One big story of 2011 was the United States switched from being a net importer to a net exporter of petroleum products. Here are the details behind that development.
The graph below plots the difference between U.S. exports and imports of petroleum products. On average in 2008, we had been importing about 1.8 million barrels per day more than we exported. So far in the second half of 2011, the difference has swung to an average positive net export balance of 0.4 million barrels per day. The exports are coming in the form of diesel and gasoline that is being sold all over the world, with the top 10 buyers in terms of growth of demand for U.S. products being Mexico, Netherlands, Chile, Canada, Spain, Brazil, Guatemala, Turkey, Argentina, and France.
The first thing to understand about this number is that it refers only to net exports of refined petroleum products, calculated for example by subtracting the amount of gasoline that the U.S. imports from the amount of gasoline that we export. These imports or exports of refined products are far smaller in magnitude than the imports of crude oil, which is the raw material from which refined products are made. The small positive net export balance on petroleum products is still completely dwarfed by the huge negative balance on crude petroleum.
Nevertheless, something real is happening here. What accounts for the new-found U.S. competitiveness? I think a key factor is that abundant new supplies of crude oil from Canada and North Dakota are now coming into the central United States. Between 1987 and 2008, West Texas Intermediate, the benchmark light, sweet crude oil for sale in Cushing, Oklahoma, sold for $1.50/barrel more than Brent, its North Sea counterpart. That differential vanished in 2009-2010, and so far in 2011, WTI has sold at an average price that astonishingly is almost $17/barrel cheaper than Brent.
That price differential persists because the U.S. lacks the adequate infrastructure to transport the new crude all the way to refineries on the U.S. coasts. However, petroleum products move in different pipelines.
U.S. oil data are reported in terms of 5 main regions. One statistic of interest is the flow of crude petroleum and petroleum products from PADD 2, where WTI is being sold at such a discount, to PADD 3, where refiners are paying Brent prices to import oil by tanker, and from which refined products are often shipped abroad.
Here’s what’s been happening to those flows from PADD 2 to PADD 3. During 2011, an additional 4.2 million barrels of crude oil were transported each month compared with 2009, and an extra 5.1 million barrels per month of petroleum products were transported.
If you can’t ship the oil, then refine it where you are and ship the product.