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Demystifying the economy | Diesel and natural gas, same fight



Every Saturday, one of our journalists answers, in the company of experts, one of your questions on the economy, finances, markets, etc.

I would like to know why the price of diesel used to be cheaper than regular gasoline, before the recent price spike over the past few months, and now it is almost 50% more expensive than regular gasoline.

Gaetan Laberge, Montreal

The simple answer to this question is that diesel is a substitute for natural gas, the global demand for which has exploded with the war in Ukraine and the sanctions against Russian oil and gas.

The search for new supplies of natural gas has an impact even in the price of refueling the trucks that drive on our roads, explains Carol Montreuil, spokesperson for the Canadian Fuels Association.

The marked increase in the price of diesel, relative to regular gasoline, is largely explained by its ability to be used to replace natural gas. “All industries that burn natural gas can use diesel as a substitute,” he says. Several companies have therefore converted their operations to diesel. Similarly, heating systems powered by natural gas can run on diesel.

Traditionally, the price of regular gasoline and that of diesel move with the price of crude oil, of which they are derivatives. Their prices vary according to the seasons. In summer, the strong demand for gasoline exerts upward pressure on its price, while in winter, it is diesel that is more expensive because it is used for heating.

The conflict between Russia and Ukraine has confused the cards.

The spike in the price of oil following the invasion of Ukraine and the sanctions imposed on Russia have raised all the prices of products refined from crude oil: gasoline, but also what are called distillates such as diesel, fuel oil and kerosene.

Europe’s decision to stop sourcing energy from Russia has pushed the price of natural gas to record highs. Demand for non-Russian natural gas has skyrocketed and all producing countries have been able to export it to help the European economy keep functioning and to take advantage of high prices.


The R-CUA gas plant, in Strasbourg, France

The demand for diesel has therefore increased considerably. The United States is exporting natural gas to Europe like never before, according to statistics from the U.S. Department of Energy Information Agency, helping to drive up its price in North America.

Since the energy markets are interconnected, the pressure of increased demand on the price of natural gas (and its substitute, diesel) is felt above all in Europe, but also in Canada and the United States.

The United States, which imported diesel and other refined products from Europe at certain times of the year to meet seasonal demand, has stopped doing so. As a result, diesel and heating oil stocks are at their lowest level ever as winter approaches and some regions are at risk of shortages.1.

The price of diesel at the pump continues to be pushed up by seasonal demand, due to heating needs. While winter has not yet begun, the price of a liter of fuel oil is also currently rising sharply, to $2.05 per litre, according to the statement from the Régie de l’énergie.

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