Diesel's De mise in Automobiles of Limited Concern to Refiners

Even if the diesel engine's scandal-driven fall from grace pushes it out of the world's passenger cars, an increasing need for it on ships, in trucks and heavy industry could save the refineries that invested heavily in producing the fuel.

The unfolding crisis that kicked off when Volkswagen (VOW.BE) falsified U.S. car emissions has spurred a litany of changes at vehicle manufacturers, which are now putting their cash behind electric cars, or back to gasoline engines.

"I'm not concerned for refineries," said Steve Sawyer, head of refining with consultants FGE. "Diesel for passenger cars is just one part of the demand pool."

Although oil refiners disagree over how quickly the global market will turn its back on fossil-fuel-powered cars, the shipping industry is set to turn to low-sulphur diesel in droves due to new regulations.

In Europe, the stronghold of diesel engines thanks to decades of favourable government treatment, that portion is significant. Passenger cars account for 1.4 million barrels per day (bpd) of the continent's diesel consumption of 4.1 million bpd, according to FGE data.

But worldwide, diesel cars make up only about 12 percent of the car fleet, according to Swiss bank UBS.

UBS warned that its global autos team expects diesel to "disappear almost completely" from passenger cars by 2025, falling to a 4 percent market share as hybrids and electric cars increase their presence.

But this possibility, which it said would leave Europe's distillate-focused refineries most exposed, does not portend a rougher ride for margins, thanks to the International Maritime Organization (IMO).

The IMO earlier this year said it would stick with a 2020 deadline for ships to use cleaner fuels - a move that the International Energy Agency expects to drive a 2-million-bpd increase in demand for low-sulphur diesel.

"At 2 million bpd, (shipping demand) would be approximately 20 times higher than the negative impact from lower diesel car sales in 2020, which we estimate at approximately 100,000 bpd by then," UBS said in its report.

INDUSTRY GROWS
FGE and others also point to rising economies as a bright spot for diesel, whose margins have languished over the past two years as industrial activity took a backseat to consumer demand, which favoured gasoline use in passenger cars, motorcycles and other light-duty vehicles.

But if growth shifts back towards industry - and to developing economies, as many forecast it will - distillates used in mines, oil rigs and agriculture could get a boost.

ExxonMobil, in its outlook for energy consumption, noted almost half of global energy use is dedicated to industrial activity, statistics that Exxon said "often get lost" in discussions that focus on consumer and household demand.

Heavy goods delivery and haulage vehicles, with a need for power and torque over speed and efficiency, cannot easily turn to electric or gasoline-powered engines.

As a result, diesel's use features heavily in the manufacturing, infrastructure and agriculture that are crucial to growth in the modern economy, and Exxon said industrial demand for energy would rise by around 25 percent by 2040.

"That might be the way forward for cars," Sawyer said of hybrid and electric engines, "but it might not be the way forward for trucks and delivery vehicles."

Reporting by Libby George