Gas prices are trending downward nationwide from the painful peaks over the summer, but high diesel fuel costs are still hurting building contractors and real estate developers. Though diesel fuel prices have eased a bit in recent weeks, the national average remains around $5.20 per gallon, down from a record-high of $5.82 in June. The U.S. also has just 25 days of diesel supply on hand, and while officials say the country will not run out of fuel, the tight quantities are driving the price increases.
The war in Ukraine, pandemic-related refinery shutdowns, and Hurricane Ida have all caused reduced diesel refining capacity over the past year, among other factors. The diesel price spikes and shortages are a pressing concern for building contractors and developers because about 98 percent of all energy use in the construction industry comes from diesel, according to the Diesel Technology Forum.
The consequences of high diesel prices are that real estate developments heavily reliant on the fuel have experienced increased pricing volatility. Researchers have emphasized that the rising cost of diesel hasn’t reached crisis levels yet, but it’s another issue in a construction industry already impacted by labor shortages and other rising costs. By 2024, global real estate consultancy Turner & Townsend estimates construction material prices to grow between 25 and 28 percent from 2020 levels, though they, too, have moderated somewhat lately.
These amplified costs will undoubtedly continue to impact real estate developments and bottom lines, though there could be light at the end of the tunnel soon. For the price of diesel, at least, it could begin to ease as China loosens export controls on the fuel and new oil refineries come online in Kuwait and China and boost supply as early as next year. Demand for diesel and its price could also fall if the world slides into a recession, though developers wouldn’t exactly welcome that scenario, either.
