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Diesel dilemma

Sky-high: Diesel prices and their premiums over petrol have hit record highs.

Diesel prices soar relative to petrol, just as cleaner-burning Euro oilers gain pace

27 May 2008

THE increasing disparity between petrol and diesel pump prices due to soaring demand for diesel fuel in Asia has dramatically increased the length of time it takes to recoup the extra cost of purchasing diesel cars, a GoAuto investigation has revealed.

The retail price of diesel in Sydney last week reached $1.80 per litre – up to 35 cents more than unleaded petrol at the same sites – and experts predict the recent earthquake in China could further increase the demand for diesel there and therefore its retail price here.

Last year, sales of petrol passenger cars to business purchasers rose by more than 88 per cent and sales to private buyers increased by almost 63 per cent. Sales of diesel passenger cars to private buyers have risen more than 50 per cent so far this year while private petrol car sales have dropped by five per cent.

In February, BMW predicted that diesel models could comprise up to 80 per cent of its sales within five years and SsangYong has this year repositioned its brand to offer an all-diesel range. Data provided exclusively to GoAuto by JATO Dynamics reveals that many European brands are more reliant on diesel car sales than ever.

Peugeot increased its mix of diesel vehicle sales from about 11 per cent in 2003 to more than 52 per cent last year, while Volkswagen went from just over a one per cent share of diesel sales in 2003 to 46.5 per cent in 2007. Others, including Alfa Romeo, Saab, Dodge, Chrysler and Renault, have increased their diesel sales mix from zero in 2003 to more than 30, 27, 16, 13 and 13 per cent respectively.

80 center imageOf course, diesel vehicles remain a tiny proportion of overall new passenger car sales in Australia, but that could soon change with news last week that Holden has committed to producing a diesel Commodore within two years, joining Ford which last month confirmed to GoAuto that it plans to offer diesel versions of both its homegrown Territory and Falcon models from 2010.

This time 12 months ago the wholesale diesel price was $121.83 and unleaded petrol cost $127.73 wholesale, making diesel roughly six cents cheaper than petrol a year ago.

Based on the current wholesale price disparity between petrol and diesel of 23 cents per litre and an average annual mileage of 20,000km, it will take BMW 320d drivers more than eight years to pay off their car’s $3100 higher purchase price over the equivalent 320i, while the Hyundai i30 diesel’s $3500 price premium over its petrol sibling will take more than 11 years to recoup.

Calculated on a $4000 price premium over the equivalent petrol version and an ADR81/01 average fuel consumption estimate of 8.5 litres per 100km (compared with 10.8L/100km for the petrol), it will take buyers of the forthcoming Commodore diesel more than 12 years to pay off their diesel investment. Twelve years! Before the rapid diesel price hikes that began about a year ago, Ford predicted a diesel version of its Falcon would take between three and five years to offset its extra cost. Using the same formula, a Falcon diesel could take an extra 17 years to pay for itself on current diesel prices. Let us repeat: 17 years.

The figures are much worse when calculated on the average retail price differential between petrol and diesel of about 30 cents nationally, let alone the 35-cent disparity seen at some outlets in Sydney last week. In those cases, the diesel purchase price premium pay-back period is beyond 30 years for the oil-burning Commodore and more than 40 years for the Falcon.

RACV blames Asian demand, plus GST

The RACV’s government relations manager David Cumming told GoAuto this week that the widening gap between petrol and diesel prices was a direct result of booming demand for diesel in Asia, and the fact that Australian crude oil prices were linked to the Tapas crude oil price in Singapore.

“For 25 years the two (petrol and diesel) were on (price) parity or diesel was slightly below it and demand for diesel in Asia is the only reason we pay a premium now,” he told GoAuto.

“The disparity has come about purely because diesel operates on the same market price in Singapore – the defined product price. Asia runs on diesel and China and India’s demand for diesel is immense. Unleaded is almost a by-product in Singapore.” He said the price premium for diesel was expected by some quarters to continue to climb.

“I’m led to believe there’s a supply and demand imbalance in Asia for diesel which leads to a premium being paid in Australia. There’s a view that in the wake of the earthquake they may even consume more diesel, because the only way they’re going to be able to get electricity into those devastated areas is with diesel engines,” he said.

Mr Cumming said the diesel price hike, which has also been exacerbated by stockpiling by major Chinese refiners ahead of the Olympic Games, was bad news for both current owners of diesel vehicles and customers of new and upcoming diesel passenger models, many of which have or will become available because of increased demand and improved Australian diesel fuel quality standards.

“And of course the timing couldn’t be worse – just when all these new diesel-engined passenger cars are starting to come to Australia.

