Wednesday, April 6, 2011

Widening Europe Diesel Deficit

Recent studies confirm that the EU Energy Security Agenda is faced with an increasing Diesel Deficit. The growing trade imbalance is between the EU and the former USSR, which is alarming from a twofold perspective: an economic one and a security of supply one.
While research focused more on the EU diesel consumption estimates, the trend today is to model the supply side. Statistics illustrate that the EU Diesel Deficit is increasing in absolute terms, the data showing that in 2006 OECD Europe imported from the Former Soviet Union 32 million tonnes (OECD estimates) or 30 million tonnes (IEA estimates):
Figure III. Progresion of the EU diesel and kerosene demand and regression of the gasoline demand. Two results:
1)Road fuel demand steadily shifting from gasoline to diesel
2)Heavy duty diesel demand and jet kerosene expected to grow
Eurostat figures are showing the upward trend of the diesel demand in the EU compared to the downward trend of gasoline consumption.In addition, EU car registration figures show that the majority of new cars purchased are diesel cars4 (70% of new cars in France, Italy, Belgium are diesel cars).
In the same time, US and China will face the same diesel deficit problem, demand in both countries and other Asian ones (i.e. India) is forecast to increase.
However diesel refining investments are lagging compared to the above forecast demand. Even if we add the planned investments in the Russian refining industry to the export refineries geared towards Europe, they will still not be able to meet the growing deficit:
The case is different for gasoline, EU having an exceeding refining capacity.
Therefore, while the diesel EU economy will face an increasing dependence of diesel imports from unstable areas, EU is exporting gasoline and will continue to do so, its main market being the US:
All these show that competition on the diesel upstream market is becoming steeper than ever before, demand for diesel being expected to grow by more than 60% by 2030.
Against this background, two main concerns challenge the status quo in Europe:
1. Economic situation: the diesel deficit and the increased diesel competition risk to worsen the economic situation of the European Union. In times of scarcity, like we are facing today, high mineral oil price volatility is bound to trigger oil peaks with higher frequency of probability. Links between commodities markets and financial markets are numerous. If some face distress there are costly repercussions in all economic sectors. It is important to make efforts for such scenarios to be avoided.
2. Security of supply: the international situation (instability in Caucasus, Middle East and Asia) proves the shift back to Political Realism. The EU is overwhelmingly diesel dependent on Russia (in 2000 EU imported 14 Million tonnes of diesel from Russia whilst in 2006 it imported 30 Million tonnes7). Moreover the Georgian conflict and the Ukrainian-Russian relations show the power discourse of Russia as a diesel supplier. The EU is therefore increasingly dependent on instable sources that look more for making bilateral agreements with EU Member States, reducing Europe’s negotiation leverage as a trading block. Having this in mind, it would be more appropriate to increasingly consider at EU level the diversification of energy, especially since energy and diesel supply are lifted at the rank of strategic concerns.

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