Demand for Diesel vs. Oil

[Kushal Thaker 0]

I had raised this question with Tom Kirkman and he advised to start a thread on this to know views of experts on the forum.

So, here is the question:

Diesel in the world now no longer seems to be the competitor to gasoline. My query starts here as to what will the refiners do with the diesel that is likely to come out in the cracking process?

 

Edited January 28, 2020 by Tom Kirkman
Thread title edited by moderator for clarification

[Tom Kirkman + 8,860]

Yep, I didn't have an answer to the question about the impending fate of diesel, so my suggestion was to ask the forum members for their opinions.

Note that this thread has absolutely nothing to do with politics, religion, or coronaviris, so hopefully nobody will be stumped for what opinions to comment.

[ceo_energemsier + 1,818]

3 hours ago, Kushal Thaker said:

I had raised this question with Tom Kirkman and he advised to start a thread on this to know views of experts on the forum.

So, here is the question:

Diesel in the world now no longer seems to be the competitor to gasoline. My query starts here as to what will the refiners do with the diesel that is likely to come out in the cracking process?

 

Diesel demand will be high in developing and emerging economies, which will offset the diesel demand drop in the developed world.

India, China, countries in Africa, South America use diesel as a primary transport fuel and power generation and other industries.

If the issue of the diesel demand destruction comes up, refiners will start switching from making a higher volume of diesel to a lower volume based on seasonality, however, they can also formulate new blends of fuels to meet new environmental regulations aimed at curbing air pollution and emissions. With the IMO2020 in place, we are seeing refiners buying high sulphur fuel oil from Russia and elsewhere, importing it into the US @ very large discounts and re-refining them into cleaner fuels.

Again, India and China and emerging economies will be leading the diesel demand.

[Jan van Eck + 7,558]

6 hours ago, Kushal Thaker said:

Diesel in the world now no longer seems to be the competitor to gasoline. My query starts here as to what will the refiners do with the diesel that is likely to come out in the cracking process?

There is a massive shortage of diesel and will be for the foreseeable future.  The International Maritime Organization ("IMO")  has required ALL ships to abandon bunker fuels unless they are retrofitted with special scrubbers.  The overwhelming part of the 50,000 ocean freighters are not so equipped.  Thus they MUST purchase diesel as a substitute for Bunker C.  (Also known as IFO 180 or HFO 380). That costs them an extra $15,000 a day in fuel bills for the diesel.Right  now diesel has escalated by about $280/ton as demand has outstripped supply.  Shipowners are responding by "slow steaming" their freighters at reduced speed to reduce fuel consumption.  But this causes other problems including preventing the diesel engine from running at proper operating temperatures, with coking of the internals.  So diesel is in high demand, and until new ships are built to run on LNG or nuclear, the price and demand quantity will stay up there. 

Edited January 28, 2020 by Jan van Eck

[ceo_energemsier + 1,818]

10 minutes ago, Jan van Eck said:

There is a massive shortage of diesel and will be for the foreseeable future.  The International Maritime Organization ("IMO")  has required ALL ships to abandon bunker fuels unless they are retrofitted with special scrubbers.  The overwhelming part of the 50,000 ocean freighters are not so equipped.  Thus they MUST purchase diesel as a substitute for Bunker C.  (Also known as IFO 180 or HFO 380). That costs them an extra $15,000 a day in fuel bills for the diesel.Right  now diesel has escalated by about $280/ton as demand has outstripped supply.  Shipowners are responding by "slow steaming" their freighters at reduced speed to reduce fuel consumption.  But this causes other problems including preventing the diesel engine from running at proper operating temperatures, with coking of the internals.  So diesel is in high demand, and until new ships are built to run on LNG or nuclear, the price and demand quantity will stay up there. 

Exactly!!!!

Diesel demand is not going to go lower. I am seeing an exponential growth in diesel demand for shipping industry as well as power gen with cleaner lower sulphur diesel fuel.

