US resolves debt ceiling issue; durable goods orders soft; US service sector slows; Indonesia to join TPP; UST 10yr yield 2.02%; oil price falls; NZ$1 = 67.8 US¢, TWI-5 = 72.7

Long time ago I worked in Alberta and the oil rush was in full swing,everyone talked oil. There last year and they still do with a new Husky pre breaker plant just down the road. Also Husky shifting head office from Calgary to up north. looked odd seeing an office block in wheat country.
Then Diesel was much cheaper to make but from memory low sulfur diesel was going to change that.
My engineering mate in Holland tells me that the new diesels are very low emission but he could have been getting his info from VW. He tells me most of the pricing is about, 'the tax'.
Found this, it's a bit old but informative.

Each and every oil well produces oil with different characteristics. In most oil fields, production for the wells are similar, but not exactly the same composition. 'Heavy' crude oil, like the stuff in Saudi Arabia and Venezuela does not have enough hydrogen to balance the carbon--or too much carbon for the amount of hydrogen said the other way. The 'ideal' fuel from an emission stand point is 100% hydrogen. Coal is up to 90% carbon. The higher the ratio of hydrogen atoms to carbon atoms the 'cleaner' the fuel is. Refining process 'convert' crude oil by splitting up big molecules, removing carbon, adding hydrogen, rearranging molecules, combining small molecules, removing sulfur, nitrogen and other contaminants. Most crude oil does not have enough hydrogen relative to carbon to meet fuel specifications.

U.S. refineries serve a market demand heavily weighted toward automotive gasoline. European refineries are more focused on diesel fuel production. Fluid Catalytic Cracking (FCC) was invented during World War II to make more and higher octane gasoline by catalytically cracking bigger heavy fuel oil(C20-C50+) molecules into primarily gasoline size (C6-C9) molecules.

FCC typically converts 75-85% of the feed into products smaller than the feed, with about 65-70% ending up in gasoline either directly or by combining the smaller molecules (C3-C4) with iso C4 in the Alkylation process (also developed in WWII to make very high octane aviaton gasoline.) FCC can adjust the yield pattern some, not to the yield pattern of European refineries.

Hydrocracking is another process for converting heavy molecules to smaller ones while also removing sulfur and nitrogen contaminants. Hydrocracking yields can be adjusted much more than FCC yields and thus can make more jet fuel and diesel fuel than can FCC from the same feedstocks.

Hydrocracking is expensive because of reaction conditions (2500psig,850F= high cost equipment) and it consumes lots of costly to make hydrogen. (2500scf /Bbl of feed) Hydrocracking can make 5% fuel gas,10% gasoline,30% jet fuel and 55% ULSD diesel from the same materials that FCC makes 5% fuel gas,70% gasoline, 10% high sulfur diesel, 10% heavy fuel.

The high price of road diesel relative to gasoline is market driven. Road diesel must, by law, have no more than 15 parts per million of sulfur. That is equivalent to only 2 grains of (uncooked)red rice in a quart jar of white rice. This requires 99.9+ % removal of sulfur from the material distilled from the crude oil (2%-4% sulfur) and processed into ULSD.

The Ultra-Low-Sulfur-Diesel (ULSD) costs more to make than the previous 500 PPM 'Low Sulfur' diesel fuel. Various sources claim different extra costs, but it is about $0.05/gal more costly tomake than the old 500 PPM stuff leaving the refinery. The problem is equipment needed to make this USLD is very expensive to build, and not enough capacity is available yet. Further complicating the situation is there are no other products with lower sulfur content made. Even unleaded gasoline may have 500 PPM of sulfur. A 0.5% contamination with 'jet fuel" -which has as much as 3,000 PPM will spoil a batch of ULSD, making it suitable only for home heating oil or off road diesel. Starting January, even off road diesel must meet much more stringent sulfur levels also.

Shipping ULSD is MUCH more costly than previous diesel because of this contamination issue. The vast majority of petroleum product is distributed from refineries to consumers through pipelines. These are 'multi-product pipelines, who try to schedule and sequence the various product 'batches' such that the inevitable mixing at the interfaces between batches can be utilized -say 40% in the leading product, 60% in the following product. Pipelines do not move a batch directly from a refinery to final destination terminal from which wholesale tank trucks are loaded. There are numerous 'intersections' of pipelines (analogous to highways) and tank farm terminals at these intersections and along the pipeline system. A product batch may be moved by pipeline and into and out of terminals as many a 10 times as it travels from say Houston to New York City. At each terminal, the interface for the ULSD must be totally downgraded. This means 10-20% of the initial batch may end up as fuel oil or jet fuel.

Obviously companies try to minimize this downgrade cost by working smarter.

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You make a good point David , but I wonder what % tax makes up the diesel price at the pump , given we also pay RUC on diesel , which makes it even dearer