(ErikN Publications) – On October 27, 2022, Tucker Carlson announced to the nation that we are running short of diesel, with a mere 25 days of diesel inventory remaining. He was following up on a question that was posed to John Kirby, President Biden’s spokesman. Kirby really did not have an answer to explain the shortage. The Fox News reporter mentioned that New York and much of the Northeast was actually rationing diesel oil. Hmm. Rationing? Word is getting around as CNBC, CBS and NPR have since reported on this issue.

Is A 25 Day Inventory of Diesel Fuel a Problem?

To begin to address this question it is best to begin with the source of the data and ask whether a 25-day supply of diesel is really unusual. The data is derived from the U.S. Energy Information Administration (EIA). The referenced website provides a table that shows the days of diesel supply available since 1991. Reducing this information to inventory levels as of the last week in October for each year since 1991, you get a picture of what is normally available. On average, inventory levels for diesel are enough to cover 35 days. (See table). So, is 25 days necessarily alarming?

Well, possibly. There is a technique in statistics that is used to see if a particular number is significant. It is called the “standard score.” Standard scores are based on other statistical calculations that provide an understanding of whether a particular value is abnormal. If a score is between 1 and -1, it is considered a normal value. But if it approaches 2 or -2, the number is significantly above or below average.

A value of 25 days has a standard score of -1.8. In other words, this is a number that needs to be taken seriously. This was probably observed by energy traders and is most likely the source of the alarm. It is the lowest standard score since 1991. If this value reaches to -2, we will be entering new territory, a situation that U.S. has never faced before.

The next step is to see exactly where diesel is in short supply. The U.S. is a big place, and national figures often do not accurately reflect regional markets. The Institute of Energy Research looked into this issue in an article published on October 28th. The abnormally low diesel inventories are particularly localized to the Northeast. New England is at 34% of normal inventory levels for this time of year! A subsequent report from MSN reported an alert for the Southeast was posted by Mansfield Energy.

As to rationing, there is little evidence at this point that there is a coordinated rationing of diesel oil by any government. There is, however, reports of rationing by diesel delivery retailers in Connecticut. This will be explained in more detail below, but it reflects in many respects the informal symbiosis between the energy market and government. The market normally takes care of everything. There is really no need for state interference in the distribution of fuel. But … there are those moments. Diesel fuel, like any other power source, is a public concern. So, there is communication between power delivery firms and state authorities.

Is Juneau, Alaska at Risk?

Juneau, Alaska is one of two capitals that is only accessible by water or air (the other is Honolulu, Hawaii). Like New England, almost every home in Juneau is heated by diesel oil. This small city of 30,000 souls has two rather large tank farms that store millions of gallons of fuel barged up from Seattle. Diesel is the lifeblood of Juneau. It has three harbors packed with fishing vessels that run on diesel. Two mines outside the city use diesel. The city’s backup power generators run on diesel. If this town ran out of diesel, it would be an economic catastrophe if not a humanitarian crisis. Some buildings only use diesel heat. If heat was shut down, the water supply would also have to be shut down (frozen lines). It would mean the closure of schools and, possibly, health facilities.

So, the first step is to see if there is data on Alaska’s inventory. Oddly enough, Alaska is one of the states that data is not reported. The data is withheld from public viewing because it would expose the inventory levels of private companies. This is a reasonable precaution because inventory figures in any industry are usually proprietary. For Alaska, the market has so few participants that publishing inventory figures would expose private data. In Juneau, for example, there are only two suppliers. Publishing total inventory figures for Juneau would inform each of the competitors of their inventory levels.

Talking with local suppliers, however, points to something rather surprising. You are not directed to an energy department with the state. Instead, it is recommended that you contact the Emergency Operations Center for the Borough of Juneau. Remember how it was previously mentioned that there is a unique relationship between private energy suppliers and government? If there was a shortage, the energy suppliers would first have to declare it to their customers because folks would soon discover that not everyone was going to be restocked with diesel. As with the suppliers in Connecticut, the private suppliers would begin to arbitrage who receives diesel, focusing on critical needs and services. If that is done in Juneau, the EOC would be informed. In essence, a diesel shortage would be treated in much the same way as any other disruption of power services.

