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Diesel Crisis Not Solved By Ramp-Up In Renewable Diesel

A ramp-up in renewable diesel capacity in the United States over the medium term will not be enough to compensate for the decline in petroleum diesel refining capacity, Reuters has reported, citing federal data.

The United States lost almost 1 million bpd in refining capacity over the last two years as the pandemic forced several refineries shut and hurricanes damaged refining facilities.

Besides, several refineries have been or are about to be converted into renewable fuel plants, which has also reduced the availability of diesel refining capacity at a time of tight supply and low inventories coupled with more robust demand than many expected.

According to the Reuters analysis, there are at least a dozen renewable diesel projects under construction in the U.S. right now, worth a total of $9 billion. Together with existing renewable diesel plants, these are expected to churn out some 135,000 barrels daily by 2025, according to the Energy Information Administration. The current rate of renewable diesel production in the country is 80,000 bpd.

Meanwhile, diesel prices in the United States have been soaring even more sharply than gasoline prices, gaining some 75 percent over the past 12 months as the economy rebounded after the lockdowns and spending jumped, prompting greater demand for freight transportation.

Earlier this month, diesel prices hit a record high of $5.72 per gallon, and while gasoline prices have retreated from their peak of over $5 per gallon, diesel is still on the rise, reaching $5.812 per gallon on Monday this week.

“Big parts of the economy run on diesel, from agriculture to manufacturing, and thus the surge in diesel prices is driving up prices broadly,” Moody’s chief economist Mark Zandi told the FT recently as inflation in the U.S. remained at 40-year highs, with diesel fuel inflation one of the big contributors.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More