US exporting a ‘tidal wave’ of gasoline, other fuels

WASHINGTON — U.S. refiners are sending a “tidal wave” of gasoline, diesel and other refined products onto the world market, taking advantage of the surge in domestic oil development that has helped drive Gulf Coast crude stockpiles to record levels, according to a new report.

The jump in domestic oil supplies means the U.S. is on track to become a net exporter of gasoline — producing more than it needs — next year, said Wakefield, Mass.-based ESAI Energy in an analysis released Thursday.

Refiners boosted their output by 130,000 barrels per day in 2013, over the previous year – a trend that is likely to continue with predicted production gains of 135,000 barrels per day in 2014 and another 110,000 in 2015, the energy research firm said. Much of that will be flowing from the Gulf Coast, where refiners are expanding capacity and benefiting from climbing crude supplies.

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The supplies keep prices low enough that refiners can benefit from “healthy margins” between their raw materials costs and the prices they get for final products, ESAI said.

Ultimately, ESAI predicts the average U.S. output of nearly 8.9 million barrels per day of gasoline in 2015 will be more than enough to supply U.S. motorists, even as domestic gasoline demand rebounds along with the nation’s economy.

“The outlook for gasoline production in the United States is decidedly robust,” the group said.

New paradigm

It’s a remarkable new paradigm for an industry that saw four dozen refineries shut down in the 1990s. Now, many refineries are buying discounted domestic crude and then turning it into diesel, gasoline and other refined products that fetch higher prices set on a world market.

The domestic drilling boom – and the surge in oil flowing from North Dakota, south Texas and other regions – already has allowed the United States to claim “net gasoline exporter” status at brief times in recent years.

“Going forward, these periods should be longer and more common,” ESAI said.

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There are caveats. The United States will continue exporting and importing gasoline simultaneously, with the Gulf Coast generally sending refined products overseas even as the East Coast buys foreign supplies to satisfy regional demand that is not met because of strained pipeline capacity.

And the U.S. probably will still import more gasoline than it produces to satisfy domestic consumers during the peak summer demand season, noted ESAI analyst John Galante. But gasoline surpluses are likely to show up in the first and fourth quarter, when demand is relatively low.

There will be “a lot more gasoline being produced and exported from the Gulf Coast, and some gasoline imports being backed out from the East Coast,” Galante said.

Nationwide, refineries are running harder and faster to take advantage of discounts on domestic crude.

“Broadly speaking, utilization is pretty good,” said Bill Day, a spokesman for San Antonio-based refiner Valero Energy Corp.

“U.S. refiners have the advantage of this huge influx of North American crude oil production.”

Record stockpiles

At Valero, the steady supply of light sweet crude from U.S. sources means the company has been able to halt imports of that high grade, low-sulfur oil at its Gulf Coast refineries.

But much of the United States’ refining capacity is geared toward heavy crudes from Venezuela, Canada and other countries. The mismatch has contributed to record-setting stockpiles of oil on the Gulf Coast.

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Previously, crude stockpiles had swelled in Cushing, Okla., tanks, but the launch of the southern portion of the Keystone XL pipeline has helped drain the Cushing hub, sending the crude to the Gulf Coast.

On April 11, Gulf Coast crude inventories reached 207.2 million barrels, a record high achieved not only because of the new pipeline capacity but also because some refineries temporarily are using less crude as they undergo seasonal maintenance, according to the Energy Information Administration.

Rosy refiner outlook

The rosy outlook for refiners – and U.S. gasoline supplies – could shift if the Obama administration or Congress revise the 39-year-old ban on exporting raw, unprocessed crude. Although petroleum products can be exported freely, U.S. crude oil generally is barred from the global market, with some exceptions including supplies from Alaska, and sales to Canada.

Some domestic oil producers and industry allies on Capitol Hill have been pressuring the administration to lift the crude export ban entirely or make more modest changes to allow foreign sales of the ultra-light hydrocarbon mixtures known as condensates that also flow out of wells.

“If there is any allowance for any kind of crude or condensates export, that obviously causes a shift,” Galante said.

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