VEHICLE TRENDS SUSTAIN EUROPE'S SHIFT TO DIESEL

Bob Tippee
Editor

Diesel's strengthening domination of the European fuel market is a well-established trend quite likely to continue.

The reason, says the International Energy Agency in its March Monthly Oil Market Report, is rapid replacement of gasoline vehicles by diesel counterparts.

IEA projects that during 2005-11 European diesel demand will increase by 600,000-700,000 b/d while gasoline demand falls by 300,000-400,000 b/d.

Some of that shift comes from continuation of well-established forces, such as tax differentials favoring diesel, diesel's superior fuel efficiency, and recent improvement in diesel engine performance.

As sales of diesel passenger vehicles zoom for these reasons, old gasoline vehicles are leaving the market. The combination, IEA says, gives Europe's dramatic shift to diesel strong momentum in an otherwise stagnant products market.

Assuming an average vehicle life of about 15 years, IEA estimates that Europe's retiring vehicles are 85% fueled by gasoline. That that group is being replaced by a fleet 50% fueled by diesel.

In Italy, the diesel-powered share of new vehicles sold shot up to almost 60% in 2005 from 7% in 1990. The diesel share of new-vehicle sales has reached about 70% in Austria, Belgium, France, and Spain.

Last year, sales of diesel vehicles in Europe increased only 1% after rising by an average 4%/year during 1998-2004. Despite the apparent slowdown, retirements of gasoline vehicles continued.

IEA projects that by 2011 the share of diesel units in Western Europe's passenger vehicle fleet will have risen to 43% from 30% in 2005.

Opposing movements of the diesel and gasoline markets might eliminate the price advantage diesel has maintained in most of Europe. But IEA says diesel holds its ground.

The fuel's market share, for example, is growing in the UK, where its price roughly matches that of gasoline. British sales of diesel vehicles are growing because of the fuel-use efficiency advantage.

The increase in European diesel use thus seems destined to continue at gasoline's expense. Europe's refiners will have to make more of the former product and less of the latter. And countries that import European oil products, including the US, need to look elsewhere for diesel.

(Online Mar. 24, 2006; author's e-mail: bobt@ogjonline.com)

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