It seemed to be only a matter of time before the issue of US exports of oil was raised.
Sure enough, in a letter sent this week, the head of the House Select Committee on Energy Independence and Global Warming, Edward J. Markey, Democrat of Massachussets, asked President Bush to ban all US oil exports. "Sending America's vital energy resources overseas during our time of need should stop," Markey wrote in his letter.
It certainly is politically appealing. But there are a host of problems with this proposal.
Petroleum exports have climbed in the last year. In the last several weeks, Energy Information Administration figures show exports rising above 1.5 million b/d. A year ago, they were just above 1.2 million b/d.
But as you can imagine, it's a lot more complicated than that. Oil isn't just oil. Oil is crude, and oil is gasoline, and oil is distillates, and lots of other things. That's what makes the Markey proposal simplistic, and likely to make things a lot worse for the American gasoline consumer if it were to ever become law.
As readers of this blog know, gasoline has been the "runt of the litter" until recent weeks. The processing of crude into gasoline has been a step that refiners, if they could, would have avoided completely, because the margins for making gasoline have been so miserable.
Not so for diesel. Those margins, until recently, have been very strong, and they've kept refiners from cutting their operating rates even further. Refiners have done everything they can to maximize diesel output, but like it or not, they get gasoline coming out of their units as well.
But diesel and jet margins have been strong not just because of the US market, but because they've been so strong in other parts of the world as well. That has kept refineries humming at better rates than might be expected otherwise. Had the export market been cut off to US refiners, as Markey is proposing, there is no doubt that refinery operating rates would have been even lower, for the simple reason that the US is structurally long diesel and would have no market for as much diesel as they've been making in recent months. The only solution would be a cut in runs, and as a result, the output of gasoline would have fallen in tandem. And that would have hurt American drivers.
Crude exports? They've been averaging 27,000 b/d recently. They've found one buyer: Canada. Crude has not been exported to other countries by the US for several years. (A Chevron refinery in British Columbia has been an occasional buyer of Alaskan North Slope crude).
What else is in the export basket? According to country-by-country figures for May, the latest that are available, 183,000 b/d of gasoline went abroad, the vast majority of it to Canada and Mexico. Banning those exports would almost certainly be a violation of the North American Free Trade Agreement. Would halting the exports of that small amount of gasoline be worth starting a trade war with two of the biggest crude suppliers to the US?
Furthermore, if it's a good thing that the US is reducing its gasoline consumption, it stands to reason that the US might have more gasoline than it needs. Refineries are very complex machines, and it's unreallistic to expect the US to produce just the right amount of gasoline, diesel and other products so that there is no excess.
Other things in the basket each have their own story. In May, there was approximately 49,000 b/d in exports of MTBE, which the US has no use for anymore (and which has natural gas, not petroleum, as its primary building block); 393,000 b/d of residual fuel oil, a product whose use in the US has been on a steady decline for years; and 350,000 b/d of petroleum coke. It's hard to imagine the Markey proposal being driven by pet coke exports.
As anyone who understands markets knows, a barrel of oil exported from the US will eventually work its way through the chain and result in a barrel of oil popping out on to the market somewhere else. What matters is a country's net import position. In the end, there's no such thing as the US market; it's a global market, and you can't cut yourself off from it. Better yet, you might as well take advantage of it if the opportunity presents itself.
The exports to Canada are very likely to eastern Canada while Western Canada ships in a million barrels a day to the western USA.The east west pipelining capability in Canada is not yet capable of supplying the more populous eastern provinces. You are correct in that this is a global market and we have examples in Canada where the Majority of crude is produced in the west and shipped eastward and south,while Eastern Canada may often have lower gasoline prices by virtue of imports of this product from other countries with a surplus.
Politicians do not have to know anything more than how to talk to get elected in any country.