We have a process that has been developed, tested and proven to convert/treat/upgrade high sulphur fuel oils , high sulphur diesel fuels into smokeless , low sulphur (under 0.5%) fuels. We can also treat crude oil to achieve the same results and are currently converting/treating/upgrading 450,000 bpd for just one JV partner and are in the process of scaling upto 1,500,000bpd by year end.

Also in the process of licensing the technology with strict controls to a few major refiners.

 

[Ward Smith + 6,615]

6 hours ago, Kushal Thaker said:

Diesel in the world now no longer seems to be the competitor to gasoline.

I'm curious where you're getting this information? From lower European demand? 

[Jan van Eck + 7,558]

3 hours ago, ceo_energemsier said:

We have a process that has been developed, tested and proven to convert/treat/upgrade high sulphur fuel oils , high sulphur diesel fuels into smokeless , low sulphur (under 0.5%) fuels.

I predict you are going to be a very, very rich man.  Be sure to set aside two bucks to buy me a beer!

[ceo_energemsier + 1,818]

2 hours ago, Jan van Eck said:

I predict you are going to be a very, very rich man.  Be sure to set aside two bucks to buy me a beer!

I have worked on it (always on the look out for new tech!!!) for a few years before most people even gave a second thought to the IMO2020.

India and China's and other developing countries air pollution is so bad that they have to shut industries down for days and weeks to try to clear up the air.

I think I had mentioned a while ago about the clean coal tech, I had acquired and developed , so that is another breakthrough tech coming to areas soon.

Sure not a problem.. beer and champagne !!!

[ronwagn + 6,290]

12 hours ago, ceo_energemsier said:

Exactly!!!!

Diesel demand is not going to go lower. I am seeing an exponential growth in diesel demand for shipping industry as well as power gen with cleaner lower sulphur diesel fuel.

We have a process that has been developed, tested and proven to convert/treat/upgrade high sulphur fuel oils , high sulphur diesel fuels into smokeless , low sulphur (under 0.5%) fuels. We can also treat crude oil to achieve the same results and are currently converting/treating/upgrading 450,000 bpd for just one JV partner and are in the process of scaling upto 1,500,000bpd by year end.

Also in the process of licensing the technology with strict controls to a few major refiners.

 

This may be a stupid idea but what would be wrong with making giant lead acid batteries with much of that sulfur from refining, and lead that is not a good thing to be left laying around in coal tailings? The batteries could then be used in wind turbine fields and solar installations or maybe small ones in homes for backup energy. Just attach a few solar panels. It is not like you will be driving around with them. There is plenty of empty space for them. 

Edited January 29, 2020 by ronwagn
addition

[Rasmus Jorgensen + 1,169]

6 hours ago, ceo_energemsier said:

I have worked on it (always on the look out for new tech!!!) for a few years before most people even gave a second thought to the IMO2020.

The shipping industry starting looking for solutions 6 - 7 years ago. Maybe not in the US, but certainly globally. 

Some interesting potential nano-tech solutions due to come to market in the next 2 years. 

[Rasmus Jorgensen + 1,169]

12 hours ago, ceo_energemsier said:

Diesel demand is not going to go lower.

Maybe not in the short term, but likely in the medium to long term. 

[Rob Kramer + 696]

Does this diesel question (related to IMO 2020) cause extra gasoline as more refining is needed to get the extra diesel?

[George8944 + 128]

On 1/28/2020 at 8:15 AM, Kushal Thaker said:

My query starts here as to what will the refiners do with the diesel that is likely to come out in the cracking process?

 

I don't know the answer here, but I do have questions and observations.  Gasoline has finally overtaken diesel in the automobile market, but not in the heavy industrial mechanization market.   Ships, trucks, earth moving equipment, etc.  is still very much diesel based so is your basic assumption/concern valid?   This will be more of a problem for European refineries since they were built and optimized for diesel production, not gas.  ( Our US refineries were optimized for gasoline production. ) 

Second, isn't this just a matter of time and extra cost?  Lighter fuels ( gasoline, jet fuel, etc.) are higher in the cracking tower and can always be created from heavier distillates like diesel.  So in my understanding of the chemistry, which I admit is limited, it is easier to produce more gasoline than if we needed to produce more diesel. 

