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Banning Exports Could Hinder Investments: Jack Gerard API

April 19, 2012

Banning Exports Could Hinder Investments

By Jack Gerard

President and CEO, American Petroleum Institute

Earlier this year, Energy Secretary Steven Chu said that exporting American natural gas will boost the U.S. economy because “exporting natural gas means wealth comes into the United States.” The secretary’s is a welcome voice of reason at a time when we are hearing increasing calls from policy makers to outlaw all exports of U.S. oil, petroleum products and natural gas.

We understand the frustration among lawmakers and others who feel they must do something – anything – to ease their constituents’ pain at the pump. However, gasoline prices are determined by the price of crude oil, and that price is set in the world market. Banning exports would do little to help U.S. consumers, in the short run. And, in the long run, it could do the opposite by discouraging investment in new exploration and production, potentially leading to fewer domestic supplies.

American producers export their products– whether it’s wheat, corn, steel, ethanol or diesel and natural gas – because the supply for those products in this country outstrips the demand and they find more demand for their products elsewhere. It is the basis for world trade, without which the United States and every other country would be just like North Korea – isolated and impoverished.

One fact that is overlooked is that most of the refined products we export are diesel, waxes, oils, coke, asphalt and other products that are relatively in low demand in this country. Looking specifically at gasoline and gasoline blendstocks (components used to produce finished gasoline), we have to make one thing clear: the United States remains a net importer of gasoline. Yes, we do export some gasoline, mainly to Mexico, Brazil and other rapidly expanding Latin American economies. But overall, even as U.S. refiners produced record amounts of gasoline last year, we import more than we export.

So, the question then is, why export at all?

It’s simply a matter of economics.

A slower economy has meant that U.S. businesses and consumers have been using less gasoline. In addition, Americans are driving less and they’re driving more fuel-efficient cars – and there has also been an increase in the use of biofuels, which has reduced demand for gasoline.

However, most of the nation’s refinery capacity is located along the Gulf coast, which means that there’s more than enough gasoline to meet that region’s demand, but the same is not necessarily the same in the Northeast. So the issue is how best to economically transport gasoline into the Northeast. Current pipeline capacity is not sufficient to handle enough additional gasoline, so new pipelines would have to be built, or the fuel would have to be shipped via tanker. Either way, consumers could end up paying more. In fact, historically, it has often been cheaper for the consumer to import gasoline from Europe into Northeast markets, and that is exactly what is happening.

But what about that extra gasoline that Gulf coast refiners have? Well, often the most economical solution is to ship it to markets in Latin America. It’s a win-win-win situation for all: Northeastern consumers may get less-expensive fuel, Gulf coast refiners are able to sell all the gasoline they produce – and consumers in these other countries purchase U.S.-made gasoline, providing income back to U.S. refineries and improving the nation’s trade balance.

One other point that must be made is that most U.S. refineries are going through a period of relatively low earnings. So low, in fact, that U.S. government figures show that, as a group, refiners actually lost money in November and December of last year. Forbidding refiners from exporting their products could do real harm to their ability to remain in business and could put in jeopardy thousands of jobs.

And we can’t ignore what discouraging investments would do to future domestic supplies. It would reverse the recent trend towards energy self-sufficiency and jeopardize our energy security by once again putting us at the mercy of producers in unstable regions of the world.

As our economy struggles to reach full recovery, and as we move further along the path to greater energy security, America must look beyond political expediency. The last thing we need is isolationist policies that would harm consumers, hurt producers and cost us jobs and tax revenue.

 

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