The City of Juneau was quite informative, and this writer learned a great deal. The EOC is part of something we often take for granted: the Incident Command System. We may not realize it, but when there is a natural disaster that destroys power lines, there is an army of utility line specialists waiting. This doesn’t just randomly happen. It is derived from years of planning, contracting and budgeting in preparation of such emergencies. ICS is used most commonly for fighting forest fires, but we most recently saw ICS in action with Hurricane Ian and the array of tornadoes that went through Oklahoma and Texas. ICS is the organizational mechanism that consolidates the resources of private industry, local, state and federal governments.

As regards any diesel shortage for Juneau or Alaska, the key element would be the declaration of the event as a state of emergency. In much the same way a tornado would generate a declaration of a state of emergency in the Midwest, a diesel shortage could require similar measures. This would inform private suppliers to work with governments to address the crisis, and it would mobilize national resources to come to the assistance of the State of Alaska and the City of Juneau.

So, are we running out of diesel? No. Western diesel inventories are stable and there is no report of a supply problem in Juneau. And if we were low on diesel, it would not be the end of the world. A lot could be done to arbitrage diesel delivery before ever running out. Schools would not close. Hospitals would remain open. Residential fuel tanks would all have some measure of diesel. What would be dramatically reduced would be non-essential uses of fuel, such as recreational boating. The cost of the stuff would be so high, in any case, that it would most likely discourage all non-essential consumption.

The Real Cost

But the cost – that is the real problem. Without a supply crisis, there is certainly the danger of an economic crisis. New England is seeing diesel in excess of $7 per gallon! Even by Juneau standards, that’s incredibly high. Juneau knows the drill. A loss of hydropower several years ago saw the city respond in remarkable ways, reducing energy consumption by 33% because it had to fall back to diesel generation. Diesel was several times more expensive than hydro-electric energy. It was tough, but we managed, even if it meant drying our clothes in a cold garage. So, it begs the question of whether Juneau could reduce consumption to counter the high cost of diesel. Anybody have a spare space heater?

Carlson and the Biden White House actually share one thing in common in their understanding of this problem. They both point to the war in Ukraine. And they are both off the mark. In reality, the domestic supply of diesel is purely a side-effect of the highly obstructionist policy of the Biden administration in the supply and delivery of fossil fuels, as well as highly obstructionist actions of the states of Michigan and New York which have done about everything in their power to interfere in the maintenance and modernization of fuel pipelines that transit their states. The reduction in diesel supply is primarily a problem of the Northeast which needs the oil that is piped into their sector of the market via Michigan and New York. It is also attributed to refining capacity on the East Coast.

We are seeing before our eyes the real cost of substituting the goods and services provided for over a century by the marketplace with government directives imploring that oil production and consumption be ended. What the government bureaucrats and university analysts fail to appreciate is the complexity of the marketplace, that the dirty stuff that oozes from the ground provides the fuel that delivers the food to the grocery table, that powers the tractors that harvest the grain, that provides the plastics that fill our hospitals, that provide nearly half of the parts that make our cars lighter, and the components that make it possible to use smartphones and computers. In their obsession with windmills and solar panels, they have overlooked a million details. And that is costly.

It is costly because a 34% inventory level in New England eventually translates to the high price of diesel in Alaska. Diesel prices are not just a function of the US marketplace, but the global marketplace. The world runs on diesel, even if you are running about town in your electric car. The lithium batteries were derived from the massive trucks that hauled the minerals to make those batteries. When the US is prevented from producing diesel as efficiently as possible, it affects the global supply of diesel. If we don’t produce enough of it for ourselves, we have to import it from abroad. So New England’s problem is our problem.

Looks like most of us will be getting our old sweaters out of mothballs this winter. Do you think those outlandish Christmas sweaters will come back into style.