Energy Transition Commentary 15

Average UK diesel reached 200.1p/litre on 1 October, against 174.8p for petrol. In the short term, this is because of the US war on Iran, and the Russian war on Ukraine.  However, for the UK the worsening situation is compounded by a number of structural problems that have been in place for some time.

The price is the visible symptom; the underlying problem is supply. The UK imports around 55% of its road diesel, with roughly a third of those imports coming from the US, which has now threatened to restrict exports. Reported UK stocks cover around six weeks, compared with around six months in France, Germany, Italy and Spain. Fawley, which supplies about a fifth of UK road fuel, is unhelpfully offline for planned maintenance for up to ten weeks, and analysts expect global diesel markets to remain tight into 2027.

Diesel powers almost all of our freight, most buses, a large share of rail and essentially all farm machinery. A physical shortage would therefore reach every household through inflated food and goods prices, not just at the pump.

The fastest lever to mitigate the effects of this impending problem is by reducing demand, and the government needs to grasp the nettle now rather than waiting for queues at forecourts. To drive this it could:

  • Actively encourage working from home wherever the job allows, as was done successfully during the pandemic.
  • Accelerate the switch of cars, vans and urban delivery fleets from diesel to EVs, with targeted support for fleets where the mileage, and therefore the diesel saved, is highest.
  • Encourage people to shift journeys to rail, buses and active travel where alternatives exist, and keep diesel for the uses that genuinely currently have none (HGVs, agriculture, emergency services).

Each litre of diesel not burned in a car commuting to an office is a litre available for a lorry carrying food, though this only works if the message comes early and clearly from government rather than piecemeal. There are 15.5m diesel passenger cars in the UK, amounting to about 30% of domestic vehicles; if diesel car journeys decreased by 10%, this would release about 1100m litres of fuel for HGV use each year.

Longer term, the problem is structural. UK refineries produce more petrol than the country needs and too little diesel and aviation fuel, so we export one (about 5.5m te of petrol pa) and import the others. As EVs displace petrol cars, petrol demand will fall much faster than demand for diesel in heavy transport or for jet fuel. Investment in UK refineries, and the necessary process R&D, is urgently needed to shift the product slate away from petrol and towards middle distillates, otherwise we will remain exposed to exactly this kind of shock for the next two decades. This requires both operational and equipment changes to direct as much as possible of the oil stock currently producing this 5.5m te petrol surplus towards producing diesel and jet fuel. Strong directives and incentives from the government are needed to drive this change, which must recognise that UK energy policy, particularly for liquid fuels, must increasingly prioritise security of supply as we continue to need to use oil-based products in the short to medium term.  Investment in biodiesel and sustainable aviation fuels will eventually aid the transition to decarbonised long-distance transport but the biggest incentive for the switch to more domestic diesel would, of course, be reform of the electricity market to reduce UK electricity prices, the highest in Europe and currently a major reason why we only have four major operating (some of the time!) refineries.

Sources:

 

Professor Martin Blunt, Professor of Flow in Porous Media

Professor Paul Fennell, Professor of Clean Energy

Professor Niall Mac Dowell, Professor of Energy Systems Engineering

Professor Geoffrey Maitland, Professor of Energy Engineering

Professor Ann Muggeridge, Professor of Subsurface Physics

Professor Ronny Pini, Professor of Multiphase Systems

Professor Martin Trusler, Professor of Thermophysics

Imperial College London, Transition to Net Zero Group