Regional demand driving diesel higher: Shell

By: Graham Gardiner

Insatiable regional demand and refinery capacity constraints will continue to push up diesel prices, but so-called new generation biofuel offers

Insatiable regional demand and refinery capacity constraints will continue to push up diesel prices, but so-called new generation biofuel offers some hope for local trucking operators.

That’s the assessment from Shell Australia’s Leon Haliburton, who presented a grim outlook – at least in the short term – at a conference in Melbourne recently.

Haliburton says crude production will not increase significantly anytime soon. Oil producers don't have the capacity to invest in their fields to increase supply in the short term, and even if they did they are unlikely to ship much more of it.

"They would argue it is in balance but when you see crude oil prices rising the way they are day-on-day you'd have to say that's a point in great dispute," he says.

Pricing policy for fuel in Australia is based on regional pricing out of Singapore, Haliburton explains, the same region that is driving the demand for transport fuels.

"In this region we have two of the most rapidly growing economies in the world in China and India. As these developing countries set about improving their standard of living and improving the national economy they do so through developing industries and for industries to develop they need transport.

"Surprise surprise, the demand for diesel is rapidly growing, growing at a rate nobody anticipated five years ago."

That, combined with the inability to quickly refit refineries to produce more diesel, results in what Haliburton admits is a "big differential" between diesel and consumer petrol.

So is there a light on the horizon? "Some," Haliburton says hopefully, "but not in the short term."

Shell is investing significantly in the great search for an alternative, or at least a better bio-blend diesel to reduce the reliance on oil and the wholesale cost.

The first experiment, Haliburton admits, may have failed. "Unfortunately on the diesel side it got off to a flying start and then was cut dead," he says of the biodiesel market in Australia.

But oil producers are now working on what Haliburton calls the "second generation" of biofuel using more sustainable and regenerative bio-mass product.

Gasification can be used for sources like wood chips or waste paper – heating it to a low temperature to create a charcoal-like substance, then at a high temperature to produce a tar-free synthesis gas.

This is then converted to a sulphur-free liquid fuel using the same process as to produce exactly the same synthetic fuel, this time BTL (biomass to liquid).

Haliburton says Shell has set up a demonstration plant in Germany to take forestry product and transform it into biodiesel. "Hopefully it will be the template for bigger and better plants in the not-too-distant future," he says.

Australian consumers aren't likely to see this product in Australia until at least 2013. However, the technology promises better vehicle performance along with cost savings.

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