U.S. Drivers Pay As Fuel Exports Hit Record Highs

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Faced with sluggish sales at home, American refineries are shipping gasoline, diesel and other petroleum products abroad in record amounts, turning the country into a net exporter of fuel.

And that's one of the reasons gasoline now costs more than ever before, for this time of year.

The United States, long the world's most voracious consumer of fuel, still imports almost half of its crude oil, the raw material for gasoline and diesel. But starting in 2008, the country began exporting more refined petroleum products than it imported. And the gap keeps growing.

In the first nine months of this year, the United States exported 655 million barrels of finished petroleum products, including 121 million barrels of gasoline. At the same time, the country imported 264 million barrels of finished petroleum products, including 32 million barrels of gasoline, according to data from the U.S. Energy Information Administration.

The recession and tepid recovery have tempered America's thirst for gasoline, at the same time that drivers are turning toward more efficient cars. So refiners have sought – and found – eager markets for their fuel elsewhere. The exports, in turn, help prop up gasoline prices here.

"Instead of that product backing up and depressing prices, it's being sent to other countries," said Tom Kloza, chief oil analyst at the Oil Price Information Service. "It's good news for the refining industries and their workers and the balance of trade and U.S. jobs."

But Kloza predicts the exports could turn into a hot-button issue with drivers next year, if gasoline prices increase.

"The average consumer may think, 'You mean I'm paying $4.25 instead of $3.95 because we're sending it to Brazil or Argentina? To hell with them,' " he said.

No room to move

The exports are not the main reason gasoline prices are so high.

So far this year, the price of crude oil on the New York Mercantile Exchange has averaged $95 per barrel, closing Friday at $100.96. Oil prices have been even higher in Europe. As a result, gasoline prices can't fall very far, even though domestic gasoline use peaked in 2007 and has remained weak ever since.

A gallon of regular gas now costs, on average, $3.29 nationwide, according to the AAA auto club. A year ago, the average stood at $2.88. In California, the current average is $3.67, up from $3.16 last year.

The growth of refined exports marks a major change in the way the domestic fuel market works, particularly in California.

California uses unique, pollution-fighting gasoline blends not found in any other state, and only a limited number of refineries make that fuel. As a result, California for years was prone to price spikes if a refinery suffered a breakdown or required unscheduled maintenance. Gasoline demand pushed up against the limits of supply.

But gas sales in California peaked in 2005, according to the California Energy Commission. So exports rose.

Gasoline exports from the West Coast have exceeded imports every year since 2007. From January through September of this year, the West Coast states have imported 533,000 barrels of finished motor gasoline and exported 12 million barrels, according to the Energy Information Administration.

The administration, which is the statistics branch of the U.S. Department of Energy, does not keep export and import information for California alone. Instead it lumps the state in with Oregon and Washington, although the large majority of the West Coast's refining capacity lies in California.

West Coast exports

The West Coast has long exported other petroleum products in large amounts, including diesel fuel and petroleum coke used to make steel. These days, the diesel typically flows to South America, the petroleum coke to Asia, and the gasoline to Mexico.

Gasoline demand within California, and the country as a whole, will probably increase when the economic recovery gains firmer footing. But it may not rise to previous levels. Federal fuel-efficiency standards for cars are increasing, as is the amount of ethanol the government requires oil companies to blend into their gasoline. And with gasoline prices still high, consumers might be reluctant to increase their driving.

"It's going to be difficult to get back to a point where we see year after year after year of gasoline demand growth around 2 percent, like we had before," said Gordon Schremp, senior energy analyst for the California Energy Commission. "That dynamic, we believe, has changed."

Demand for diesel and gasoline remains strong outside the United States. Mexico lacks enough refineries to supply its growing population, analysts say. And the economic downturn that started in 2007 didn't hit South America as hard as the United States.

To some oil industry critics, the exports look like a deliberate effort to squeeze American drivers. Shipping fuel abroad, they say, prevents the domestic market from responding to weak demand the way it used to – by lowering prices.

"It's a way to keep prices up," said Judy Dugan, research director with the Consumer Watchdog nonprofit group. "Overseas consumers are benefiting at a cost to domestic consumers."

Oil industry representatives bristle at that notion.

"That's just complete rubbish," said John Felmy, chief economist with the American Petroleum Institute lobbying group. The exports, he said, are helping keep afloat American refineries that have seen their profit margins shrivel in recent years.

"There's plenty of inventory out there, and it costs a lot to make because of the price of crude oil," he said.

More oil, less gas

The situation contains a cruel irony for American drivers.

Crude oil production in the United States has increased in the last two years, due to increased production in shale oil fields and the Gulf of Mexico. At the same time, domestic gasoline sales have fallen. And yet, despite increased oil supply and decreased gasoline demand, gas prices remain stubbornly high.

The reason, analysts say, is gasoline and diesel are now part of a global market – just as oil is – flowing wherever prices are best.

"If the price in Europe is a dollar more per gallon, pre-tax, than what the United States is paying, and shipping is 50 cents, why in the world would I supply the United States?" said James Beck, lead analyst for the Energy Information Administration's weekly petroleum supply team.

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