Oil in, gasoline out, and U.S. benefits
Posted on January 16, 2012 at 6:38 am by Loren Steffy
That, if you believe the critics, shows that the Keystone XL pipeline, which would ship crude oil from Canada to Gulf Coast refiners, is an export scam. In other words, the oil that Keystone would bring in will simply be refined and shipped out again, so the whole project is nothing more than a ploy in which U.S. refiners boost profits by tapping lucrative foreign markets.
Gasoline exports, though, have little to do with the Keystone pipeline and America’s long-term energy needs. Exports of refined products have indeed surged in the past three years as domestic demand slipped because of the weak economy. The U.S. exported more than 600,000 barrels a day of refined products, mostly gasoline and diesel fuel, in 2010, up from 100,000 barrels in 2003, according to the U.S. Energy Information Administration.
Refiners have a couple of ways they can respond to lower demand for their products: cut production or seek new markets. Sunoco, for example, said in September it was selling its refining business because weak demand and higher crude prices have eroded profits.
But those that want to stay in the business can lay off workers and weather the slump or keep people employed by selling fuel elsewhere.
And where do they sell it?
As of mid-October, about 60 percent of U.S. gasoline exports went to Mexico, according to Energy Information Administration data. The next two biggest recipients were Canada and Brazil.
Canada, meanwhile, is our biggest source of foreign oil, even without the Keystone pipeline, and Mexico supplied about 12 percent of our monthly imports as of October. Brazil supplied about 2 percent.
So U.S. companies are taking the oil supplied by these countries, refining it, and selling it back to them at a higher price, supporting thousands of refining jobs in the process. They also avoid shutting down and later restarting all or part of their refineries, which can be expensive and dangerous.
It may not be a great deal for Canada and Mexico, but it’s a better alternative for a struggling U.S. economy than idling more workers.
We could, of course, curtail our crude imports from Mexico and Canada, and cut off the exports of refined products. That wouldn’t make much sense because gasoline is more expensive than crude. In other words, we benefit from the added value of U.S. manufacturing.
As for the Keystone pipeline, U.S. gasoline demand probably will have returned to pre-recession levels by the time it gets built, if it does. As domestic demand returns, exports of refined products will decline to what they were a decade ago.
The purpose for the pipeline, though, isn’t to respond to short-term issues of demand. The pipeline is about securing access to long-term supply, not about short-term market reactions.
As I’ve argued for years now, our energy strategy, if we ever decide to adopt one, has to focus on oil supply, not just price. As the available pool of crude in the world market gets divided among more countries with increasing demand, controlling supply is going to be vital for the United States.
The U.S. will remain energy interdependent, not independent. We may be, at the moment, a net exporter of gasoline, but we remain a net consumer of crude oil, and we will for decades to come.
Having the capacity to buy oil from friendly neighbors like Canada makes a lot of sense, and if in the meantime we get to sell back a higher-value product that we make from their raw materials, so much the better.
- Crimp in Keystone XL plans may help Houston’s Enterprise (mb50.wordpress.com)