Diesel Fuel Pricing

How is diesel fuel priced?

USA vs Canada and the World

Story by Howard J Elmer, photos courtesy of Tom Fisk and the manufacturers

Recently, Ram announced that it is dropping its 3.0L Ecodiesel from the lineup. This follows Ford quietly dropping its 3.0L small diesel last year. So, GM is the last man standing with its inline-6cylinder diesel available in half-tons and some SUVs. The question has to be asked – why drop them? They sold well, so that’s not it. There were mechanical (and programming) issues with both Ford and Ram – that didn’t help the business case. But, the push over the edge, I think, seems to be the government’s strong-arm tactics in pushing electric power as its darling.

Good news and subsidies abound for EVs – not for small diesel. For years now, diesel is continually being choked with new emissions standards and the future looks bleak for producers as looming federal regulations will cost oil refineries billions of dollars in forced upgrades. This brings up the other inequity in the diesel equation - the cost of the fuel. On paper, diesel fuel is cheaper to produce than gasoline – yet it costs more. All these costs must and will be passed on to the consumer. But why is the fuel more expensive? In two words – taxes and supply.

Let’s look at fuel taxes in Canada.

Gasoline average taxes in Canada as a comparison Feds charge 10 cents/L. Provinces add 10.81 cents/L. The Fed & Prov Carbon Tax adds another 10.25 cents/L. Then slap on an average of 9.2% HST/GST. You now have a minimum tax of 36.78 cents on a litre of gasoline.

Diesel averages in Canada Feds charge 4 cents/L. Provinces add 11.34 cents/L. The Fed & Prov Carbon Tax – 12.33 cents/L. Total of 27.67 cents/L. Now add the average 9.2% HST/GST. That brings in a minimum tax of 31.82 cents on a litre of diesel. So, tax on diesel in Canada is lower than gasoline – so why the higher price? Here is where it gets interesting. There are only three refineries in Canada that produce diesel fuel. Transport costs are higher to regional markets. That’s one reason. The other is that these refineries are the same ones that supply us with winter home

heating fuel (its the same stuff as diesel). This demand, affected by weather, also pushes up prices through the summer/winter cycle. The result? Diesel costs more and there is no advantage – manufacturers know this.

However, as we know north of the 49th – what happens in the United States often dictates what happens here economically. As in, diesel production and offerings from the manufacturers. Frankly, if it’s not working for them in the States, we will lose out. They don’t keep anything in production for the Canadian market only.

on highways, and given that OTR transport is almost 100-percent diesel powered, the Feds and the individual states try to recoup road maintenance expenses through taxes on diesel fuel. Sadly, if you drive a diesel VW Golf, you pay the same taxes as an 18-wheeler. That is another blow to small diesel ownership in the United States. Have a look at the tax costs on fuel down south.

Average fuel taxes in the United States Fed charge 18.4 cents on a gallon of gasoline. Fed charge 24.40 cents on a gallon of diesel fuel. The individual States add an average of 31.67 cents on a gallon of gasoline. On diesel, though, the States add 33.45 cents on a gallon.

This tax picture is very clear – but there is more. There are 130 refineries in the United States. Most refineries generally produce 50 percent unleaded gasoline, 30 percent diesel, 10 percent jet fuel and 10 percent other fuels, including propane and general aviation gasoline. However, as a result of Covid, at least 13 U.S. refineries shut down, significantly cutting production. An industry source (TMC) points out that the loss of the 13 refineries accounts for more than 1.4 million barrels of oil per day, or more than 7 percent of the country’s entire capacity of gasoline, diesel and jet fuel. The report said this is not just in the U.S., as worldwide refining production has declined by an additional 2.13 million barrels per day. A lack of supply pushes up prices – another nail in the coffin of small diesel.

However, this upward price trend has been going on for a long time now. A U.S. study of on-highway diesel fuel prices shows they have been higher than regular-grade gasoline prices, on a dollar-per-gallon basis, almost continuously since September 2004. This trend is a break from the previous historical pattern of diesel fuel prices usually being lower than gasoline prices except in cold winters when demand for heating oil pushed diesel fuel prices higher.

Also complicating the supply chain for diesel fuel in North America is the export of more than 1 million gallons of diesel per day to Latin American nations and Europe to help that continent as it abruptly separates from buying energy from Russia because of Moscow’s invasion of Ukraine. The gasoline/diesel picture in the rest of world though is quite different. By contrast, in many other countries, diesel fuel is still much cheaper than gasoline. In part, this is because significantly more diesel-powered passenger vehicles are on European and Asian roadways. In addition, Europe has always reversed the gas/diesel fuel taxation model. Euro pean countries have traditionally kept the cost of diesel down – so as to aid the transport industry and business in general. They prefer the gasoline consumers to bear the brunt of the tax burden. The average tax on gasoline is €0.55 per litre ($2.47 per gallon) in Europe, and €0.44 per litre ($1.98 per gallon) on diesel.

If more drivers in the United States and Canada were willing or able to switch to diesel-powered vehicles, the price per gallon/litre of diesel fuel might begin to fall below that of gasoline. However, with the current supply issues at refineries and the tax structure (particularly in the States) it is doubtful that we’ll see a recovery of the small diesel engine market. And, that has (in part) led to the cancellation of small diesel offerings by Detroit. Sad.