On the global market, a decline in demand for diesel fuel (DF) is being recorded. The International Energy Agency (IEA) forecasts that the average daily consumption of diesel and gas oil will amount to 28.3 million barrels per day (bpd) by the end of this year, representing a 0.9% decrease compared to 2023. Meanwhile, new oil refineries (ORs) have been launched in Africa, Latin America, and the Middle East, further increasing the supply of diesel against the backdrop of falling demand.

Russia is one of the largest suppliers of diesel fuel on the global market. For Russian oil refineries, diesel is a key export product, with up to half of the country's diesel output historically sent abroad. After the closure of the European market—previously the primary consumer of Russian diesel—supplies were redirected to India, Turkey, and other countries. However, experts suggest that significant volumes of Russian diesel ultimately found their way to the European market. If global demand for diesel continues to decline, Russian producers will face stiff competition with other suppliers, who often have logistical advantages (excluding supplies to Turkey) and are not subject to sanctions.

The IEA reports that declining demand has already impacted the profitability of refineries, prompting some closures in Europe. This trend, combined with the climate agenda, has exacerbated the situation. Even though demand for gasoline and jet fuel is rising, this increase has not been enough to offset challenges for European refineries.

Russian Diesel Exports and Domestic Dynamics
Approximately half of Russia's diesel production is exported. However, most Russian refineries are owned by vertically integrated oil companies (VIOCs), which can distribute costs across segments, shifting them from refining to more profitable activities like extraction. Additionally, Russia's tax system supports domestic refiners by compensating part of their expenses for modernization, investments in refining, and fuel supply to the domestic market. This shields Russia somewhat from global trends but intensifies competition for market share.

Market Challenges and Opportunities
Konstantin Simonov, head of the National Energy Security Fund, cautions against drawing definitive conclusions from short-term data. Diesel has strengths—such as fuel efficiency—but faces strategic challenges, including being perceived as noisy and environmentally unfriendly. For instance, last year, even in "green" Europe, a significant diesel shortage in summer and autumn led to a price spike, contributing to Russia's fuel crisis as third countries redirected their diesel exports to Europe while buying Russian diesel.

Currently, Russian companies are performing confidently, according to Simonov. In September, Bloomberg reported a 10% increase in Russia's maritime diesel and fuel oil shipments. Thus far, there are no major issues with exporting Russian diesel.

However, energy expert Kirill Rodionov notes potential medium-term risks for Russian diesel exporters, particularly due to China’s increased use of liquefied natural gas (LNG) for heavy road transport. From January to May 2024, sales of LNG-powered heavy trucks in China rose by 127% year-on-year to 92,600 units. The share of LNG-powered trucks in the total heavy truck market grew from 10.1% to 21.4% over the same period. By the end of 2024, LNG-powered trucks are expected to constitute 10% of China's heavy truck fleet.

New Refineries and Competition
China is not a major buyer of Russian diesel, as it predominantly produces its own supplies. However, a decrease in China’s diesel consumption could still impact global demand. Additionally, key Russian diesel markets—such as Brazil and India—are developing alternative import options. New refineries coming online this year include the Dangote plant in Nigeria (650,000 bpd), Dos Bocas in Mexico (340,000 bpd), Al Zour in Kuwait (615,000 bpd), and Duqm in Oman (230,000 bpd), with a combined capacity of 1.8 million bpd. If even one-third of their output is diesel, global supply could rise by 600,000 bpd, with these facilities enjoying logistical advantages for deliveries to India and Brazil.

Environmental Regulations and Alternative Fuels
Stricter environmental regulations also pose risks for diesel demand, notes Sergey Tereshkin, CEO of the OPEN OIL MARKET platform. Since 2020, the sulfur content in marine fuel used in international shipping has been capped at 0.5%, while in coastal areas of the EU and North America, the limit is just 0.1%. These restrictions affect not only fuel oil producers but also diesel suppliers, as producing low-sulfur diesel entails additional refining costs.

Competition from alternative fuels, such as LNG, methanol, and liquefied petroleum gas (LPG), is also growing. Globally, there are 383 LNG-powered ships, with 534 under construction. The LPG segment includes 107 active ships and 84 under construction, while the methanol segment comprises 27 active ships and 198 under construction.

However, Tereshkin notes a silver lining: the shift to gas-based marine fuels creates new opportunities for Russia's gas industry. Technologies for small- and medium-scale LNG production are sufficient to meet the demand for marine fuel. Moreover, methanol production offers an alternative way to monetize natural gas as exports to Europe decline.


Translated using ChatGPT


Sourse: https://rg.ru/2024/09/23/grozit-li-snizhenie-eksportnogo-sprosa-rossijskomu-dizelnomu-toplivu.html