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U.S. Fuel Exports: Barrels Away

by Blake Clayton
February 15, 2012

Some readers of my last post noted that the decline in oil consumption in the United States since 2007 caused the boom in fuel exports that the country has experienced. Is the export boom due solely to a decline in U.S. demand?

Before getting into that, let’s take a step back and acknowledge that no one’s disputing the reality of the phenomenon itself: U.S. refined product exports have shot upwards in a remarkable way since 2005 or so.

In hindsight, I think I might have undersold the economic magnitude of the trend. Fuel exports brought in an estimated $88 billion to the United States last year, which amounted to four percent of total U.S. exports by value. As a December AP article noted, “Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990.” It continued: “Just how big of a shift is this? A decade ago, fuel wasn’t even among the top 25 exports. And for the last five years, America’s top export was aircraft.”

So soaring fuel exports weren’t even on the radar just ten years ago; now, they’re in the limelight. We can quibble about relative weight of the underlying drivers, but there’s little room to debate their outcome, which is economically notable in its own right.

I’d still argue that the demand-side of the fuel export story is about relative demand growth (or shrinkage, in the case of the United States) in the United States and other neighboring countries, which is how I framed it in my last post. A drop in U.S. demand alone wouldn’t have caused the boom. I would agree with other analysts that, yes, the significant decline in U.S. refined product demand has been of paramount importance in moving the country toward net product exporter status—but without stronger demand growth elsewhere, the boom would not have occurred.

Figure 1 leaves little doubt that U.S. product supplied (the EIA’s approximation of petroleum product consumption) has waned since the onset of the Great Recession in 2007. After climbing to 19.2 million barrels per day (mb/d) in the summer of 2005, it declined steeply into 2010, where it’s more or less plateaued around 17 mb/d (3-month average).

Figure 1. U.S. Product Supplied of Finished Petroleum Products (Rolling 3-Month Average, January 1990November 2011, EIA)

A quick look at U.S. motor gasoline and distillate demand over the last five years shows the extent of the damage—and that demand is still severely impaired. As of the most recent EIA monthly data (November 2011), U.S. gasoline consumption is still shy of last year’s levels for this time of year, let alone those of 2007, which it trails by about 8 percent (Figure 2). High prices at the pump and a sluggish consumer economy have weighed on domestic gasoline demand.

Figure 2. U.S. Finished Motor Gasoline Supplied (2007–2011, EIA)

Domestic distillate demand (a type of oil product that includes diesel and heating oil) is in better shape, fluctuating around last year’s seasonal demand, but it’s only barely begun to touch 2007 levels (Figure 3).

Figure 3. U.S. Distillate Supplied (2007–2011, EIA)

But look what’s been happening at oil demand growth in two of the countries I mentioned in my last post, Mexico and Brazil, with ports proximate to the U.S. Gulf. In Mexico, demand rebounded to 2006 levels in no time after a taking a beating in late 2008 (Figure 4). Look at oil demand in Brazil (Figure 5), which is continuing to show robust growth. Demand there is a full 17 percent higher in the fourth quarter of 2011 than over the same period four years earlier.

Figure 4. Oil Consumption in Mexico (2000-2011, IEA)

Figure 5. Oil Consumption in Brazil (2000-2011, IEA)

Consumption growth in these export markets is pulling volumes south from the U.S. Gulf Coast (and to a much lesser extent, East Coast), providing demand for U.S. refineries that are confronting stalled consumption at home. That substitute demand has buoyed profit margins for refiners in the southern United States enough for the boom in fuel exports to occur.

The fact that refineries in the Gulf are adept at processing low-quality oil (heavy and high in sulfur) makes them a natural source for Venezuelan and Mexican crude, among others, which they’re now sending back south and elsewhere as processed fuel.

So will the U.S. fuel export boom hold up in the future? Answering that question requires thinking through several ways in which oil supply and demand trends might shift in the coming years. The outlook depends in large measure on how you think the economies of the United States and Latin America will fare going forward and when you think American drivers will get back to their old ways. In the United States, gasoline prices, unemployment rates, and consumer spending growth will all factor into that calculation. Western Hemisphere refinery capacity additions and oil production growth will also likely matter.

The United States remains the world’s biggest gasoline consumer, guzzling about nine times more than the next biggest, Japan. And it’s still a long way from being a net oil exporter. It may send fuel away, but it still imports a whopping net 9 mb/d of crude oil—more than twenty times the net amount of fuel it exports. But net U.S. crude imports, too, are on the decline for the first time since the 1980s—perhaps the topic for another post.

Post a Comment 4 Comments

  • Posted by David B. Benson

    Yes Blake, another post please.

  • Posted by Lorne Stockman

    Blake, the exports issue is a very interesting one but I feel there are some aspects you have not sufficiently explained and some questions that need to be asked.

    Firstly, US gasoline demand: You seem to suggest that the decline in gasoline demand is predominately down to ethanol mandates and the recession and slow recovery and that at some point US consumers will “get back to their old ways”.

