Christian Science Monitor...
As gas prices
rise, should US oil industry stop exporting?
US gas prices are soaring and domestic demand is falling. The oil
industry says it needs to export to stay in business and avoid layoffs.
Others claim that keeps supply low and gas prices high.
By Ron Scherer, Staff writer
February 23, 2012
NEW YORK - At the same time that the price of gasoline is rising, the
US oil industry is increasing its exports of gasoline, diesel, and jet
Yes, you read that correctly.
Compared to a year ago, exports of gasoline have tripled – at a time
when the price of gasoline is 42 cents a gallon more expensive at the
pump. On Thursday, for example, the price of crude oil remained
elevated at $107 a barrel because of fears over the Iranian nuclear
situation, and the price of gasoline rose 3 cents a gallon compared to
Wednesday, according to AAA.
The oil industry maintains the exports are necessary because domestic
demand is weak. The industry says if refiners could not send
American-made gasoline to China, India, Europe, and South America, the
refineries would have to close as several have already done on the East
Coast. Yet, other energy observers say exporting gasoline at a time of
rising prices is sort of like throwing flammable liquid on a fire.
“I think it is simply disingenuous to think exports of gasoline are not
a factor in the prices,” says Ben Brockwell, director of data marketing
and information services at the Oil Price Information Service, which
provides petroleum pricing and information to the oil industry.
The issue of US gasoline exports could become controversial if they
continue through the summer when average gasoline prices are expected
to be even higher than the current price which is $3.61 a gallon
according to AAA. By this summer there are some predictions gasoline
prices could eclipse the old record of $4.11 a gallon set in July of
2008 and perhaps peak closer to $4.50 a gallon.
President Obama plans to address the gasoline price issue Thursday in
Miami. However, he is mainly expected to try to blunt oil industry
complaints that his administration is anti-oil company. He will also
tout his efforts to get the auto industry to increase fuel standards
and the Department of Energy’s efforts to promote clean energy
But, when it comes to oil industry exports of gasoline, there may not
be many policy options for Obama unless he wants to start to interfere
with the marketplace.
“I don’t think there are any powers the president has that allow him to
do that by statute or otherwise,” says Charles Ebinger, director of the
Energy Security Initiative at the Brookings Institution in Washington.
“I guess behind the scenes he could jawbone the industry to ask them to
stop exporting for the good of the nation.”
Mr. Ebinger says the oil industry might want to scale back the exports
since “it’s not the best public relations in the world to export when
prices are rising at home.” Obama might be able to halt the exports
using the war powers act, much like the US did during World War II.
Mr. Brockwell of the Oil Price Information Service thinks it would
probably take some kind of legislation from Congress to cut off the
The oil industry maintains there is no cause for alarm.
“First of all it is a very small amount,” says John Felmy, chief
economist for the American Petroleum Institute (API), which lobbies for
the oil industry in Washington. Mr. Felmy estimates exports represent 4
percent of total US gasoline production.
He says the exports are helping some in the refining industry stay in
business since they have been buying expensive crude at the same time
that domestic demand has been declining. “They are losing money on
every gallon they sell and they can’t make it up on volume,” he says.
“But people are willing to pay higher prices for gasoline on the
That demand has resulted in record production from the Gulf Coast, says
Mr. Felmy – most of it exports.
Brockwell says gasoline exports, on a four week average, are now
running 600,000 barrels a day compared to 200,000 barrels per day a
year ago. He says this is the equivalent of three of the largest
refineries in the US exporting most of their gasoline production.
“Instinctively, I understand the API not wanting the American public to
know so much is exported and tied to high prices,” he says.
If the exports were not taking place, Ebinger at Brookings says it
might be possible to argue the refiners would be flooding the market
with gasoline which would reduce prices. “If people knew there was a
surplus of gasoline, you might get some entrepreneurs in to sell it at
lower prices to stimulate demand,” he says.
But, Felmy says that’s not what would happen. He says if the refiners
can’t make money, they will have to mothball their operations and
layoff workers. The exports are producing jobs, he says. He points out
the Gulf Coast refiners are now producing a record amount of gasoline,
thanks to the exports.
“Think about it, we’re importing less costly oil, refining and
exporting it – that’s a good thing but we’re criticized for it.”
Felmy disputes Brockwell’s math. He says the cost of producing a gallon
of gasoline breaks down to $2.50 a gallon for crude oil and 49 cents in
taxes. Throw in transportation and production costs and it’s not hard
to get to the current price. He sees no sign that exports are causing
prices to rise.
But, Brockwell says it’s showing up on the so-called “spot market” –
the daily buying and selling of actual petroleum products – which he
says is soaring. “If demand is so low, how can that be?”
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