world distillate market. The – I would say, in the first quarter next year, they’re going to be moving some of their lower-spec – let’s say the middle of the barrel that doesn’t quite meet the European specs – but over time they will be pulling more sulfur out of the middle of the barrel; to the extent that the U.S. refining industry can begin to make some capital investments, you know, maybe five – take as much as 10 years, it could happen as quick as three. It really depends upon whether we’re going to get any recovery in some of these margins, and people are willing to put some risk capital to make these projects go forward.

There’s that finance issue. One great thing about Big Oil is they can finance this kind of thing without months or years of credit work to get the capital in place. Being vertically integrated and heavily capitalized has some terrific advantages for the companies and then to consumers. But in the U.S. the regulatory and permitting issues can be measured in years, too.

For those of you relying on fuel oil for home heating it too is a middle distillate as are kerosene and jet fuel. What shift takes place isn’t known yet but some of the break in middle distillates pricing is due to a reduction in jet fuel demand as airlines have cut back on a few routes. Trucking is down only slightly and farm and construction use will diminish as winter sets in.

We also talked about propane and natural gas. There is good news in natural gas, even with a major hurricane season there are adequate supplies or maybe abundant by some views so home heating isn’t going to be an availability issue this winter by natural gas. Long-term natural gas production increases are seen coming for some years to come. The U.S. is enjoying a low price for natural gas compared to the rest of the world’s economy. Natural gas is a bright spot in fossil fuels that should last a while.

I know that everyone reading has a personal point of view. What helps in this post for those in middle distillate is that the break point for alternatives is going to be high for some time to come over and beyond the oil and gasoline prices. While this will surely change over time, the question will remain by how much and will the market get back to a kind of parity where diesel is 115% or so over gasoline.

One is certainly aware by now that home heating with fuel oil isn’t looking good for at least three or maybe as long as ten years out. The disparity with natural gas as estimated in the conference call at about 60% compared to oil tends to suggest that a move to natural gas or electric driven heat pumps for home heating to be very advisable in these economic conditions.

Much of the blogger’s conference call questioning was handled by Mr. Pugliaresi who comes from the Energy Policy Research Foundation, Inc. For more information the link is EPRF.

Thanks to Jane Van Ryan at the API for setting up this informative conference call.


Comments

11 Comments so far

  1. Herma Bakey on August 21, 2010 9:28 PM

    Wow – now that’s perspective! Please more like this!

  2. Jenniffer Tromburg on October 12, 2010 1:31 AM

    Yes agree with the majority of what’s being said here, I am happy uncovered this. 🙂 I was just enjoying a dialogue concerning this along with wise ass friends at work.

  3. buy kinect on October 23, 2010 2:06 PM

    Greetings,

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    May I use some of the information from your post right above if I give a link back to your website?

    Thanks,
    Charlie

  4. buy kinect on October 23, 2010 8:14 PM

    Hi,

    This is a inquiry for the webmaster/admin here at newenergyandfuel.com.

    May I use part of the information from your blog post right above if I give a backlink back to your website?

    Thanks,
    Peter

  5. buy kinect on October 24, 2010 2:28 AM

    Hello there,

    This is a question for the webmaster/admin here at newenergyandfuel.com.

    Can I use part of the information from this post above if I give a backlink back to your site?

    Thanks,
    Charlie

  6. buy kinect on October 24, 2010 7:45 AM

    Hi,

    I have a message for the webmaster/admin here at newenergyandfuel.com.

    May I use some of the information from your post above if I provide a backlink back to your website?

    Thanks,
    John

  7. buy kinect on October 24, 2010 9:32 AM

    Hi,

    I have a message for the webmaster/admin here at newenergyandfuel.com.

    Can I use part of the information from your blog post above if I provide a backlink back to your website?

    Thanks,
    Jack

  8. buy kinect on October 24, 2010 11:01 PM

    Hello there,

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    May I use some of the information from your post above if I provide a backlink back to this site?

    Thanks,
    Daniel

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