    While the 2009 plummet in demand was clearly about the recession it’s not clear that the current anaemic demand for gasoline is just about slow growth. The EIA stated in its recent Short Term Energy Outlook that it expects gasoline demand to decline slightly in the next 2 years despite expectations of economic growth. It points to 2 things. Increasing vehicle efficiency and stagnant Vehicle Miles Travelled, the latter being related to the aging population and thus the decreasing “driving-age population”. Over 65s drive but they drive a lot less then under 65s and the proportion of over 65s in the population is growing.
    http://www.eia.gov/oog/info/twip/twiparch/120111/twipprint.html

    The STEO is a two year outlook but I think these are likely long term trends. If the 2025/54.5MPG CAFE standards are fully implemented, we are very likely in a slow but steady long term decline for gasoline consumption.

    I think this is important because I think the export trend you discuss is not only long term but is evidently a coherent strategy for refiners in response to the prospect of entrenched demand decline in the US.

    The demand is there. Latin America’s demand for oil products is rising but its ability to create refining capacity to match its demand is not. It is likely to lag for many years to come. In Europe, there has for some time been a need for diesel imports as drivers favor the more efficient diesel engine for their passenger vehicles. Declining refining capacity In Europe is pretty much locking in this dynamic. Meanwhile its gasoline surplus is predominately exported to the US east coast. So in all likelihood the US product exporters are onto a good thing.
    Although the trend has been clear since at least 2007, the growth in 2011 has been remarkable and signals a new phase. Certain refineries are configuring their equipment to yield greater proportions of diesel specifically for the export market and the US produced record quantities of the stuff in 2011.
    http://www.eia.gov/todayinenergy/detail.cfm?id=4590
    So this is no longer about exporting surpluses that the US market doesn’t use. It is a repositioning of the US refining industry.

    Its concentration is also worth noting. About 75% comes out of the Gulf Coast (PADD 3), which in November 2011 (latest monthly figures available) exported some 2.15 million barrels per day of finished petroleum products, over 32% of net refinery production for the PADD. So basically, this is a repositioning of the gulf coast refining center. With expanding capacity and the entrenched demand decline, could the refineries actually on the coast (not all PADD 3 refineries are positioned for export) be some day serving export markets more than they are serving domestic markets?

    One last point on the data is that PADD 3 refining capacity has actually been rising significantly since 2000 due to expansions at existing facilities. In fact it is over 1 Million b/d higher than it was then and is about to get another big shot in the arm when the Motiva Port Arthur plant adds 325,000 b/d towards the end of this year.

    So, for me this raises some questions.

    Firstly, on the expanded capacity. Much of it, as with all of the Motiva expansion, is designed for heavy oil processing. Some, but not all, has been specifically created in anticipation of plentiful supplies of Canadian heavy crude delivered through the Keystone XL pipeline. I don’t want to get into the pros and cons of that project but it strikes me as interesting that wherever that refinery capacity is supplied from it won’t be the growing production of tight oil from Texas, North Dakota and elsewhere that you discuss. That’s because that oil is extremely light and sweet and would not be profitable for the complex refineries to process. It is also of note that the qualities of the heavy crude and the equipment that has been installed to process it enable those refineries to maximize diesel production.

    So, the gulf coast refiners have spent billions of dollars expanding capacity to refine foreign oil primarily into products for export. It’s not clear to me how that is helping gas prices, security, stability of supply or any of the supposed national interests that the industry is always touting as the positives of its various endeavors. It would appear that all that’s happened is that the US products market has become even more entrenched in the global market than ever it was, linking fuel prices, especially diesel, much more closely to world prices than ever before.
    Secondly, it would appear that while US drivers choose to buy more efficient vehicles made available to them by the new CAFE standards, either to save money, the environment or both, the US oil industry is busy undermining any of the environmental benefits that may be derived from that by digging up, refining, exporting and burning every possible resource it can get its hands on.

    I’m certainly not suggesting that exports should be banned or any such thing but I am interested to discuss what the implications of this are.

    Are we more secure because exports are booming and net imports are down? Is it really that simple? And what are the climate implications? Climate does have very real implications for US security, and is also one of the three issues that this blog purports to be about.

    While I appreciate that your blogs were not able to cover all these issues in one go, it seemed to me that the general tone was that this is unambiguously a good thing. My feeling is that that is still up for discussion.

  • Posted by Rachel

    Given the significant increases in crude oil production occurring in places which lack adequate refining capacity, such as Colombia, it’s quite likely that both US crude imports and product exports will continue to rise, all else being equal.

  • Posted by aeroguy48

    Wasent it about 6 months ago the great mesiah obama whom declared he wants to grow American exports by 50% said no to the Keystone pipeline, and now the Dems in congress have recently shown pretty diagrams to show we should not export the oil from the keystone pipeline. I get so confused by the liberals and what they want.

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