Amid Oil Boom, Petroleum Exports Surge

An empty tanker sits at the pier of Chevron's refinery in Richmond, Calif., which refines roughly 250,000 barrels of oil a day into products like gasoline, diesel and jet fuel.
National Journal
Amy Harder
Oct. 17, 2013, 4:35 p.m.

RICH­MOND, Cal­if. — It takes about a month for oil to ar­rive from the Middle East to a re­finery here on the edge of the San Fran­cisco Bay. On a clear day, you can see the Golden Gate Bridge in the dis­tance from the re­finery’s pier, but you will prob­ably no­tice first and fore­most the massive tankers docked and un­load­ing oil in­to a web of pipes.

About 60 per­cent of the oil pro­cessed by this re­finery, owned and op­er­ated by Chev­ron, comes from the Middle East. Most of the rest comes from Alaska, also by tanker. But the oil com­ing in is not as in­ter­est­ing as what is go­ing out. Many com­pan­ies are be­gin­ning to turn around and ex­port the re­fined gas­ol­ine, dies­el, and jet fuel.

“As the eco­nomy has taken a hit, as vehicle ef­fi­ciency stand­ards have lowered the de­mand for fuel, Cali­for­nia re­finer­ies in ag­greg­ate can now pro­duce more than the loc­al de­mand and there­fore products are be­gin­ning to be ex­por­ted,” said Dave Reeves, pres­id­ent of glob­al sup­ply and trad­ing at Chev­ron.

The boom in oil and nat­ur­al-gas pro­duc­tion in many parts of the coun­try has helped po­s­i­tion the United States as a net ex­port­er of en­ergy, and Cali­for­nia is in­creas­ingly part of that trend.

From a sheer num­bers per­spect­ive, Amer­ica’s in­creased re­fined-pet­ro­leum ex­ports are not­able. The United States ex­por­ted 3 mil­lion bar­rels of re­fined pet­ro­leum products a day in Ju­ly, an al­most 150 per­cent in­crease over the past six years. In 2012, these ex­ports were worth $117 bil­lion and were the single-largest U.S. ex­port, ac­cord­ing to data re­leased by the Com­merce De­part­ment earli­er this year. Only the auto in­dustry — whose totals also in­clude re­lated man­u­fac­tur­ing sec­tors — was tal­lied high­er, at $146 bil­lion.

Re­fined-pet­ro­leum ex­ports out of the West Coast, which largely means Cali­for­nia and Alaska, have in­creased by 126 per­cent in the last six years to reach 465,000 bar­rels a day in Ju­ly 2013, the highest amount since at least 1981, ac­cord­ing to data from the fed­er­al En­ergy In­form­a­tion Ad­min­is­tra­tion. The ex­port trend on the West Coast is fol­low­ing in the foot­steps of the Gulf Coast, which over the same time peri­od saw a 187 per­cent in­crease to reach al­most 2.2 mil­lion bar­rels a day of ex­ports in Ju­ly.

The factors driv­ing these ex­ports and the im­pact on prices at the pump in Cali­for­nia and around the coun­try are more con­vo­luted than it may ini­tially seem, es­pe­cially to politi­cians wor­ried about how the even per­cep­tion of high­er gas­ol­ine prices could af­fect cam­paigns.

The main factor that de­term­ines wheth­er com­pan­ies will ex­port their re­fined pet­ro­leum products is eco­nom­ic: how much it costs to run a re­finery, which in turn is driv­en by the price dif­fer­ence between crude oil and re­fined products, a concept the en­ergy ex­perts call the “crack spread.”

“The only thing that mat­ters is the spread between crude oil and re­fined products,” said Amy My­ers Jaffe, ex­ec­ut­ive dir­ect­or of en­ergy and sus­tain­ab­il­ity at the Uni­versity of Cali­for­nia (Dav­is).

Ex­ec­ut­ives with­in the oil and re­fin­ing in­dustry are be­gin­ning to blame tough­er en­vir­on­ment­al reg­u­la­tions for why they’re in­creas­ing ex­ports, in­clud­ing Cali­for­nia’s low-car­bon fuel stand­ard (LCFS) and the na­tion­al re­new­able-fuel stand­ard (RFS), which both man­date the trans­port­a­tion sec­tor to run on lower-car­bon fuels, al­beit in dif­fer­ent ways. Chev­ron and oth­er com­pan­ies op­er­at­ing here in Cali­for­nia, which has the third-highest re­fin­ing ca­pa­city in the coun­try ac­cord­ing to 2011 EIA data, must con­tend with both sets of reg­u­la­tions.

