Regardless of the reasons it happened we appear to be entering a period when diesel fuel will be a rare and expensive commodity. There is already competition developing for the refined product, and reports of loaded tankers changing destinations en route as new buyers are willing to pay more for their cargo.

Could your operation continue to function if diesel fuel reaches or exceeds ten dollars a gallon, keeping in mind that nearly all commodities we purchase, including coal, involve consumption of diesel fuel for mining, harvesting, processing, or delivery?

And how would the attendance be at your location be if gasoline (which usually requires diesel fuel for delivery) becomes nearly as expensive as diesel?

PC

Some local trucking fleets have switched to compressed natural gas as a fuel.

Here's a page from Cummins on the subject:
https://www.cummins.com/news/2022/06/09 ... -and-buses

Phil Mulligan

I told you all earlier this year that we would have one more good season, but I was laughed at and ridiculed for doing so.

Let's see what happens this Tuesday. The results will have huge implications for the health and survival of our industry.

Hopefully loaf of bread will not be $100 and we have fiat currency of weimardeutschland

This is a serious issue across several fronts:

*Operating costs for an excursion operation (run by steam of any fuel, diesel, or even electric);
*Additional costs to everything from product delivery to people's willingness to spend to visit you (fuel to get there and spending money);
*Across-the-board inflation reducing nationwide discretionary spending (both visitors' and volunteers').

Yet on other forums I have repeatedly seen people deny that this is any real issue, that it's all "profiteering" by "Big Oil," and/or a "vast conspiracy" executed by Republicans and oil barons to attack Biden, etc. It must be nice to be in a position where you can ignore the economic realities that are hitting most Americans very hard...............

Any operation should prepare for reductions in visitation, staff, and revenue resembling that of COVID years, as well as reductions in volunteer hours/staff, reductions in donations, etc.

I hope I'm once again cynical and pessimistic. But the reports say otherwise.

While it's easy to extrapolate asymptotic raises in prices give the recent experience; we know such things almost never happen-even under the visible iron fist of geopolitics.

Right now, the average price of diesel according to the U.S. Energy Information Agency (nationwide average as of 10/31/22, with regional variation is $5.317, up $1.59 from last year.)

https://www.eia.gov/petroleum/gasdiesel/


The following article on the present shortage gives two non-recurring reasons:

https://oilprice.com/Energy/Gas-Prices/ ... rtage.html

1.) Loss of 700,000 barrels of Russian petroleum daily.

2.) Closure of some older refineries.


While the loss of Russian production is a singular event; the higher the price of oil products goes, the more likely it is that other producers engage in arbitrage and "launder" Russian petroleum.

https://capital.com/oil-laundering-how- ... refineries


Also, the higher price goes; the more "income and substitution effects" will act as a drag chute on continued price increases.


At a hypothetical $10.00/gallon, there'll be enormous incentive to seek alternatives like CNG as indicated in Mr. Mulligan's post or tolerate the lower energy content and any deleterious effects of biodiesel, and on the supply side to re-open closed refineries, even if there's significant rehabilitation costs involved.

At low prices demand for diesel is "inelastic"

https://www.investopedia.com/terms/e/inelastic.asp

Because the few real alternatives impose inconvenient tradeoffs and switching costs.

However, at higher prices, those tradeoffs become more acceptable and the switching costs are more recoverable as opposed to the alternative-demand becomes more elastic.
An illustration of this is that I looked into solar panels some years ago; but couldn't see Internal Rate of Return/Net Present Value given the anticipated savings and installation costs. Of course last year, I was finishing up a 6.4c/kwh electricity contract; right now the power switch portal shows prices at about 12-22 cents per kwh (depending on features such as term and enrollment/cancellation fees); I'll be looking again.

Now predicting commodity prices is a fool's errand, so I'll never say "impossible". But it's a complicated and deep market; and derivatives-especially futures market-enable "price discovery"-often with neck snapping and counterintuitive effects.

I am less concerned with the microeconomic effects (those limited to specific parties) of $10.00 diesel, because there are ways to curtail consumption; (limiting operations to high demand periods or times). I am actually more concerned with the macroeconomic effects (affecting the general economy) of $7.00 to $7.50 diesel; as there's almost nothing that isn't produced transported with diesel. People aren't going get in their car and travel to ride the train if they are looking to make the paycheck last in the face of price increases in the grocery store.

Of course if they don't have a check to stretch...

https://www.wsj.com/articles/meta-is-pr ... eakingnews

If you disregard the announcer's obvious verbal mistake of gasoline vs. diesel right at the beginning, this is otherwise a fairly interesting video describing how this situation developed and where it is headed:

https://www.youtube.com/watch?v=yw2TVrMEKq4

You have to wade through the usual YouTube ads...............

PC

It's already the equivalent of $9.40 an (Imperial) Gallon at the pumps here in the UK - More at some retailers, though that's actually dropped compared with prices earlier this year....
Regular unleaded is running about $8.20 as a comparison.

That's horrible, but I think there's always been a large differential between UK and US.


I think gas is pumped in Imperial gallons here as well. Local Costco, a warehouse retailer with a membership model (generally lower than other places) is charging $3.78 for regular- 87 octane. It's over 4 for 89 octane premium.

https://gasprices.aaa.com/

This is a complicated market, since personal motorists buy spot while institutional buyers tend to be active in futures markets. In short, it's like like the alpha male lions taking the choicest part of the kill, while the cubs fight over the scraps.

Basically, our support of the Ukraine war and the subsequent sanctions have caused a global shortage and the US is exporting diesel to Europe at higher prices.

It is a good thing we are going into the off season, but come next spring if this continues look for many marginal operations to cease operations.

What was that about all coal fired locomotives inevitable conversion to oil? (Sarcasm)

Coal or Oil won't make any difference this time. Nearly all coal mining and oil drilling involves the use of diesel fuel.

To take just one manufacturer, EMD, their diesel engines are used in railroad locomotives, marine transportation, marine power generating, stationary power generating, nuclear power emergency systems, oil drilling, mining trucks, and open pit mining shovels.

Over the years that I taught for EMD I had 15 to 20 people from each of those industries in my classes each week, as many as 40 class sessions a year. I still keep in touch with a lot of them, most are now the senior personnel and managers in the industries mentioned. I trust their judgement more than a lot of reporters on the economy. And most that I talk with are telling me this diesel fuel situation is going to be a major problem.

PC

I have pretty much shelved my plan to convert 58 to oil, at least for the time being. As long as I can continue to purchase coal in the $140/ton range, we can run 58 for way less money than we could with oil.

GATX used to publish a nice fuel consumption chart by locomotive model and notch. Something similar could come in handy when trying to estimate fuel purchases and how many trips an operation will do.

It's not going to happen.

Already we have a warmer than usual winter start in Europe, and our liquid gas storage is at capacity. Natural gas prices here are in free-fall, and electric prices are also in free-fall, because Norway is getting rain, filling hydro reservoirs, and our windmills are spinning with the winter weather.

We have policy objectives here of full conversion to electric cars by 2035, and the charging infrastructure is actively under construction. We have numerous projects to convert housing from gas and oil heat to electric and district heating. The "other half" of the Danish railway network will be electrified in a few years, and all use of diesel power discontinued. We have already purchased battery trainsets for passenger service on rural lines.

If relations with Russia normalize next year, fossil fuel prices will be in free-fall.