Diesel fuel shortage ominous

Oct. 29—The United States is running short of diesel fuel and the consequences could be grave.

Waco economist Ray Perryman says there are only a few weeks' supply left with the nation's 130 refineries going full blast and the truck fleets, trains, ships, farmers and military potentially facing big challenges.

"Much of our logistics system relies on diesel and if we get to zero inventory, there will be disruptions," Perryman said. "There's not a good way to deal with a shortage.

"We've already seen prices rise dramatically and that will continue as supplies tighten. If things worsen, companies with diesel-powered trucks and trains will start cutting back on routes in response to higher prices and there will be shipping delays and other problems.

"Farm equipment runs on diesel and harvests could be delayed. The food supply from harvest to distributor to grocery store runs on tight timelines and even a few days of disruption in trucking would be felt."

Having recently modeled the effects of trucking and rail on the supply chain, Perryman said, "It's a bad situation, but I don't foresee it reaching a point where a large proportion of diesel-powered vehicles stop running. However, given the fact that the supply chain has already been challenged by the pandemic and its aftermath, any problems due to the diesel shortage are magnified.

"Diesel inventories have been running low for months. In August, for example, distillate inventory was the lowest for that month since 2000. Usually inventories increase through the summer ahead of the harvest and the winter heating seasons, but that hasn't been the case for the past couple of years.

"Worse, the U.S. Energy Information Administration is projecting that the shortages will be around at least through next spring."

Perryman said the result is higher prices for fuels and a concomitant bump in the costs of almost everything else. "There are a variety of reasons for the shortage," he said.

"One factor is the strong increase in demand that occurred as economies reopened after the worst of the pandemic. There have been disruptions such as the Texas freeze in February 2021.

"More recently as many countries decided to stop purchasing petroleum products from Russia, available supplies dropped and there was a scramble for the available supply."

Advanced Power Alliance Texas Vice President Judd Messer said from Austin that the demand for diesel is outpacing supply as the cost to build inventories is rising and the war in Ukraine has introduced market constraints like import bans.

"The need for an expanding, diverse energy economy is evident and Texas is well-positioned to deliver due to an abundance of renewable energy resources like wind and solar, cleaner-burning natural gas and our highly skilled homegrown workforce," said Messer, who is also chief of staff for Republican State Rep. Trent Ashby of Lufkin.

"These assets, coupled with our state's track record of developing innovative energy technologies, enable our state to lead in delivering the cleaner, cheaper energy that the world demands."

The Advanced Power Alliance promotes the development of renewable sources like wind farms and solar projects.

Texas' 32 refineries help produce the 4.02 million barrels per day of diesel fuel that Americans used in October.

The average price of diesel in the U.S. was $3.67 per gallon at this time last year, according to the EIA. Last Wednesday it was $5.34.

Perryman said there's a movement toward cleaner diesel blends, which has long-term benefits but complicates production and raises costs. "The observed price discrepancy reflects higher state and local taxes, but that is a relatively minor factor," he said.

"Stockpiles are dwindling rapidly across the U.S. and some estimates indicate that we only have enough for a few weeks. Refineries are running flat out and have been for some time. A notable stoppage due to overdue maintenance or other problems could cause further disruptions.

"The good news is that additional refinery capacity is coming online over time, though it still won't leave much slack. Refineries take years and billions to build if companies can even get permits and in the current political environment, such investments take on additional risk."

In the wake of aggressive Federal Reserve policies, Perryman said, high prices and short supplies will be ongoing issues unless economic growth slows markedly in the goods-producing sectors.