[Diesel Price Shock] No Alternative 'Dead End'... "Structural Increase, Prepare for Prolonged Period"

Diesel Price Hits Record High of 2,000 Won per Liter... Continuous Daily Increases
Growing Industrial Use in Trucks, Excavators, Ships, Small Generators

Current Crisis as Even Alternatives to Soaring Diesel Disappear
Experts Say "Isn't Coal and Gas Expensive Too... Need to Prepare for Prolonged Period"

The photo is unrelated to specific expressions in the article. [Image source=Getty Images Bank]

The price of diesel, once called the "oil of the common people," has surpassed 2,000 won per liter, continuously hitting record highs. With the relentless rise, concerns are growing across the industry?from freight truck drivers and small business owners using diesel generators to large corporations burdened by logistics costs. The fear of diesel is spreading throughout the entire industrial sector, affecting everything from consumer price perception to business-to-business (B2B) transactions. Inflationary pressures are intensifying.

On the 27th, experts in energy, industry, and economics unanimously pointed out that the cause of the current diesel price surge is structural rather than a temporary variable like the Russia-Ukraine war. They attribute it to a "global misjudgment" caused by the rapid energy transition policy toward eco-friendly energy.

Professor Son Yang-hoon of the Department of Economics at Incheon National University said, "In previous energy crises, when oil prices rose, natural gas or coal would be used as substitutes to reduce price volatility. Currently, the high price of diesel is accompanied by soaring prices of substitutes like natural gas and coal, leaving us in a 'dead end' with no alternatives."

Professor Jung Yong-hoon of KAIST's Department of Nuclear and Quantum Engineering explained, "Diesel has a higher calorific value per liter than gasoline. Since it is directly linked to small businesses and consumer prices, subsidies have been provided for diesel, allowing it to be used at relatively low prices." He added, "But can trucks that used diesel suddenly switch to hydrogen fuel just because prices have risen? The problem is supply without substitutes."

On the 25th, as international oil prices surged sharply, domestic fuel prices for gasoline and diesel continued their high-rise trend, with fuel price information displayed at a gas station in Seoul. According to the Korea National Oil Corporation's oil price information system, Opinet, the average diesel price sold at gas stations nationwide the previous day was 2,000.93 KRW per liter. This is the first time diesel prices have exceeded 2,000 KRW since nationwide sales price statistics began being compiled in April 2008.
Photo by Mun Ho-nam munonam@

There appears to be no "exit" from the soaring diesel prices, experts agree. Investments in carbon neutrality and renewable energy system transitions have accelerated since the pandemic. However, investments in fossil energy, which are still needed during the energy transition process, have sharply declined. With carbon neutrality as the goal of energy policy, new investments in fossil energy looking 10 to 20 years ahead are inevitably shrinking.

Professor Lee Jeong-hee of the Department of Economics at Chung-Ang University pointed out, "The global supply of fossil fuels is expected to remain persistently insufficient. Energy prices could become very vulnerable to even minor external shocks such as global economic fluctuations or abnormal weather events."

She continued, "Especially since diesel is widely used for industrial purposes, the burden is expected to extend to general consumers. There are concerns about increased manufacturing costs due to rising logistics expenses, higher price levels, and subsequent declines in consumption."

The soaring diesel prices are also raising fears of extreme economic crises such as stagflation?a state of low growth and high inflation. According to the Korea National Oil Corporation’s oil information site, PetroNet, last month’s combined domestic consumption of gasoline and diesel was 17.355 million barrels, down 18.3% from 21.247 million barrels in April last year when strict social distancing measures were in place due to COVID-19. The decline in diesel consumption is considered a sign of economic slowdown. Diesel is widely used not only for transportation such as freight trucks but also in industrial sites for excavators, ready-mix concrete trucks, and generators, making it a key real indicator for assessing the economy alongside cement. Recently, economic forecasting institutions such as the Korea Development Institute (KDI) have repeatedly lowered their growth forecasts for the Korean economy this year.

Despite this situation, both the government and companies agree that there are no effective measures to solve the problem. Professor Lee Deok-hwan of the Department of Chemistry and Science Communication at Sogang University diagnosed, "The impact of petroleum products on the industrial sector is comprehensive. It is not limited to any specific field but imposes a critical burden on most social and industrial sectors closely linked to our lives, such as logistics and transportation."

He added, "However, the new government is reluctant to use policy tools amid the recent surge in oil prices because the previous Moon administration already utilized the flexible fuel tax rate increases in December last year and April this year, effectively exhausting the policy options."

Professor Lee Jeong-hee also said, "At present, the government has already expanded the scope of fuel tax cuts as much as possible. This means the government's role is extremely limited. We can only wait for the Ukraine situation to calm down and for oil prices to stabilize, even if only in the short term."