Q: Crude oil and gasoline prices have been falling, but diesel prices are still high. Why? Diesel used to be consistently cheaper than gasoline, why are they higher now?
A: On Friday the price of a barrel of crude oil for January delivery fell to $65.84 US on the New York Mercantile Exchange – the lowest price since May 2009.
According to bcgasprices.com, the average price of a litre of regular gasoline on Saturday in B.C. was 115.09 cents per litre and falling. Gasoline prices are approximately 20 cents per litre lower than during the peak this summer.
Reported diesel prices, on the other hand, ranged from 119.9 cents to 159.9 cents per litre in B.C. As of Saturday in Prince George, diesel would cost you 30 to 35 cents more per litre than regular gasoline.
According to energy market analyst Michael Ervin – president of MJ Ervin and Associates, a division of London, Ont. based The Kent Group – said there is a number of factors driving higher diesel prices in Canada. The Kent Group is one of Canada's leading petroleum industry
"There is a seasonal fluctuation in gasoline prices," Ervin said. "That doesn't happen with diesel. Diesel is a product that demand is pretty steady."
Gasoline prices typically peak during the summer months and drop in the autumn and winter months as demand decreases and refiners' inventories rise, he said. That, combined with dropping crude oil prices, has seen gasoline prices drop dramatically in the past few months.
"There is another important reason pertaining to diesel. North American inventories of diesel are very low," Ervin said. "We see very high exports of diesel from the U.S. Gulf coast. The U.S. government prohibits the export of crude oil, but not refined products."
Strong demand for diesel fuel in Europe, China and India has prompted U.S. refiners to export their products overseas.
The petroleum markets of Canada and the U.S. are "intrinsically linked" he said, and so higher wholesale prices for diesel in the U.S. result in higher prices in Canada.
It's been about 20 years since diesel was reliably cheaper than gasoline, Ervin added.
"At that time refineries [in North America] were running fairly significantly below their production capacity," he said. "Refineries really suffered from very low margins."
However as demand has increase, refineries stopped having excess production capacity and started to focus on making the fuel products with the best profit margins. That eventually drove the price of wholesale diesel fuel up to about the same level as gasoline, he explained.
With the low diesel inventories across the continent, that means the cost of diesel is substantially higher than gasoline across Canada and the U.S.
According to information released by the National Association of Convenience Stores (NACS) in the U.S., an industry association which represents convenience stores and gas stations, domestic demand for diesel is rising as well.
Between October 2010 and October 2012, U.S. demand for gasoline dropped 3.4 per cent, while demand for on-road diesel increased 11.8 per cent. U.S. diesel vehicle sales increased by 25.6 per cent in 2012 – double the overall auto market increase.
In Canada, net sales of gasoline rose from 39.7 billion litres in 2009 to 41.4 billion litres in 2013 – an approximately four per cent increase -according to Statistics Canada data.
Over the same period net diesel sales rose from 16.2 billion litres to 17.9 billion litres – up about 10.5 per cent.
According to NACS, refineries are also passing on the cost of converting refineries from producing low sulphur diesel to producing ultra low sulfur diesel. Ultra low sulphur diesel is the new North American standard for diesel fuel, which sets a maximum of 15 parts per million (ppm) of sulphur in diesel fuel.
The older low sulphur diesel standard required a maximum of 500 ppm of sulphur. Since Oct. 1, 2010 all on-road and off-road diesel sold in Canada and the U.S. must be ultra low sulphur diesel.
NACS reported that U.S. refineries have had to spend $8 billion on upgrading their refineries, and refining the fuel to the higher standard adds about 2.6 cents per litre in costs.
So, in short, the price of diesel is higher than gasoline for a number of reasons: no seasonal decline in demand; rising domestic and overseas demand, resulting in low North American inventories of diesel; U.S. policies prohibiting the export of crude oil; and new, stricter environmental standards creating additional costs for refiners.
Q: Last week Ask Arthur addressed the question of block heaters, but failed to answer one question: given the price of electricity, does plugging in your vehicle's block heater actually save you money?
A: That depends on a number of factors: how long you plug your vehicle in, how powerful its block heater is, how fuel efficient your vehicle is, how far you drive it, and if you are paying BC Hydro's step 1 or step 2 residential rate.
Natural Resources Canada and B.C. Automotive Association expert David Weloy disagreed on how long a block heater should be plugged in. The NRC said two hours is all that is needed, but Weloy said that four hours is recommended.
Of course, if you plug your block heater in for long periods of time without driving your vehicle all you are doing is wasting power and heating the outdoors. Block heater timers are available at hardware stores and can prevent wasted power.
Block heaters are rated at different wattages, indicating the amount of power they consume per hour of use. In general, smaller engines have less powerful block heaters and larger engines have more powerful block heaters.
In general smaller, four-cylinder passenger car engines have block heaters around 400W, while larger truck and SUV engines range from 600W to 1000W, or even 1500W for the largest diesel truck engines.
BC Hydro charges residential customers 7.52 cents per kilowatt hour (kWh) for the first 1,350 kWh per billing period, and 11.27 cents per kWh after that.
If plugged in for four hours, a 400W block heater uses 1.6 kWh, a 750W block heater uses three kWh and a 1500W block heater uses six kWh.
So plugging in a block heater for four hours will cost roughly 12 to 45 cents per night at the base BC Hydro rate (or 18 to 68 cents at the higher rate).
Given the current price of gasoline in Prince George (as of Saturday) at 105.9 cents per litre, you start breaking even between one-ninth of a litre to two-thirds of a litre of fuel saved. If you have a diesel vehicle and are paying 138.9 cents a litre, the savings kick in even quicker.
Tests by Environment Canada show vehicles warmed with a block heater are between 10 and 25 per cent more fuel efficient at temperatures below -20 C. It doesn't take long to save a fraction of a litre of fuel with 10 to 25 per cent better fuel economy.
In addition, warming your vehicle's engine before starting cuts down on wear and tear on vehicle components, potentially saving thousands of dollars in repairs later on.
So, yes, as long as you aren't plugging in your vehicle for excessively long periods of time without driving it, then using a block heater will save you money.
Do you have questions about events in the news? Are you puzzled by some local oddity? Does something you've seen, heard or read just not make sense? Email your questions to [email protected], and award-winning investigative reporter Arthur Williams will try to get to the bottom of it.
