About Those Net Exports…

Mark Green
Posted January 12, 2012

News that the United States was a net exporter of finished petroleum products last year prompts logical questions – and some wrongheaded commentary – about refining, the proposed Keystone XL pipeline and whether finished products should be leaving the country. Energy blogger Robert Rapier argues net exports are good news for the U.S. economy and quite reasonable in what is, in fact, a global market.

“This news did not sit well with some people, who argued that those exports could have been better used in the U.S. I read numerous comments from people angry that we are exporting fuel. In fact, one of the arguments against the Keystone Pipeline is that the fuel could end up being exported after it is refined. I don’t think the people who are making these arguments have thought this through very well.”

Rapier explains that the refining industry in this country is subject to the demand pressures for gasoline and other products derived from a barrel of oil. Remember, about 83 percent of the oil refined in this country is for use here. The other 17 percent was exported as finished products, most of which aren’t in high demand here. As demand rises and falls for various products, companies adjust by increasing exports. Rapier:

“Consider the situation. Gasoline demand in the U.S. has fallen for several years via a combination of high prices killing off demand and the escalating ethanol mandate. Refiners can respond by shutting down more refineries and laying off workers, or they can seek other markets for their product.”

Rapier notes that most of the gasoline exported (60 percent) has gone to Mexico, from which the United States imports crude oil. The exchange benefits the U.S. Rapier:

“So we are importing oil from Mexico — the source of over 10% of our oil imports — and turning around and exporting back to them the higher value finished products. It creates jobs and tax revenue here in the U.S. That sounds like a bad deal for Mexico and a good deal for the U.S. So I don’t understand why people are upset. We could choose to stop selling gasoline to Mexico, in which case we could import less oil from them. But since gasoline is worth more than oil, that doesn’t seem like a very good business proposition.”

Here’s the takeaway: Oil is a global commodity, and so are finished products. The Keystone XL pipeline would be a component in a process that responds to market demands – which also is true about U.S. refiners and the products they turn out. Keeping our refineries fully supplied is one important part of the equation. So is the ability to export – to help protect U.S. refining jobs from demand fluctuations while also helping our trade balance.