Political Theater on Refined Exports

Mark Green
Posted February 3, 2012

One of the flimsier arguments deployed against the Keystone XL pipeline is that the Canadian oil sands crude it would deliver to U.S. refiners would be for export. We addressed that here, and others have chimed in as well. Basically, the United States doesn’t import crude and then turn around and export it. And the fact is the limited amount of finished products that are exported is good for U.S. jobs, good for U.S. trade.

Sound economic reasoning apparently is no barrier to a group of House Democrats who’re offering legislation that would block the export of oil and refined products made from the crude delivered by the Keystone XL (assuming the pipeline is built).

Passing a legislative wand over a bad idea doesn’t improve it. Once again, the facts:

• More than 90 percent of on-road transportation fuel refined in the United States is for use in the United States.
• The less than 10 percent of on-road motor fuel exported consists primarily of heavier products that aren’t in high demand here, including diesel, residential fuel oil and petroleum coke.

Many of the Gulf Coast refineries not only are among the best in the world at processing heavier crudes like oil sands crude, the crude imports from Canada will likely replace declining heavy crude imports from Venezuela and Mexico, according to the Energy Information Administration. Here’s the Energy Policy Research Foundation’s Lucian Pugliaresi, writing for the Wall Street Journal:

“Canadian crude is perfectly matched to the complex and expensive refinery technology of many Gulf Coast refineries. The production of refined petroleum products is a tough, low-margin business operating in an environment of stiff foreign competition, flat domestic demand, congressional mandates for exotic biofuels, and an avalanche of existing and proposed environmental regulations. U.S. Gulf Coast refiners are now well positioned because they have access to growing markets in Latin America, and have made multibillion dollar investments in advanced processing technology that permits them to run lower-cost crudes, such as blended bitumen from the oil sands in Alberta.”

Each of the markets for the exported products is important to balance supplies and preserve U.S. refining jobs. Energy blogger Robert Rapier sums it up well:

“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. … So we are importing oil from Mexico — the source of over 10 percent 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.”

It’s not, which is why the no-export legislation being floated by a few Democrats is about political grandstanding, not sound economics – as unwise as ending U.S. exports of wheat or other commodities that are in demand on the global market.

Instead of engaging in political theater, these lawmakers should be listening to the American people, who polling shows overwhelmingly support the Keystone XL pipeline’s construction and the benefits it would bring in jobs and energy.