“People can communicate with us via our website and I had more than 20 complaints last week from diesel people. Nearly all of them are saying they’re considering selling their car, but I don’t know if their car is going to be worth very much,” he said.

Mr Cumming said that last week’s $139 price high for Tapas crude oil in Singapore, which has since reduced to $127, would not flow through to pump prices for a month or so, but he was reluctant to join in recent predictions of $2.00-per-litre petrol by the end of this year.

“I’ve never put my head out that far. I’m prepared to do it on a fortnightly-by-fortnightly basis. Anybody that’s prepared to go out there and say $2.00 by the end of the year is a very game man. These prices are not about supply and demand. This is purely what the speculators have got out of the US dollar. It appears to be a bit of a game now, to see how far they can push it,” he said.

“Where are we going with diesel? No doubt $1.90 in the foreseeable future is possible.” Mr Cumming said he had no problem with retail fuel prices, with the Melbourne fuel market taking an average profit margin of just four cents per litre at the moment, and reiterated the fact that only a very small percentage of diesel is sold to private motorists.

“That’s why there is no competition over the board price for diesel, because all the big boys either buy it bulk on contract or long-term tender. In many cases they probably would have hedged their costs anyway – they might have a fixed-term contract for 12 months and may well be buying at last year’s price right now.” But he again took aim at federal government inaction on what the RACV has long described as a tax on a tax: the 10 per cent GST surcharge on top of the 38.1 CPL federal government (petrol and diesel) fuel excise. Once again the latter applies only to private motorists, with trucks over 4.2 tonnes paying only 19.6 cents a litre excise plus GST, and farmers, miners, railways, forestry workers and the like all paying no excise or gaining a tax rebate.

“That’s why you never hear any of the big boys complain about the price of diesel – all the big end-users all get a tax cut. It’s only the private motorist that gets the full whack – 38.1 CPL plus GST,” Mr Cumming said.

The federal government retained both those taxes in this month’s federal budget but, after calls from the Coalition to reduce the fuel excise by five cents (which would equate to a 5.5-cent reduction at the pump when the lower GST margin is factored in), the Rudd government has now agreed to consider reducing the GST impact on fuel prices by calculating GST on the pre-excise price rather than the post-GST price.

“They’ve picked up on out tax on a tax argument – it’s only taken them six years,” said Mr Cummings. “Initially it was reported that they we thinking of getting rid of the GST, which in an ideal world would be lovely but you know that couldn’t be right so if you delve down they’re only looking at getting 3.4 cents off just by changing the formula, which is what we’ve been calling for many years.”

VACC calls for GST cut

Joining the chorus for the abolishment on GST on fuel excise today was the VACC, which reiterated the calls it has made since the introduction of the GST on July 1, 2000.

“We have been saying it for eight years: placing GST on the excise component of petrol is indefensible and counter to the Howard and Costello government’s pledge when it introduced the 10 per cent Goods and Services Tax in 2000,” said VACC executive director, David Purchase.

“So far the message has been ignored. It is welcome, then, to hear from the prime minister that that the federal government is now considering this option.

“VACC urges Mr Rudd to act, to secure the agreement of the states who benefit from the GST, and to axe this tax forthwith. Putting a tax on a tax has never made sense, could easily have been rectified at the outset, and was always an unfair impost on motorists and business.

“Axing this tax will save motorists nearly four cents a litre, or 3.8 cents. This is a similar saving to that offered by most shopper-docket schemes. In today’s rampant petrol market, even small savings will assist motorists and small business.

“The message is clear. Labor must axe the tax-on-tax if it is serious about helping Australian motorists and small business,” Mr Purchase said.

Late today, the VACC called for a level playing field for petrol retailers at the wholesale level and welcomed cautionary comments by the resources and energy minister Martin Ferguson on the federal government's controversial new FuelWatch Scheme, which is supported by the NRMA but not the RACV or VACC.

“As VACC commented when FuelWatch was announced, it is our belief that the FuelWatch system will not produce the savings motorists may be hoping for and, at best, will have a marginal effect on pump prices.

“We believe that the cost to set up and monitor the FuelWatch scheme, reported to be $21 million, outweighs any marginal benefit to motorists.

“Regrettably, with oil at record highs on the international market, motorists can expect to keep delivering record profits to the oil companies, and record excise and GST revenues to federal and state coffers, regardless of FuelWatch.

“In VACC’s view, the real task for the ACCC, and the best opportunity to return competition to the petrol retail market, which is now nearly wholly in the hands of the oil majors and their supermarket partners, is to have transparency and competition at the wholesale level.

“VACC wants to see a fair and reasonable wholesale price (TGP) available to independent service station operators. Fair competition at wholesale, will lead to greater competition at the pump and therefore lower prices for the consumer.

