Diesel is one of the most widely used fuel-types in the world. It is used to power engines in various vehicles and locomotives globally. Lower emissions and better fuel efficiency are the two primary reasons behind the increasing demand for diesel.
The current global demand for liquid fuel is estimated to be 100 million barrels per day (Mbpd), having increased at a CAGR of 1.21 over the past few years. The global demand for diesel is expected to reach a value of 27 Mbpd by 2020. This trend reaffirms another projection by experts that by the year 2025, the diesel market will account for a 32-35 percent share of the overall transportation sector. This growth would be fuelled by increased demand in the commercial application sector in the Asia Pacific region.
Diesel and its Applications
According to the U.S. Energy Information Administration, diesel is a type of distillate fuel that is available in liquid form. It is used to power diesel engines wherein the ignition of the fuel takes place due to compression, without any need of a spark. Diesel offers superior thermodynamic efficiency as compared to other fuel types. This property of diesel allows it to offer better fuel efficiency and also helps in reducing emissions from the engine.
Presently, diesel is available in different forms as mentioned below:
- Petroleum Diesel: This is the most commonly available type of diesel which is used as a fuel in vehicles, trains, generators, and machines. It is extracted from fractional distillation of crude oil.
- Biodiesel: It has emerged as an alternative to petroleum diesel and is prepared from renewable sources using vegetable oil or animal grease. Blending biodiesel with petroleum diesel is possible depending on the usage. However, various issues arise during the use of biodiesel for example corrosion of components, increased blockages of pipes have restricted its acceptability.
- Synthetic Diesel: Synthetic diesel is another renewable alternative to petroleum diesel. It is produced with the help of the Fischer-Tropsch process wherein hydrocarbons are produced by passing carbon monoxide and hydrogen through a series of chemical reactions. It has a low sulfur content and as a result, reduces overall emissions.
Various trends have been affecting the performance of the diesel market globally.
- As the market growth in developed regions like Europe and the U.S. has reached a saturation point, the demand for diesel would be steady. In comparison, the demand for diesel in the Asia Pacific and African regions will increase substantially due to fast industrial growth as well as an increase in demand for commercial vehicles running on diesel.
- Government authorities in developing regions are striving to reduce overall vehicular emissions. As diesel offers a viable solution to this problem, its demand will see a steady rise in countries like India, Brazil, China, and Indonesia.
- Expansion of railway networks in developing regions across Asia and Africa is creating a demand for diesel locomotives. This bodes well for the growth in demand for diesel in these regions.
- While the supply in developed regions like the U.S. and Europe is in the hands of private players, in the Asia Pacific and the Middle East supply of diesel is majorly controlled by state-run corporations despite the presence of private players. In Latin America and Africa, the diesel supply is controlled entirely by national oil companies.
Key growth drivers for Diesel market
From the above trends, it is clear that the demand for diesel as a fuel is going to witness a steady increase in the developing regions like the Asia Pacific and Africa.
Due to its higher thermodynamic efficiency, diesel offers better mileage per unit of fuel consumed as compared to other fuel alternatives. Moreover, it can reduce the emission of harmful gases including CO2. These properties of diesel make it a preferable choice for the commercial transportation industry. As commercial vehicles like trucks have to cover long distances ferrying goods from one place to another, the properties of diesel make it a better alternative.
Frequent power cuts and a huge demand-supply gap of electricity in the developing nations, is creating substantial demand for diesel generator sets. As diesel generators run on diesel only, the demand for diesel is also expected to increase correspondingly.
Diesel is widely used in the agricultural sector by farmers. Many governments in developing nations levy lower taxes on diesel due to this reason. This makes diesel more affordable than other fuels like petrol.
Impediments to growth
It is not as if the sailing is smooth for diesel; there are some constraints acting as an impediment to the growth of the market. The major constraint being strictness of government authorities regarding the level of sulfur in emissions from diesel. As a result, in many places, Clean Air Zones have been established where entry of diesel vehicles is restricted.
Availability of alternative fuels with lower emissions is also posing a challenged to the diesel market. Compressed Natural Gas and Liquified Natural Gas are more environmentally friendly as compared to diesel.
The prospects for the diesel market are excellent as the demand is expected to remain stable from developing regions like Asia Pacific, Africa, and the Middle East despite some minor constraints being faced in developed nations.