Issue of U.S. exporting fuel is absent from presidential campaign

McClatchy NewspapersNovember 1, 2012 

— While President Barack Obama and Republican presidential nominee Mitt Romney trumpet the need for lower fuel prices and American energy security, the United States has exported petroleum products at a record pace.

There’s sharp argument over how these exports affect the price that Americans now pay for fuel. But analysts and members of Congress say it’s only a matter of time before the nation will have to grapple with how much it sells abroad of the resources that power America, for which other countries are increasingly thirsty.

America’s new energy bonanza is the natural gas found in shale rock, and there’s a heavy push to build terminals where it can be liquefied and exported. The Obama administration has delayed a report on approving them until after the election.

The growing issue of fuel exports – whether natural gas or refined petroleum – remains absent from the presidential campaign, where both candidates have focused more on oil drilling than on what to do with the crude after it comes out of the ground.

Yet American refineries sold nearly 3 million barrels a day in petroleum-based fuel last year to markets such as Mexico, Europe, and Central and South America. Fuels were the nation’s most valuable export. It was the first time since 1949 that the United States exported more fuels than it imported, and the trend continues this year.

The biggest share of the exports is coming in the form of distillates, a category that includes heating fuel and the diesel that moves the nation’s trucking industry. Refiners are discovering much better profit margins for them abroad. But at the same time, the U.S. supply is tight and American consumers could get hit if it’s a cold winter.

“It’s going to be a hot political issue if diesel prices spike and people are aware that the refineries are exporting so much diesel fuel,” said Ben Brockwell, the director of data marketing and information services at the Oil Price Information Service, which tracks petroleum prices.

The U.S. also ramped up its gasoline exports last year to more than 500,000 barrels a day, a 266 percent increase over 2007.

Massachusetts Democratic U.S. Rep. Edward Markey has seized on the price of gasoline and links it to the country’s increasing exports. Focusing on federally owned land, he declared in March that “the oil below taxpayer-owned lands belongs to the American people, and should stay here to help American consumers and strengthen our energy security.” Markey and two other Democrats in the House of Representatives, Rush Holt of New Jersey and Bill Owens of New York, introduced a bill to ban exports of refined fuels from oil that’s produced on new federal leases.

The U.S. Energy Information Administration, which is part of the Energy Department, published a report last spring, though, that says foreign markets are important for refiners, who are dealing with weakened U.S. demand as a result of the shaky economy.

“The growth in U.S. gasoline exports does not necessarily mean higher pump prices for U.S. consumers,” the EIA concluded. “Rather, export markets are providing an outlet for refiners that might otherwise have faced lower profit margins that could encourage them to reduce output or possibly even shut down, which could cause gasoline prices to increase.”

The exports haven’t risen to the amount where they’re driving prices, but the oil industry has shown indications of a desire to ramp up petroleum exports, including from the Keystone XL pipeline project if it’s approved, said Daniel Weiss, an energy and climate specialist at the Center for American Progress, a left-leaning research center in Washington.

“That could harm people at the pump,” Weiss said.

Although refined fuels such as gasoline are exported, U.S. law essentially forbids exports of crude oil. The oil industry hopes to change that as the nation pumps more crude, but the immediate fight is over natural gas exports.

The government has approved major exports so far just from one project, Cheniere Energy’s Sabine Pass terminal. That’s a 2 billion-cubic-feet-per-day project in Cameron Parish, on the Gulf Coast of Louisiana.

Analysts such as Charles Ebinger of the Brookings Institution, a research center in Washington, say exports would help the U.S. natural gas industry. The industry, they say, has been slowed by low domestic prices caused by the nation’s glut of natural gas.

“While it is clear that domestic natural gas prices will increase if natural gas is exported, most existing analyses indicate the implications of this price increase are likely to be modest,” Ebinger concluded in a recent report.

Lawmakers such as Oklahoma Republican Rep. James Lankford want exports approved, saying that would boost investment in drilling.

“We have jobs sitting around ready to go,” he said recently.

But Oregon Democratic Sen. Ron Wyden and Markey, who’s the top Democrat on the House Natural Resources Committee, argue that “the cost of natural gas for American consumers will skyrocket” if the country’s natural gas bounty is opened to the world market. They cite a January report from the EIA that concluded large-scale natural gas exports would raise U.S. prices significantly.

“U.S. law has long held that imports and exports of energy must be considered differently than other commodities, because the nation’s economic and national security rely on its ability to obtain affordable energy,” Wyden wrote Energy Secretary Steven Chu in a letter last week questioning the wisdom of exports.

Email: scockerham@mcclatchydc.com; Twitter: @seancockerham

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