It wasn't just the fuel supply that did for steam power, whether coal or turf was used. The cost of maintaining a steam locomotive is many multiples of the cost of keeping a diesel loco maintained. Plus, a diesel can be crewed by a single driver, whereas a steam locomotive required two men, so wage bills were much lower, too. Not to mention, you can start a diesel locomotive and have it in service quickly, while a steam engine would take hours to get ready after the fire was lit.
Edit: From a track maintenance perspective, diesel is preferable, too, because steam locomotives produce hammer blow which would damage track over time.