Fuel shortage could mean a rocky road for diesel cars

The relentless advance of the diesel-powered car in Europe, one of the great automotive success stories of the past decade, could soon hit a snag - a shortage of diesel.

With consumption of diesel on Europe's roads growing rapidly and industrial use surging in China, oil experts project a substantial shortfall within 10 years.

Wood Mackenzie, the oil consultancy, says that without extra large-scale investment in refineries by the oil companies, the continent will suffer a 50m tonne shortfall by 2015 about a fifth of projected demand. "Demand for middle distillates [such as diesel] is forecast to continue to grow rapidly," says Aileen Jamieson, a consultant at Wood Mackenzie.

In the past decade or so, European governments have given drivers substantial tax incentives to buy diesel-powered cars. Diesel engines are more efficient than petrol ones and emit fewer greenhouse gases.

The policy has been a runaway success. The European Automobile Manufacturers Association suggests that half of all new cars sold in the region this year will run on diesel, up from 14 per cent in 1990.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.As a result, diesel consumption has been rising by more than 4 cent a year. By contrast, petrol consumption has been falling in the past five years, by about 2.3 per cent each year, according to the Institut Français du Pétrole. The trend seems likely to continue. Wood Mackenzie says that demand in Europe for road diesel is set to rise from about 200m tonnes a year now to 250m in 10 years.

To meet that demand, the region must build up to 10 "hydrocracking" units to convert unwanted fuel oil to "middle distillates" such as diesel and jet fuel in the next 15 years, according to oil consultants Purvin & Gertz. About half of that capacity will be needed in the next five years. Even now, prices are rising. In Britain, diesel users have traditionally paid a premium of about 4p a litre during the winter. That premium is now being paid almost all year round in the UK, where both fuels are taxed equally.

Luke Bosdet of the AA Motoring Trust says he is already hearing concern from diesel-car drivers. "You've had about five years of consistent growth [in diesel use]," he says. "Why hasn't the industry adjusted to take account of that?" The oil companies that own most of the refining industry in Europe built their plants in the 1970s to produce petrol, not diesel. Purvin & Gertz calculates they need to spend about $12bn to upgrade them to produce more diesel.

Companies such as Royal Dutch Shell and BP say they have had to invest billions of dollars to reduce the sulphur content of their fuel to meet European Union regulations. They are also having to upgrade refineries to take heavier crude oil from a wider range of sources. But some analysts say oil companies have been reluctant to invest in refineries because it has traditionally been a lower-margin business.

"The oil majors have not been willing to put their money into refinery investments because they feel they can make more money by drilling holes in the ground," says Colin Birch, senior principal at Purvin & Gertz.

Dominique de Villepin, the French prime minister, last week called on oil companies to invest more in refining. France's Total, Europe's biggest refiner, has announced plans to boost investments by 70 per cent, mainly to increase its diesel output.

The European car industry, which promotes diesel engines as a way to reduce greenhouse gases, seems unperturbed by fears of a fuel shortage. "It is not something that unduly concerns the industry," says the Society of Motor Manufacturers and Traders, the UK trade body.

It says that if diesel did run short it could be imported. Yet without big investment soon, experts say that will not be possible. "At the same time [as Europe is short of diesel], Asia Pacific and the US will be deficit-diesel," Ms Jamieson says. "We will need to see further investment in upgrading projects globally, as well as additional refining capacity in Asia."