Analysis: Can Gasoline Exports Survive Summer, Hurricane Season?

Record petroleum volumes are being sent overseas, setting up dicey conditions

Published in CSP Daily News

By  Tom Kloza, Chief oil analyst

WALL, N.J. -- Could gasoline exports raise the risk of stateside pump price spikes during the 2014 driving season? Such a question would have been ridiculous when the decade began, but it is a legitimate concern less than four years later, even as U.S. crude production has soared to its highest level in 30 years.

U.S. refiners have moved quickly into the supply vacuum created in the previous decade when refineries operated by Petroleos de Venezuela (PDVSA) became undependable sources for motor fuel sold in Caribbean or South American countries. But the U.S. refining industry also reached other hemispheres in 2013, thanks to access to the cheapest crude and natural gas on the planet, and the complex and sophisticated nature of expanded Gulf Coast and West Coast plants.

December 2013 export data, recently released by the Energy Information Administration (EIA) showed an all-time record export total of 768,000 barrels per day of gasoline or approximately 24 million barrels during the month. Most of the cargoes taking U.S. gasoline offshore represented finished gasoline, but a sizeable chunk of unfinished blend stock was also part of the mix.

But a close inspection of the December gasoline exports reveals some clear surprises. Parsing through the stats finds that the tiny country of Togo, some 6,400 miles from the Texas Gulf Coast, was a target of multiple cargoes of U.S. produced gasoline. In fact, the small West African country, which borders Ghana, Benin and Birkina Faso on the Gulf of Guinea actually received about 6.7 gallons of motor fuel for every man, woman and child in the sparsely populated developing country in December.

Togo is really just a way station, or a ferrying point, for U.S.-manufactured gasoline cargoes that get redistributed to other West African destinations. But the little country is a bit of a poster child for the expanding global reach of stateside refiners. When diesel is also considered, there are more foreign sovereign destinations for U.S. transportation fuels than there are U.S. states. The United States now exports fuel to virtually every time zone in the world.

In all, the U.S. exported about 246,000 barrels more per day of gasoline in December than it imported. That gap is expected to grow through 2014 and indeed well into the decade thanks to flat-to-lower U.S. gasoline demand and rising consumption in developing countries. Toss in some possible closures of European refiners and a surplus of foreign tankers, and you have a recipe for more fuel leaving U.S. borders for other continents. In fact, there were periods last winter where U.S. refiners could collect greater profits by sending gasoline to West Africa, at freight costs that were often a fraction of the expense of moving product between U.S. ports.

In wintertime, of course, there tends to be plenty of U.S. gas supply, depressed demand and little in the way of serious supply concerns. However, it’s what happens in the driving season, where supply and demand are more closely matched, that merits special concern. The summer of 2012, for example, featured some exported gasoline cargoes moving from California and the Pacific Northwest. When Chevron subsequently lost a major refinery in the Bay area, spot prices ultimately soared above $4 per gallon and retail prices surpassed $5 in some cases.

Some other unusual items in the export analysis:

  • Gasoline exports are a relatively contemporary phenomenon. The December 2013 total of 17.8-million barrels moving offshore represents about as much gasoline as was exported during the entire decade of the Sixties.
  • The U.S. sent almost 600,000 barrels of gasoline to the Netherlands in December, more or less reversing the long-time precedent where Northwest European gasoline would come stateside. One refiner even sent a cargo of gasoline to the Holy Land, as Israel received 268,000 barrels of blending components during the month.
  • A U.S. gasoline cargo, presumably manufactured in California, made a 7,000 mile journey to New Zealand. Multiple cargoes of gasoline totaling nearly 1-million barrels of gasoline sailed to Singapore, the Asian trading hub. This follows months where South Korea and Japan purchased plenty of U.S. gasoline as well.

The crucial test that will determine whether gasoline exports can continue unfettered with no controls may come during the 2014 hurricane season. Not since 2008 have U.S. refiners been impacted by hurricane impacts or precautionary shutdowns. Much of the gasoline that now is exported leaves the country on a term or contract basis. What happens when multiple country customers get knocked out by tropical weather at the Gulf Coast represents a question that has yet to be answered, or a problem that has yet to be tested.

In an election year, a hurricane impact in Louisiana or Texas could bring interesting polemics between politicians and their constituents. Imagine the special contempt of a fuel-strapped public should refined product cargoes leave for foreign destinations after a storm and after a price spike.