“VACC will continue to hold a watching brief on FuelWatch. The greater task for the federal government and ACCC is to ensure a level playing field for petrol retailers at the wholesale level. Then, and only then, can motorists be assured they are buying petrol at a competitive and fair price,” Mr Purchase said.

Greenfleet pushes diesel

ALSO today, Greenfleet - the first not-for-profit forestry offset organisation to become an Approved Abatement Provider under the federal government’s Greenhouse Friendly initiative - blamed the fringe benefits tax and consumer confusion over the relative benefits of petrol and diesel vehicles as the relatively slow take-up of diesel powered vehicle in Australia.

Greenfleet CEO Sara Gipton said that while diesel car sales have rocketed in 2007, Australia still lags well behind European countries in terms of diesel market share. Greenfleet says the diesel market share in Australia in 2007 was around 16 per cent, while in Europe it is 53 per cent.

“The current FBT system does nothing to promote the adoption of fuel efficient vehicles or behaviour in fact it rewards individuals for driving as many kilometers as possible. This has significant implications in terms of the environment, pressure on infrastructure and driver safety.” “The 2008-2009 Federal Budget has done nothing to alter this position. The equivalent tax in countries like the UK (Benefit in Kind Taxation) is not based on kilometres travelled but on the CO2 output of the vehicle chosen. The more efficient the vehicle, the less the individual pays in tax, that’s why so many choose the diesel option.” “The UK tax regime isn’t perfect but it does encourage informed decision-making when it comes to new vehicle purchases.” Ms Gipton said that while tax legislation is one way to influence buyer behaviour, the other is to ensure that drivers are better informed about the choices available to them.

“There are several factors for buyers to consider when deciding between petrol and diesel. Neither is right for everyone, but it’s important to understand how each of these could affect your ownership experience.” Greenfleet has urged consumers to “look for the torque figure - usually in Newton metres (Nm) - to better understand how the vehicle will perform in everyday driving conditions.

“Diesel is currently around 20 cents per litre more expensive than standard unleaded petrol (ULP) but many new vehicles (especially European models) require premium unleaded to run efficiently. Combine this with the fuel efficiency to see which will cost you more each year at the pump. Other things to consider are the purchase price, resale value and servicing costs that petrol and diesel vehicles achieve respectively.

“It’s well known that diesel cars produce far less of the greenhouse gas CO2, largely due to their greater fuel efficiency. There is a lot of information around trying to discredit diesel fuelled cars based on the particulate matter and oxides of nitrogen (NOx) in diesel exhaust, however, new-generation diesel-fuelled passenger cars are actually good performers in this area.

“Many European diesel cars, including all Peugeot, Citroen, Volvo and Alfa Romeos, meet stringent European standards for both particulates and NOx. Australian diesel fuel emission standards are a little behind Europe and the US, but the majority of new diesel fuelled cars sold in our market are not.

“Our suggestion – don’t fall for the hype, do a little research yourself and find out which Euro standard your desired diesel-fuelled car meets (Euro IV is the current standard, Euro V is more stringent and comes into effect in 2009, Euro VI will be more stringent again due in 2014).”

LPG advantage grows

THE price of diesel may be soaring ahead of both petrol and LPG, but based on an average price of 65 CPL, LPG-powered versions of both the current FG Falcon and VE Commodore still take just one and three years respectively to negate their higher purchase prices – before the federal government’s LPG vehicle subsidy is factored in.

The latter provides a $2000 rebate for private motorists who convert a petrol-powered vehicle to run on LPG Autogas and $1000 for a new LPG vehicle. More than 125,000 private motorists have converted their vehicles or bought new LPG-powered vehicles with the help of the government grants since the scheme was introduced in August 2006.

LPG Australia last week said the savings offered by LPG vehicles have never been greater, with Autogas retail prices remaining at least 90 cents lower than last week’s new record petrol prices of $1.60 per litre. Last month the national average ULP price was $142.9 per litre, compared to 66.3 cents for Autogas.

“While LPG is not immune from price fluctuations caused by world oil markets, Autogas typically sells for less than half the price per litre of ULP petrol. Over the course of a calendar year it clearly offers an immense savings advantage,” said LPG Australia industry development manager Phil Westlake.

“If you are spending $80 per week on petrol now, you’ll be spending $40 or less on Autogas. That’s $40 per week that stays in your back pocket.

“Even without a $2000 grant, a motorist who converts a six-cylinder engine to run on Autogas will recover their conversion investment in under two years – assuming they travel 25,000km per year and their conversion cost $3000.

“Factoring in a $2000 grant towards the conversion, you would recover the conversion cost in only seven months,” said Mr Westlake, who added that the LPG automotive industry has reacted quickly to develop LPG conversion kits for models like Toyota’s Corolla, Nissan’s X-Trail and Honda’s CR-V. Sales of small cars and small SUVs have increased 6.8 and 5.8 per cent respectively after the first four months of 2008.

