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Yep, and it works much like on a gasser. Basically, the "O" lets you pump in more fuel and burn it giving more power. Diesels also respond well to Propane, and some truly insane individual use both along with healthy drive train upgrades. Nitrous or Propane will help get rid of the black smoke associated with over fueling too.
But, most modern diesels don’t need that help to achieve spectacular results. A guy running a truck like mine with air filter and exhaust mods with a chip recently ran 12.61 @ 110 (IIRC) with a 60’ time of 1.81, and that’s in a 7500 lb truck with a camper shell and spare tire! (point is, it was not stripped down, it drove to the track and ran, no big deal /forums/images/graemlins/laugh.gif ) Banks broke a land speed record doing 222 in a Diesel Dodge that towed it’s own support trailer to the salt flats from So Cal. And I’m almost certain it didn’t run propane or nitrous. Diesels make some STUPID power for almost no effort…
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Yeah Propane actually improves the burn efficency for the diesel, N2O like you said provides the O2 which lets you burn leaner and cooler or add more fuel and get more power.
Lots of people are starting to use both, but I think this is nice if you want to drag race it, but for towing or wheeling, all this is not needed.
For wheeling, not much profit in Turbo or propane since you should be off idle or at idle.
For towing, turbo + propane is great.
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