The emissions scandals within the diesel vehicle market a few years ago led many industry analysts to predict that diesel engines, and by association diesel fuel, would disappear, at least with respect to the U.S. light-duty vehicle market. Combine that with initiatives in other countries to ban diesel vehicles from certain metropolitan areas or to attempt to shift consumers away from diesel vehicles altogether, and the future for diesel fuel appeared bleak. However, the market for diesel-powered vehicles has recovered in the United States and consumer interest remains steady.
Here are five takeaways about the diesel fuel and vehicles market in the United States:
1. Diesel fuel is more expensive. Diesel fuel historically has been more expensive than gasoline. This is attributed to three factors:
- Taxes: Diesel fuel is assessed a higher federal excise tax than gasoline (24.4 cents per gallon for diesel vs. 18.4 cents per gallon for gasoline) and diesel fuel is also sometimes assessed a higher tax at the state level.
- The economy: Because the majority of diesel fuel is consumed by the freight industry, diesel fuel demand is closely connected with economic growth. The United States has had eight years of economic growth since the end of the Great Recession in 2009. And since 2013, the U.S. gross domestic product has grown 9.5%, spurring a 6% increase in demand for diesel fuel.
- Refining costs: Diesel production costs have increased over the past 15 years because of additional treatments required at the refinery to produce an ultra-low sulfur diesel fuel product with not more than 15 ppm sulfur. Additional refinery costs are expected as regulations requiring even cleaner fuel are implemented in 2018.
Demand for diesel fuel could also affect costs. U.S. refineries have long been optimized to produce gasoline, resulting in nearly 2 gallons of gasoline for every 1 gallon of diesel produced from a barrel of oil. As demand increases, pressures on available supply of diesel result in higher prices. And global demand for diesel remains strong, especially as countries continue to emerge from the Great Recession. Since 2013, U.S. exports of diesel fuel to these growing markets have increased by 33%. At the same time, U.S. production of diesel fuel has increased more than the volume exported, but global demand has led to an increase in diesel prices on the commodity markets.
2. Consumer interest in diesel remains steady. The percentage of consumers who said that they would consider a diesel engine for their next vehicle purchase has increased from 38% in 2013 to 45% in 2017, according to annual consumer fuels surveys conducted by NACS. This consistency has translated into vehicle sales as well. From 2015–2017, the market share of light-duty vehicles sold with a diesel engine has varied from 2.8% to 3.2%. While there are currently only 11 basic diesel vehicles in the U.S. market, more are on the way: Ford will offer a diesel-powered version of its popular F-150 and General Motors is also adding a new diesel-powered truck to its fleet. The market for light-duty diesel vehicles is not large, but it is steady and it has potential to grow.
3. Diesel remains primarily a freight fuel. Nearly all consumer goods sold in the United States are delivered to retail via truck and in 2016, nearly 64% of all medium- and heavy-duty vehicles on the roads in the United States were equipped to run on diesel fuel. Through 2025, a forecast prepared for the Fuels Institute projects that number may slip to 61%, yielding primarily to hybrid-diesel and natural gas vehicles.
4. Diesel prices remain a deterrent. More than half (52%) of consumers who say they are unlikely to consider a diesel vehicle for their next purchase cite fuel costs, according to the 2017 NACS Consumer Fuels Survey. And that perception is reality: Over the past five years (2013–2017), diesel prices have averaged 31 cents per gallon higher than gasoline prices (from a low of 10 cents to a high of 90 cents, in looking at weekly averages).
However, better fuel economy often can outweigh the higher cost of diesel fuel. Compared with the common gasoline blend of E10 (containing 10% ethanol), diesel fuel delivers 23% more energy per gallon. This energy content premium, combined with the superior efficiency of the compression ignition diesel engine, results in diesel vehicles traveling 25% to 35% more miles per gallon compared with their gasoline competitors. This cost benefit for diesel fuel is often overlooked by those who tend to instead focus on posted prices for fuel.
5. Convenience Retailers remain committed to diesel fuel. Whether for fleet vehicles or for commuters, diesel fuel can help draw customers inside the store. In addition, diesel fuel typically delivers stronger retail margins for the retail. Since 2013, retailer diesel gross margins have averaged nearly 11 cents per gallon more than gross margins for regular unleaded gasoline.