Sylvie Willis
As of 2024, there are rumours of a diesel fuel shortage in the United States. While there are varying opinions on the severity and timing of the shortage, it is clear that diesel prices have surged and supply chain issues have arisen due to a combination of factors, including geopolitical tensions, disruptions at refineries, and the after-effects of the COVID-19 pandemic. The impact of a potential shortage could affect transportation, agriculture, emergency services, and public utilities, causing operational challenges and increased costs. However, it is important to consider alternative fuel options, such as biodiesel and renewable diesel, which are gaining popularity and could help mitigate the effects of any diesel shortage.
| Characteristics | Values |
|---|---|
| Possibility of a diesel shortage in the US | Unlikely, despite rumours |
| Reasons for the rumours | Seasonal changes in refinery capacity, geopolitical crises, and a 25-day stockpile of diesel fuel in October 2022 |
| Impact of a shortage | Increased costs for industries reliant on diesel, such as freight transport, agriculture, and emergency services; potential food supply chain disruptions and higher consumer prices |
| Mitigation strategies | Adoption of alternative fuels like biodiesel and renewable diesel, improvement in refinery capacity, and a globally focused strategy balancing supply and demand |
| Diesel consumption trends | Slowed in 2024-25, with the lowest growth in the last decade excluding the pandemic years |
| Future outlook | Expected to increase in the first half of 2024 due to economic recovery and manufacturing sector growth |
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What You'll Learn
- The US diesel supply shortage is caused by disinvestment in refining capacity, elevated natural gas prices, and export limits
- The US has a 25-day stockpile of diesel fuel, but consumption trends will impact how long this lasts
- Geopolitical instability, war, and refinery disruptions can all impact diesel stockpiles, production, and prices
- A diesel shortage could affect transportation, agriculture, emergency services, and public utilities
- Biodiesel and renewable diesel are on the rise, but they can't yet meet the demand for conventional diesel
The US diesel supply shortage is caused by disinvestment in refining capacity, elevated natural gas prices, and export limits
The United States is currently facing a diesel supply shortage. While the causes are multifaceted, three key factors stand out: disinvestment in refining capacity, elevated natural gas prices, and export limits.
Firstly, disinvestment in refining capacity has played a significant role in the diesel supply shortage. During the pandemic, some US refiners permanently shut down or converted their facilities into biofuel refineries, leading to a decrease in operational refinery capacity. This reduction in capacity has resulted in a lower output of diesel fuel, contributing to the overall shortage. Additionally, refineries conduct maintenance during the spring and fall, which further reduces capacity during these seasons.
Secondly, elevated natural gas prices have impacted the diesel supply. High natural gas prices reduce refining margins, making it more expensive for refineries to produce diesel and other fuels. As a result, refineries may produce less diesel, contributing to the supply shortage. Moreover, high natural gas prices can also lead to increased costs for consumers, affecting the affordability of diesel fuel.
Another factor contributing to the diesel supply shortage is the limit on exports, particularly the ban on Russian gasoline imports, which was implemented in response to the Ukraine war. Prior to the invasion, the US imported a significant amount of petroleum and petroleum products from Russia, boosting distillate supplies. The loss of these imports has created challenges for US refineries, as they struggle to fill the gap in their product slates. While refineries can shift some gasoline production to diesel, it is a relatively small amount, and doing so risks creating shortages in the gasoline market.
While the US diesel supply shortage has multiple causes, addressing these three critical factors is essential to alleviating the shortage. Increasing refining capacity, stabilizing natural gas prices, and finding alternative sources to replace Russian imports can help mitigate the diesel supply shortage in the United States.
Despite the shortage, it is important to note that the chances of the United States running out of diesel fuel are slim. Even with the current challenges, there is enough oil production domestically and globally to meet demand. Additionally, alternative fuels such as biodiesel and renewable diesel are gaining traction and can help diversify the fuel supply. However, these alternative fuels currently have low production capacities and cannot yet fully substitute conventional diesel.
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The US has a 25-day stockpile of diesel fuel, but consumption trends will impact how long this lasts
As of October 2022, the United States has a 25-day stockpile of diesel fuel. This number is based on the amount of fuel stored throughout the country and information about how much is consumed daily. While this has led to claims that the US will run out of diesel in 25 days, this is not necessarily true. The stockpile is meant to act as a buffer against variability, and the US has had somewhere between 22 and 55 days' worth of diesel stockpiled constantly since 1991.
However, consumption trends will impact how long this stockpile lasts. If consumption drops, the stockpile will last longer, and vice versa. While diesel prices are forecast to decline over the next year, geopolitical instability and war can create unforeseen changes to the global economy and diesel stockpiles, production, and prices. For instance, the US ban on Russian imports, low refining capacity, and strong demand have contributed to the current diesel scarcity.
Additionally, the transition to electric vehicles (EVs) has impacted diesel consumption. While the number of EV sales increased by 15% in 2024, the EV segment still only represented 2% of all passenger vehicles sold that year. Diesel continues to power three-fourths of India's transport sector, and demand for diesel for farm equipment and goods transportation remains high.
The US Energy Information Administration (EIA) has suggested that the US enhance its refinery capacity. While biodiesel and renewable diesel are on the rise in the US, their supply is still insufficient to meet the demand for conventional diesel. However, the outlook for the large-scale implementation of these alternative fuels is optimistic.
