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U.S. Gas Exports Force Drivers Into Bidding War With Mexico At Pump

Pumping Gas

First Posted: 02/23/2012 6:11 pm Updated: 02/23/2012 10:04 pm

WASHINGTON -- Conservation, high prices, and hard times have led American motorists to dramatically decrease the amount of gasoline they buy.

But how are they rewarded? With even higher prices, in part because American refiners have started exporting enormous amounts of American gasoline to Mexico and other countries.

Exports of petroleum products -- mostly diesel and gasoline -- have increased sharply in the last two years, to about a billion barrels in 2011. For the first time, the U.S. is exporting considerably more finished products (though not crude) than it's importing.

Around 3 million barrels of petroleum products are sent abroad each day. For some perspective, consider that all U.S. motorists combined use around 8 million barrels of gasoline a day.

The top countries receiving the exports are Mexico, Canada, the Netherlands, Brazil, Singapore, Chile, Panama, Japan and China.

Most of the ongoing increases in gas prices can be traced to geopolitical concerns and rampant financial speculation that have run up the cost of crude oil. And yet, if U.S. refiners limited themselves to domestic sales, there would be a glut on the market, and diesel and gasoline prices would inevitably drop.

"The other countries are willing to pay more than we would," said James Hamilton, an economics professor and blogger at the University of California, San Diego. "And that's the price we pay, too, what they're willing to pay."

Hamilton said that's how things work in a global market. "If you are a refiner and you've got gasoline to sell, you want to sell it where you can get the highest price," he said. "If Mexico is willing to pay a higher price to Americans, you're going to want to sell it to them instead of Americans."

So what can be done to help out American motorists?

"I do not support an outright ban of exports," said Tyson Slocum, director of the energy program for the consumer watchdog group Public Citizen. "And I don't want to see the government regulating retail prices. But I don't think that it is in our best interests to be exporting at the rate at which we are."

Slocum suggests that exports of petroleum products "should go through a regulatory barrier to assure that they aren't resulting in higher prices for Americans, or otherwise hurting the economy."

That's what happens now with U.S.-produced crude oil. Oil companies aren't allowed to export crude without permission from the Department of Commerce, which, by law, checks to make sure "that the proposed export is consistent with the national interest".

Among the many things companies must demonstrate is that the oil, "for compelling economic or technological reasons that are beyond the control of the applicant, cannot reasonably be marketed in the United States."

"That is the kind of an analysis that should be applied to refined products as well," Slocum said.

But at the American Petroleum Institute, John Felmy defended the practice of selling American products abroad. “Exports are not causing gasoline prices to rise," said Felmy, chief economist for the lobbying juggernaut.

Felmy even suggested that exports are lowering prices. “U.S. refiners produce fuels primarily for American markets and always have," he said. "However, when supplies are available to export -- as they are today because of weak U.S. demand -- they put downward pressure on the prices of the gasoline and other products we import."

Any attempt to limit exports would, of course, be met by ferocious resistance from the refiners. Their profit margins would drop, and refiners would inevitably warn that with less money to reinvest, there could be shortages in the future.

But the many refineries owned by large, vertically integrated oil companies that own the oil production facilities as well are hardly hurting for money. In fact, when oil prices go up, as they are now, their profits go up as well; it doesn't cost them any more to get the oil out of the ground -- somewhere around $30 a barrel -- but they get to charge as much as the market will bear.

No surprise, then, that the Big Five oil companies combined posted record profits in 2011 -- a whopping $137 billion, up 75 percent from 2010. That was also $1 billion more than the previous record in 2008, the year oil approached $150 a barrel.

Meanwhile, the Mexicans and others are happy.

"One of the ironic things is that American refined gas and diesel is very attractive and lucrative on foreign markets because of our strong EPA standards," Slocum said. "It makes the refined product much more environmentally friendly than, say, gasoline from South America."

CORRECTION: This article has been updated to correct the amount of U.S. petroleum consumption and exports.
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Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an e-mail, bookmark his page, subscribe to his RSS feed, follow him on Twitter or on Facebook, become a fan and get email alerts when he writes.

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