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Diesel Consumption Dropped In California, But It's Not What You Think

Diesel Consumption Dropped In California, But It's Not What You Think

Diesel consumption in California dropped earlier this year, mostly due to the fact that there were simply fewer trucks on the road. 

Taxable diesel consumption in California started stronger than last year with a 3% increase in consumption year-over-year for January. However, February was a turning point in consumption, which dropped 5.7% year-over-year. Furthermore, there was a 12.2% drop of consumption between April of 2018 and 2019. This could occur for a few different reasons — opting into a different fuel, fewer miles being driven or a lower volume of freight tendered.

Opting into a different fuel

One potential reason for a decline in diesel consumption is that drivers are switching to different forms of fuel. Natural gas became popular over the past few years as an alternative to diesel, but it requires fleets to purchase new vehicles. The FreightWaves' SONAR chart below shows the carbon emissions from natural gas in the transportation sector (TRANG.CA). The emissions are a function of consumption of natural gas and the technology available to change the emissions levels. 


Natural gas began climbing in the early 2000s, but in 2013 there was a spike in emissions which suggests that more fleets began switching over. Natural gas became a cheaper alternative to most other fuels including diesel. Transitioning, however, is much simpler when there is a need to purchase new vehicles. 


The other alternatives, which are increasing in popularity, are biodiesel and renewable diesel. Renewable diesel can be used in a diesel truck and can emit up to 80% less in emissions than fossil diesel. Biodiesel requires a change to the fuel tank as it needs to be heated. Currently prices are still higher than fossil diesel for both, however as production increases, prices will lower.

The decline in emissions suggests that there has been a change to the blends used. It does not signal a decline in production. The lowest amount of emissions within the seasonal changes have continued to increase each year which suggests an increase in biodiesel production and consumption, but the growth is a small increase each year. However, there appears to be a delay in the carbon emitted, based on seasonal patterns, in the beginning of 2019. 

Fewer miles being driven

Another reason for a decrease in diesel consumption is that fewer miles are being driven. The chart below shows the miles driven on a per truck per week basis for flatbeds, reefers and dry vans (MILTR.FCF, MILTR.RCF and MILTR.VCF). The beginning of 2019 lagged, not following the typical seasonal trends, showing that fewer miles were driven per truck. 


Lower volume of freight tendered

The national Outbound Tender Volume Index (OTVI.USA) shows that 2019 volume was below 2018 levels from the beginning of March through the end of July. In May, volumes dropped further averaging over 4% less than 2018 levels. Lower volume leads to fewer miles driven and fewer vehicles on the road, which in turn means that less diesel was consumed. 


What does this mean?

Alternative fuels, which emit less carbon, are not the culprit of the lower consumption of diesel. The lag in the seasonal trends in emissions suggests that the fuels also experienced a drop in consumption. Furthermore, carriers are less likely to pay steep upfront costs to change to other fuels, unless there was a need to. Rather, a change will be gradual as the need to replace vehicles occurs.

The volume of loads tendered suggests that there was a drop in the amount of trucks hauling freight, but also fewer miles were driven per truck. These drops are a result of the Freight Recession — which, in turn, means that the Freight Recession caused a drop in diesel consumption.

The taxable diesel consumption data is lagged, and therefore it does not have any data from after the Freight Recession. The final data point is in May, so in three months the diesel consumption data should recover, and surpass last year's numbers. With alternative fuels on the rise, there will be competition for consumers in the fuel supply market.

Image Sourced from Pixabay

Posted-In: California diesel Freight Freightwaves LogisticsNews Markets General


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