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Geopolitical instability, war, and refinery disruptions can all impact diesel stockpiles, production, and prices
For instance, the US-China trade war led to a decrease in demand for crude oil from China, resulting in increased inventory levels. Similarly, natural disasters like hurricanes can damage refineries and pipelines, causing a decrease in supply and an increase in demand and prices. Geopolitical tensions can also lead to disruptions in the supply chain of crude oil, impacting its supply and price. For example, conflicts in the Middle East, a major oil-producing region, can affect the global supply of crude oil.
The COVID-19 pandemic has also shaken the crude oil and diesel supply-demand dynamics. In 2019, geopolitics was the main source of upward fuel price pressure, but in 2020, it seemed like a non-factor due to behavioural shifts in geopolitical relationships and the pandemic's impact on supply and demand. The goal of organizations like OPEC+ is to balance oil market prices, but unstable relationships within the group and other major economies can influence diesel prices.
Additionally, Libya's civil war and Venezuela's economic crisis have reduced their contributions to the global oil supply, impacting diesel prices. War and geopolitical instability can create unforeseen changes to diesel stockpiles, production, and prices. Even so, during times of significant conflict, diesel supply may not be significantly affected, and conflict can even spur the production of more fuel.
While diesel sales growth has slowed, reflecting a weakening demand for goods transportation, it is more indicative of an economic slowdown than a shift to electric vehicles. Diesel vehicles still power most of the transport sector in many countries. Diesel prices are forecasted to decline over the next year, and seasonal changes in refinery capacity are also factors to consider.
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A diesel shortage could affect transportation, agriculture, emergency services, and public utilities
A diesel shortage could have far-reaching implications, affecting both daily life and critical societal functions.
Transportation, which is heavily reliant on diesel fuel, may face operational challenges and increased costs. Industries such as freight transport and public transit may experience delays in deliveries or higher transportation fees, resulting in price hikes for consumer goods and services. The trucking industry, for example, is vulnerable to disruptions in the supply of diesel fuel.
Agriculture, which depends on diesel-powered machinery for planting, harvesting, and irrigation, could also be significantly impacted. A shortage of diesel fuel affects farmers' ability to harvest crops, care for livestock, and ship goods. This could lead to food supply chain disruptions and higher food prices for consumers.
Emergency services, such as ambulances and fire trucks, rely on diesel fuel for their operations. A shortage could hamper their ability to respond promptly to emergencies, potentially putting lives at risk. Additionally, diesel generators are often used as backup power sources for hospitals, data centers, and other critical infrastructure during power outages. A shortage of diesel fuel could compromise the reliability of these backup systems, leading to disruptions in essential services, especially during times of crisis or natural disasters.
Public utilities could also be affected by a diesel shortage. While the specific implications may vary depending on the region and the extent of the shortage, it is clear that a diesel fuel shortage has the potential to impact multiple aspects of daily life and essential services.
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Biodiesel and renewable diesel are on the rise, but they can't yet meet the demand for conventional diesel
The demand for biodiesel and renewable diesel is increasing, but it is not yet sufficient to replace conventional diesel. Biodiesel is a renewable, biodegradable fuel derived from vegetable oils, animal fats, or recycled restaurant grease. In 2020, biodiesel was the second most extensively produced and utilized biofuel in the US, constituting 11% of total biofuel production and 12% of consumption. However, biodiesel only accounts for 2.1 billion gallons per year, a small portion of the US biofuel capacity.
Renewable diesel production is also projected to increase, with anticipated averages of 230,000 barrels per day in 2024 and 290,000 barrels per day in 2025, marking annual increases of nearly 30%. Renewable diesel is chemically equivalent to petroleum diesel and can be seamlessly blended and transported with it.
The rise in demand for biodiesel and renewable diesel is driven by their environmental benefits. These fuels are not fossil fuels; instead, they are produced from sustainable sources, such as animal fat, corn oil, and soybean oil, which can be used and grown again. They burn cleaner than conventional diesel, releasing less carbon and reducing CO2 emissions by up to 100%. Biodiesel can reduce emissions by up to 86% compared to petroleum diesel.
While the outlook for biodiesel and renewable diesel is positive, they cannot yet meet the demand for conventional diesel. The market is still developing, and production capacities are negligible compared to conventional diesel. However, fuel stations in the US have started offering biodiesel and biofuel blends, such as E10, B5, and B2, providing consumers with diverse options.
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Frequently asked questions
As of 2024, the US is facing a diesel supply shortage due to disinvestment in refining capacity during the pandemic, elevated natural gas prices reducing refining margins, and limits on the export of refined products from the EU to Russia following the Ukraine war. However, the mass application of biofuels as an alternative is still far away. While the US isn't expected to "run out" of diesel, a shortage could trigger issues across several sectors, including transportation, agriculture, and emergency services.
The primary causes of the diesel fuel shortage are disinvestment in refining capacity during the pandemic, elevated natural gas prices, and the Russia-Ukraine conflict. Geopolitical instability and war always create unforeseen changes to global economies, and diesel stockpiles, production, and prices are no exception.
Mitigating the diesel fuel shortage requires a globally focused strategy that includes a balance between supply and demand, the adoption of alternative fuel options, the conservation of primary resources, and technological advancements. While biofuels and renewable diesel are on the rise in the US, their supply currently falls short of meeting the demand for conventional diesel.