“To the de­gree that we’re un­able for whatever reas­on, wheth­er it’s the RFS na­tion­ally or the LCFS with­in the state of Cali­for­nia, when you get to that point where you can’t meet de­mand, your real al­tern­ate choice is to look for ex­port,” Reeves said. “Dir­ec­tion­ally, it should in­cent more ex­ports. And then dir­ec­tion­ally, if you ex­port more there is less sup­ply do­mest­ic­ally, which will have a price im­pact do­mest­ic­ally.”

Right now, Reeves says Chev­ron ex­ports a min­im­al amount of re­fined pet­ro­leum products out of its two Cali­for­nia re­finer­ies, but has in­creased ex­ports out of its fa­cil­ity at the Gulf Coast. Texas-based Valero says it doesn’t ex­port at all from its two Cali­for­nia re­finer­ies but that it wants to.

“We would like to be able to ex­port more to the Pa­cific Coast of Mex­ico or fur­ther down to South Amer­ica,” Valero spokes­man Bill Day said. Cit­ing in­fra­struc­ture con­cerns and oth­er costs with­in the state, Day ad­ded: “At this point, we haven’t been able to do that from Cali­for­nia.”

Valero, like Chev­ron, says lower-car­bon fuel policies will drive its products out­side of U.S. bor­ders. U.C. Dav­is’s Jaffe says oil com­pan­ies are us­ing these reg­u­la­tions as a scape­goat.

“When these com­pan­ies are go­ing to tell you the reas­on they’re hav­ing to sell to Lat­in Amer­ica is be­cause of the en­vir­on­ment­al re­stric­tions here are too hard to com­ply, that is a di­ver­sion be­cause they were ex­port­ing from Cali­for­nia be­fore the LCFS kicked in,” Jaffe said.

Wheth­er in­creased ex­ports would cre­ate high­er fuel costs for Amer­ic­ans de­pends on how much oil re­finer­ies kept stored on site, said Jaffe, who has been work­ing on these is­sues for 30 years.

“We have a sur­plus of re­fin­ing ca­pa­city versus de­mand so ex­ports don’t ne­ces­sar­ily mean high­er gas­ol­ine prices,” she said. She ref­er­enced the Au­gust 2012 fire that erup­ted at Chev­ron’s re­finery here in Rich­mond as fur­ther evid­ence that the con­nec­tion among ex­ports, prices, and en­vir­on­ment­al reg­u­la­tions is not so clear-cut.

“When Chev­ron had the ac­ci­dent at Rich­mond and there was a worry about a short­age of gas­ol­ine, they were still ex­port­ing gas­ol­ine at that time,” Jaffe said. “In­vent­or­ies were low and the com­pan­ies were hav­ing trouble meet­ing de­mand, and so ex­ports made the situ­ation worse and were prob­ably a con­trib­ut­ing factor to the high prices seen at the time.”

Chev­ron and Texas-based Te­soro, an­oth­er ma­jor Cali­for­nia re­finer, did not dis­close spe­cif­ic ex­port data on their re­finer­ies. Re­gard­less of the cause, this ex­port trend isn’t poised to slow any time soon. In fact, some in the oil in­dustry are look­ing to by­pass the re­finers al­to­geth­er and ex­port crude oil, which has been banned for al­most 40 years.

Back in Wash­ing­ton, Har­old Hamm, CEO of Con­tin­ent­al Re­sources, the in­de­pend­ent com­pany with the biggest foot­print in North Dakota’s vast oil fields, said he’s go­ing to fight to re­peal that ban.

“It’s an ar­cha­ic rule that should be done away with,” Hamm said. “Ten years from now, I hope we’re wrangling with Con­gress over it. We need ex­ports.”

He poin­ted out that re­finer­ies are ex­port­ing at re­cord rates, so com­pan­ies like his should have the same right. As he put it, “I don’t think any of the do­mest­ic pro­du­cers are go­ing to be their milk cows.”

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