Diesel is the only fuel that can truly be considered essential to the global economy. It powers automobiles, ships, trains, and buses. It powers equipment in agriculture, manufacturing and construction. It is burned to heat homes. And because of the high cost of natural gas, it is also used to generate electricity in certain places.
Background: Diesel Shortage
Sanctions imposed on Russia are weighing on global diesel markets, with Europe the region most at risk of a “systemic” diesel shortage that could lead to fuel rationing, according to the world’s most influential trade organisations.
Following Russia’s invasion of Ukraine, the heads of Vitol, Gunvor, and Trafigura, three of the world’s largest commodity trading companies, said Russia could lose up to three million barrels of oil and oil products a day because of the sanctions imposed.
In the coming months, almost all regions of the world are at risk of experiencing diesel shortages. This comes at a time when limited energy supplies in almost all of the world’s energy markets have led to a rise in inflation and a slowdown in economic growth.
The cost could be significant, affecting everything from Thanksgiving turkey to the bills consumers will receive for heating their homes this winter. Mark Finley, an energy scientist at Rice University’s Baker Institute for Public Policy, projects that rising diesel costs will hurt the U.S. economy by about $100 billion.
Diesel Fuel Critical For The World Economy
The vast majority of things we consume are delivered by trucks and trains powered by diesel engines. Diesel is also used to power most vehicles and tools in construction, agriculture and the military. Diesel fuel is used as a transportation fuel and offers a variety of benefits in terms of performance, efficiency, and safety. Diesel fuel has a higher energy density than other liquid fuels, which means it delivers more usable energy per unit volume.
Applications of Diesel Fuel
- Diesel engines are used in a wide variety of vehicles, including trucks, trains, boats, and barges, and they help transport virtually all goods that humans consume.
- Diesel fuel is a fuel commonly used in public buses and school buses.
- The vast majority of agricultural and construction equipment used in the United States runs on diesel fuel.
- Diesel fuel is also important to the construction industry because it provides energy.
- Diesel engines can perform heavy construction work such as lifting steel beams, digging foundations and trenches, drilling wells, paving roads, and moving earth quickly and safely.
What Is The Cause of Diesel Shortage?
Refining capacity in the world is significantly constrained. Crude oil stocks are now slightly depleted. However, there is a major bottleneck in converting this commodity into fuels such as gasoline and diesel, making it difficult to produce more of these fuels. This is partly due to COVID -19, which led to a collapse in demand and forced refineries to close the factories that were bringing in the least money.
But the fact that fossil fuels will soon be used less has also reduced investor interest in the industry. The capacity of the United States refineries has decreased by more than one million barrels per day since 2020.
While this was going on, shipping delays and labour strikes in Europe were reducing the amount of oil that could be refined. Tanks and vehicles used by the United States military run on diesel fuel because, in comparison to other fuels, diesel fuel is both less flammable and less explosive. Also, diesel engines are less likely to stall than gasoline engines.
The European Union’s planned move away from Russian supplies could make the situation much more problematic. Diesel fuel is more important to the European economy than in any other region of the world. According to statistics from Vortexa Ltd, nearly half of all barrels loaded onto ships are handled in Russian ports. About 500 million barrels are shipped annually by ship. In addition, the U.S. has halted all imports from Russia, which was a major supplier to the East Coast the winter before last.
Protocols In place In Case of Diesel Shortage
The diesel shortage on the East Coast of the United States has already prompted companies to reduce their supplies and put contingency plans in place as winter has set in. The Northeast is the part of the U.S. with the most residents and one of the coldest winters on record, and it’s also the part that uses the most heating oil to keep homes comfortable.
In the winter, residents there will face the highest energy costs in decades, even under the most optimistic circumstances. The government has already nearly doubled its estimates for the increase, predicting that people who rely on heating oil will spend 45% more than last winter.
The United States is a net exporter of diesel, so there are unlikely to be long-term problems with diesel supplies across the country. Isolated outages and price increases, on the other hand, are likely to be more common, especially on the East Coast, where a lack of pipelines is causing massive supply and demand shortages.
South Asia as a savior in times of need
As a result of widespread diesel shortages, exporters such as China and India are now better advised to ship their goods to European countries that can pay higher prices. According to research by an industry consultant, China’s total fuel exports are expected to increase by 500,000 barrels per day to about 1.2 million barrels by the end of the year. The question of whether this will be enough to close the gap in world production remains unanswered.