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Threat of diesel rationing in Europe

At the homepage of the Stock Market Guide, (a service provided by the Swedish magazines Private Business and Business Weekly), is an excerpt from Gunnar Lindstedt’s article “Dark cloud over new oil” that was published in this week’s edition of Business Weekly. The headline they chose to use was “Threat of diesel rationing”. The following is a translation of the text:
(Article in Swedish:

Oil shortage: The world’s oil production has leveled off which is causing a diesel shortage in Europe. Kjell Aleklett, a professor at Uppsala University, says that people should drive gasoline-powered vehicles if they want to be driving ten years from now.

Despite dramatic changes in price the oil industry has not been able to increase production. At the same time there have been large changes in how much oil is actually available on the world market.

“Between 2005 and 2010, a period of five years, the oil exporting nations reduced their exports from 48 million barrels per day to 44 million barrels per day. That means that 4 million barrels per day have disappeared from the market”, says professor Kjell Aleklett at Uppsala University.

“Furthermore, China, India and other developing nations have increased their imports by a total of 3 million barrels per day. In other words, the oil available to the OECD-nations has decreased by 15% in 5 years.”

As the oil exporting nations in the Middle East keep more of their oil for domestic consumption while Asian nations are dramatically increasing their imports, the shortage of oil in the industrial world is becoming ever more apparent.

At the same time, oil consumption in this part of the world has declined since the economic crisis of 2008 – people are driving less and industry’s demand has decreased. But a sign of the developing oil shortages is the continued high oil price.

And high oil prices lead eventually to economic recession. The question is how high the prices can go. If the economy stagnates it will be difficult for the oil companies to recover expensive investments in difficult-to-produce oil. As a consequence, investment will decline.

This departure from the principle that increased demand leads to more investment and greater supply has already become manifest in terms of access to diesel fuel in Europe.

“At the moment the shortage of diesel in Europe is 30-40 million cubic metres”, says Michael Löw who is managing director of Preem.

(Preem is the biggest oil company in Sweden, with refining capacity of more than 18 million m3 of crude oil every year. Their two refineries are among the most modern, environmentally-friendly in Europe and the world,

The USA exports diesel fuel to Europe and we export gasoline to the USA. But if the Americans begin to drive more diesel vehicles then the shortage of diesel here will become even greater.

Since a large proportion of the diesel fuel is used by trucking to transport goods that are essential for society it may well happen that diesel for private motor cars must be rationed in future. From a political standpoint diesel-powered cars have been supported in Europe since they are regarded as more environmentally friendly. That measure will now hurt us.

“If you want to be certain that you can drive a car in ten year’s time (in Europe) then you should drive a gasoline-powered vehicle”, says Kjell Aleklett.

“In ten years diesel fuel in Europe will probably be rationed.”

The European refinery capacity for diesel production is far too small relative to the demand. But the oil industry nevertheless does not want to invest in new plant since the profit margins are low and the future outlook is uncertain.

“The (Swedish) government says that in 2030 our driving will be fossil fuel-free”, says Michael Löw.

“But since it takes at least 19 years to turn over the car fleet we should be buying electric vehicles from this point on which is not happening. The politicians are leaving us in a vacuum – shall we close down our activities or continue to invest?”

What do you think? Leave a comment below.

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