Efforts by European governments to halt the slide in new car sales this year are having one very unexpected side-effect which could spell trouble for refiners -- they have knocked diesel-engined vehicles off the top spot.
Several countries, including Germany, France and the UK, have introduced so-called 'scrappage' schemes designed to help the ailing automotive industry.
The premise is deliciously simple - governments offer cash incentives to would-be buyers to encourage them to trade in their clapped-out elderly motor and receive in return a fixed-rate reduction in the cost of a shiny new one. Easy. (In the US, it's known as Cash for Clunkers).
According to the European Automobile Manufacturers' Association, ACEA, diesel comprised around 53% of all new car sales in 2007 and 2008, before the scrappage schemes were introduced.
For the first five months of this year, diesel sales fell to 46.3% of the total, apparently marking a reversal in the 20-year 'dieselization' of Europe.
One reason for this is that the incentives on offer, by nature of being the same size irrespective of the value of the new car, favor smaller-engined and cheaper vehicles. These are more likely to run on gasoline than diesel, due to the extra paraphernalia such as turbochargers and particle filters that come with a diesel car.
"It is the same discount, regardless of the car's cost. The scrappage scheme is naturally going to kick start smaller engined car sales ... diesel ceases to have value at 1.3 [liter] engine size," says Oliver Rowe, a spokesman at Ford UK.
This threat to diesel's dominance represents a seismic shift.
Bolstered by favorable tax regimes, the growing use of diesel in Europe has done more than any other trend to spur refining investment and shape global trading patterns in the oil market. It has been clear in recent years that Europe is very long gasoline, with the surplus largely shipped to the US, and is short diesel, which it takes from anywhere it can get it.
Within Europe, and further afield, this has spawned massive investment programs as refinery kit designed to meet gasoline demand is re-aligned, augmented and upgraded to produce ever greater volumes of diesel.
Much of this spending is still ongoing, designed to cope with Europe's apparently unquenchable thirst for diesel. The companies making this investment might be getting nervous at the apparent resurgence of gasoline.
In Germany, some 42.5% of new cars sold in January were diesels. By May, this had slumped to 27.1%--the lowest level since 2000.
It's the same story in France, regarded as the bastion of diesel and birthplace of the engine's inventor Rudolf. In 2008, diesel sales peaked at a whacking 77.3% of all new cars, but this has now fallen to 71.6%.
Whether this is a blip, a temporary stumble along the road to full European dieselization, remains to be seen, although it's worth noting that even those diesel cars that are being purchased are burning up to 48% less of what is an increasingly bio-blended road fuel.
And although the majority of scrappage schemes have a limited shelf life, their impact will be longer-lasting, with new cars remaining with their owners for an average of four years.
Maybe it's the whiff of the farmyard that continues to count against diesel, which has long been seen as the unglamorous mainstay of train, truck and tractor. How can it really compete with gasoline's Corvette or Aston Martin? Steve McQueen never drove a diesel.
For a global refining sector that has invested heavily to meet this burgeoning diesel demand, the repercussions of Europe's flighty drivers potentially moving back to gasoline could be dramatic and, in the short term, only likely to accentuate the extreme length that has seen distillate stocks in both Europe and the US swell to absurdly epic proportions.
Still, on a positive note, it could be good news for those loyal, conscientious, ecologically-aware and efficient drivers who stick with their diesel cars.
Leave a comment