GoAuto exclusively reported in March that leading Australian automotive engineer Dr Laurie Sparke advocated increased use of LPG (for passenger, SUV and light commercial vehicles) and CNG (for long-haul road transport vehicles) in Australia to reduce the country’s dependence on foreign oil and to reduce harmful emissions.

GM last week announced it would launch a Hungarian-built 110kW/210Nm 1.6-litre compressed natural gas (CNG) turbocharged four-cylinder engine in Europe’s Opel Zafira mini-MPV and other vehicles from next year, which could mark the beginning of a trend towards gas-powered small-cars.

In Australia last week, GM Asia Pacific president Nick Reilly described vehicles compatible with a range of alternative fuels – LPG, CNG and 85 per cent ethanol-blend petrol – as “priorities”, with hybrid and diesel powertrains following soon after.

“In terms of speed, the quickest thing that we can do is alternative fuels such as LPG, CNG and E85 – those would be our priorities,” he said. “Certainly, diesel we already have in several of our cars in Australia. We don’t yet have a diesel in the Commodore but that will come, and, as for hybrids, we will introduce hybrids in the next couple of years.” He said diesel would be introduced at about the same time.

Given Ford’s and now Holden’s stated desire to produce small cars in Australia, locally produced LPG versions could provide a double-edged sword to fight both rising diesel prices and global warming.

Fuel hikes a global problem

AUSTRALIA is not the only country in the grip of acute fuel price hikes. Crude oil price rises of more than 30 per cent since January – following increased demand, a weaker US dollar and the unwillingness of OPEC to increase global oil production – have filtered through to Europe and Asia too.

Riots broke out in Indonesia last week after the government drastically cut fuel subsidies, raising fuel prices by up to 30 per cent, while record prices are also being experienced in the UK and France, where workers blockaded ports in protest against the doubling of diesel prices this year.

Last week’s new record high of $US135 per barrel of US crude is likely to be toppled again, with speculation of $US200-per-barrel prices by the end of this year.

Payback: Diesel v petrol

BMW 3 Series:
Model 320i 320d
Price $53,600 $56,700
Fuel type Petrol Diesel
Transmission 6-speed auto 6-speed auto
Power 115kW 125kW
Torque 200Nm 340Nm
Average L/100km 8.1 6.0
Fuel cost/L $1.57 $1.80
Average km/year 20,000 20,000
Fuel cost/year $2543.40 $2160
Vehicle price difference - $3100
Fuel advantage per year - $383.40
Purchase cost break-even point (years) - 8.09
Hyundai i30 SX:
Model i30 SX i30 SX CRD
Price $18,990 $21,490
Fuel type Unleaded Diesel
Transmission 4-speed auto 4-speed auto
Power 105kW 85kW
Torque 186Nm 255Nm
Average L/100km 7.6 6.0
Fuel cost/L $1.57 $1.80
Average km/year 20,000 20,000
Fuel cost/year $2386.40 $2160
Vehicle price difference - $2500
Fuel advantage per year - $226.40
Purchase cost break-even point (years) - 11.04
Ford Falcon XT:
Model Falcon XT Falcon XT E-gas Falcon XT
Price $36,490 $37,890 $40,490
Fuel type Unleaded LPG Diesel
Transmission 4-speed auto 4-speed auto TBA
Power 195kW 156kW TBA
Torque 391Nm 370Nm TBA
Average L/100km 10.5 15.5 8.5
Fuel cost/L $1.57 $0.65 $1.80
Average km/year 20,000 20,000 20,000
Fuel cost/year $3297 $2011.90 $3060
Vehicle price difference - $1400 $4000
Fuel advantage per year - $1285.10 $237
Purchase cost break-even point (years) - 1.09 16.88
Holden Commodore Omega:
Model Commodore Omega Commodore Omega Commodore Omega
Price $36,790 $40,690 $40,790
Fuel type Unleaded LPG Diesel
Transmission 4-speed auto 4-speed auto TBA
Power 180kW 175kW TBA
Torque 330Nm 325Nm TBA
Average L/100km 10.8 16.0 8.5
Fuel cost/L $1.57 $0.65 $1.80
Average km/year 20,000 20,000 20,000
Fuel cost/year $3391.20 $2076.80 $3060
Vehicle price difference - $3900 $4000
Fuel advantage per year - $1314.40 $331.20
Purchase cost break-even point (years) - 2.97 12.08
Falcon and Commodore diesel retail price is based on a $4000 premium over the petrol variant
Falcon and Commodore diesel consumption is estimated at an average of 8.5L/100km

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