All this terminology about light and heavy, sweet or sour refers to the chemical consistency of the crude, but it also indirectly applies to what makes the most economic sense to make a particular something.   So it's an economics problem, not a technical one.  Right?

[BenFranklin'sSpectacles + 762]

1 hour ago, George8944 said:

I don't know the answer here, but I do have questions and observations.  Gasoline has finally overtaken diesel in the automobile market, but not in the heavy industrial mechanization market.   Ships, trucks, earth moving equipment, etc.  is still very much diesel based so is your basic assumption/concern valid?

In the long run, most on-road diesel demand will be replaced by EVs.  If this data is correct, and if Tesla's claim of 500+ mile range in their semi is correct, then 90+% of on-road freight could be hauled by EVs using today's technology.  Some combination of LNG and hydrogen fuel cells could easily handle the rest.  I'd argue that every oil-importing nation will rush to EVs, NG, and H2 fuel cells the second the price is comparable. 

Likewise, diesel electricity production is being replaced by renewables+storage, off-road vehicles are being hybridized for a 50% cut in fuel consumption, and no one builds homes with oil-fired furnaces any more. 

In the long run, all of that doesn't leave much market share for diesel, so I'd say @Kushal Thaker's concern is valid.  Where I think his concern isn't valid is that this will occur over 20+ years.  Is that not plenty of time for a smooth transition?

[Enthalpic + 1,496]

You could always run the diesel fraction back up the cracking tower to be broken down into lighter fractions.

Alternatively, maybe use it to dilute very heavy crude (oilsands).

Edited January 30, 2020 by Enthalpic

[Old-Ruffneck + 1,246]

3 hours ago, George8944 said:

I don't know the answer here, but I do have questions and observations.  Gasoline has finally overtaken diesel in the automobile market, but not in the heavy industrial mechanization market.

Daily runs of gasoline average around 9.2mbd to 9.4mbd. Distillates avg 5mbd to 5.3mbd. The refineries are basically running around 90% to 93%. On average total refinery 16mbd or just a bit more. Not all the refined products stay here. Adding in ethanol to blend per law 10% means even more gasoline. So gasoline hasn't finally overtaken diesel in automotive market, it always has been about a 2 to 1 ratio. 

At four miles wide, the Marathon Galveston Bay Refinery (formerly BP Texas City), southeast of Houston, is one of the largest industrial sites in the world. This refinery is 4 times larger than in early 80's. Costs less in the long run to add on than to build new refinery. EPA regulations in place 25+ years ago is why no new ones have been built. https://clui.org/ludb/site/texas-city-refinery-now-marathon-galveston-bay-refinery

[Old-Ruffneck + 1,246]

We will be swimming in Distillates soon as the mainland china flights are getting shut down world wide as they should.

Edited January 31, 2020 by Old-Ruffneck
removed to put on correct page

[SERWIN + 749]

On 1/28/2020 at 8:07 AM, Tom Kirkman said:

Note that this thread has absolutely nothing to do with politics, religion, or coronaviris, so hopefully nobody will be stumped for what opinions to comment.

No gun totin' Christian sickos allowed?

[SERWIN + 749]

And having all those polluting Volkswagen diesels off the road now, as well as the bans in European cities not allowing them inside the cities anymore?

[George8944 + 128]

Good comments on my my thoughts.  Thanks.  Generally, I agree with the replacement thesis but probably disagree with the timing.  If the uptake and introduction of the electric cars is any indicator,  I don't see large scale adoption of electric Class 8 trucks for years.  ( Volvo is introducing a Class 8 electric truck at the end of 2020.)   The key word here is "adoption".    The electric infrastructure is not really in place for cars, and truck recharge requirements will be higher.

