Peak demand for gasoline worries U.S. refiners leaning on exports

U.S. gasoline consumption could have permanently peaked in 2016, and the Gulf Coast refining industry is increasingly looking to export markets in Latin America and even Africa to help unload all of its excess fuel.

Last year hit a record of nearly 9.33 million barrels a day of domestic gasoline demand, surpassing the previous 2007 mark. But, gasoline consumption has already fallen sharply this year, down more than 6 percent in February from last year.

The fear for refiners is the combination of fuel efficient vehicles, electric cars and steeper prices at the pump will continually drive U.S. consumption downward, even if Americans keep driving just as many miles. U.S. motorists drove a record 3.22 trillion million last year, motivated largely by historically low fuel prices, which are now on the rise along with oil prices.

“The U.S. is going to produce considerably more crude than we’re able to consume,” said Phillips 66 chief economist Horace Hobbs. “This leaves us with a substantial excess of gasoline that our refineries can produce.”

The Energy Department projects U.S. crude production will grow 9 percent by 2018, while gasoline consumption will peak soon — if not already — and fall about 25 percent through 2040. However, exports are projected to continually rise through 2040.

Tom Kloza, chief oil analyst at the Oil Price Information Service, called it a “sloppy market” for the U.S. refining sector going forward because the industry “overbuilt” its domestic refining capacity. Still, Kloza, Hobbs and other analysts agreed Gulf Coast refiners are better positioned than the rest of the nation’s refining industry because of their ability to export fuel supplies.

“It turns out that (excess) works out really nice with the increasing Latin American demand,” Hobbs said.

After all, the refining capacity in just Texas and Louisiana combined is greater than each of the world’s third, fourth and fifth largest refiners — Russia, Japan and India. Mario Rodriguez, the founder of Los Angeles-based NTR Partners refining business, acknowledged the advantage in the South. “Today the most competitive and complex refining system in the world is in the Gulf Coast,” Rodriguez said.

For the first time ever in any month, the U.S. in December averaged more than 1 million barrels of gasoline exports a day. That’s a nearly 60 percent increase from a year prior.

Slightly more than half of U.S. gasoline exports are going to Mexico. Other major recipients include Latin America and Canada. Recently, some shipments have gone to Nigeria and other West African nations. Some West Coast refiners have even started shipping gasoline to Singapore to supply Asian markets.

Gasoline exports to Mexico have risen from 185,000 barrels a day in 2013 to 500,000 barrels daily in December.