Last week, I wrote about the political battle over the Keystone XL pipeline. I got quite a few reader responses that argued the pipeline was unnecessary because U.S. refiners are exporting gasoline. In other words, any oil that Keystone brings in will simply be refined and shipped out again, so the whole process must be unnecessary. Some even argued that it was simply a way for U.S. refiners to tap into more lucrative overseas markets.
Much of the confusion seems to stem from an NPR report late last month that noted that for the first time in 60 years, the U.S. is exporting more refined products than it imports.
All of which makes me wonder: so what?
Much of the problem stems from falling gasoline demand in the U.S., which is a combination of higher prices, the ethanol mandate and the weak economy. Although ethanol subsidies have been eliminated, which might actually lower domestic gasoline prices, the mandate for blending ethanol in gasoline remains.
Meanwhile, as Robert Rapier points out, U.S. refiners are left with a choice: shut down refineries and lay off workers or find other markets for their products. And where are they finding those markets? Sixty percent of our gasoline and diesel exports is going to Mexico, with much of the rest going to Canada and South America. In other words, we’re exporting gasoline to the countries that are among the biggest supplies of our crude oil imports.
All in all, its a benefit for the U.S., as Rapier notes:
It creates jobs and tax revenue here in the U.S. That sounds like a bad deal for Mexico and a good deal for the U.S. So I don’t understand why people are upset. We could choose to stop selling gasoline to Mexico, in which case we could import less oil from them. But since gasoline is worth more than oil, that doesn’t seem like a very good business proposition.
As for the Keystone pipeline, it’s a longer-term game. As I’ve argued for years now, our energy strategy, if we ever decide to adopt one, has to focus on oil supply, not just price. As the available pool of crude in the world market gets divided among more countries with increasing demand, controlling supply is going to be vital for the U.S. Having the capacity to buy oil from friendly neighbors like Canada makes a lot of sense, and if in the meantime, we get to sell back to them a higher value product that we make from their raw materials, so much the better.