It is something to watch.  

[George8944 + 128]

Just food for thought.  We know that gasoline powered cars dominate in the US,  but as I implied above,  Europe is also switching away from diesel.

https://www.ft.com/content/6162bf96-65bd-11e9-b809-6f0d2f5705f6

https://autovistagroup.com/news-and-insights/petrol-vehicles-increase-domination-european-sales

[Jan van Eck + 7,558]

10 hours ago, George8944 said:

Just food for thought.  We know that gasoline powered cars dominate in the US,  but as I implied above,  Europe is also switching away from diesel.

Let's all remember that this is the result of a lack of imagination, both of the auto builders and also the politicians.  The oil industry has (of course) a vested interest in retaining market share for its products.  That said, for inner-city diesel use, the logical alternative is to use a substitute drop-in fuel, a liquid that can perform close to the diesel output curve but is plant-based instead of petroleum-based.  And such fuels exist.  

I am personally a fan of developing canola oil as a direct drop-in substitute for straight diesel.  It would be a B-100 fuel, totally harmless and with a 90% greenhouse-gas emissions reduction. If you have a train wreck with tankers filled with canola oil, hey no worries, the stuff is harmless, no need to even clean it up, just let it soak into the ground and forget about it.  Same with handling, underground tanks, and so forth.  Additionally, the canola oil can be used as a direct substitute for petroleum heating oil in home space heating applications.  Canola has good cold-flow properties so it is entirely usable throughout the European continent.  And, you can grow vast quantities of the stuff in Ukraine  (for example). 

This is the real threat to petroleum oil.  It is not cranky municipal governments with their vehicle bans.  It is direct product substitution. I personally place little stock in seeing widespread substitution of battery vehicles;  you just don't get the range and refill cycles that you do with liquid fuels.  Plus there is this huge fleet out there of existing engines, not going to get replaced any time soon. 

Will widespread adoption of substitute liquid fuels depress oil prices?  Of course it will.  The larger threat to the petroleum industry is demand suppression. 

[NickW + 2,714]

On 1/28/2020 at 7:15 PM, Jan van Eck said:

There is a massive shortage of diesel and will be for the foreseeable future.  The International Maritime Organization ("IMO")  has required ALL ships to abandon bunker fuels unless they are retrofitted with special scrubbers.  The overwhelming part of the 50,000 ocean freighters are not so equipped.  Thus they MUST purchase diesel as a substitute for Bunker C.  (Also known as IFO 180 or HFO 380). That costs them an extra $15,000 a day in fuel bills for the diesel.Right  now diesel has escalated by about $280/ton as demand has outstripped supply.  Shipowners are responding by "slow steaming" their freighters at reduced speed to reduce fuel consumption.  But this causes other problems including preventing the diesel engine from running at proper operating temperatures, with coking of the internals.  So diesel is in high demand, and until new ships are built to run on LNG or nuclear, the price and demand quantity will stay up there. 

That's not apparent on diesel prices on wholesale markets

[Jan van Eck + 7,558]

20 minutes ago, NickW said:

That's not apparent on diesel prices on wholesale markets

There is actually one shipping company that took one of their VLCC's and bought 3 million barrels of diesel, they have it parked in Singapore and their ships use it as a floating gas station to fill up, just to avoid the fuel surcharges for diesel out there.  OK, so that is anecdotal, but it does indicate that shipowners are turning to crafty measures to try to soften the spiked fuel bills for diesel. 

[Rasmus Jorgensen + 1,169]

13 minutes ago, Jan van Eck said:

There is actually one shipping company that took one of their VLCC's and bought 3 million barrels of diesel, they have it parked in Singapore and their ships use it as a floating gas station to fill up, just to avoid the fuel surcharges for diesel out there.  OK, so that is anecdotal, but it does indicate that shipowners are turning to crafty measures to try to soften the spiked fuel bills for diesel. 

Jan, 

Do you have chart for price developments on bunker fuels over the past 3 months?