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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