Friday, December 10, 2010

Oil Exports and the Falsity of Headline Numbers.

"A lie gets halfway around the world before the truth has a chance to get its pants on."
-- Winston Churchill

The problem then becomes that the truth is no longer considered a valid point of view or even open for discussion. The lie is so ingrained as it drowns out any hope that truth will appear. Take for example the myth that the US manufacturing base is collapsing. This lie is dispelled by the CFMMI Data Series from the Federal Reserve Bank of Chicago. Every decade the index (IPMFG) has been higher. That is, the index from the 80s was higher than the 70s, and the 90s was greater than the 80s, and 2000s was higher than the 90s. Even now the index is higher marginally than it was 10 years ago, even with the economic lost decade. This index is not affected by inflation and is growing on average faster than the population also.

The New Memes

That is simply stating the facts {from
Weekly U.S. Exports of Crude Oil and Petroleum Products (Thousand Barrels per Day)}. The problem becomes when this is interpreted to mean that prices in the US are too high because of shipping US finished petroleum products overseas. I could not find the incidence when oil executives were grilled on whether any oil products were shipped overseas during Katrina, but this article explains some of this type of reasoning: Senator Demands Detail on U.S. Oil Exports. First, Ron Wyden is looking for a scapegoat as the information about imports and exports are easily available at the U.S. Energy Information Administration but does not include firm level data.

Secondly, the falsity is that petroleum products exported are of the same quality and basis for the gasoline that goes into our cars. This forms the basis for an argument that goes the US should not drill in ANWR as most will be exported to Asian countries such as Japan. As a stable trading partner and political ally, I find no reason to not export whatever they are willing to pay for. But more importantly, what the US exports to Japan is mostly a by-product of the oil refinery process called petroleum coke. Over the last two years, around 75% of Japan's imports of petroleum products was petcoke. (You can find the information at:
Total Crude Oil and Products Exports by Destination.)

Where are the Exports Going?
Below is a list of countries by export volume with numbers included of average monthly exports in thousands of barrels and percentage increase of volume in the last two years vs. September 2005 to August 2008.

One thing to notice on this list is that a few of them, and most importantly the top two, are actually the top in exporting crude oil to the US in reverse order. Looking further down the list and specifically looking for large percentage increases, it is easy to see that many are small countries close to the US and/or also US suppliers. For example, Columbia, Costa Rica, and Nigeria increased their imports from the US by 346.25%, 349.40%, and 223.63% respectively. I would expect that their demand for processed petroleum products will continue to increase dramatically as they grow each of their respective economies.
What does this mean?
It means: it is best to take any factoid as just a starting point and that delving deeper into the numbers is a better practice. Just like the manufacturing sectors, the oil industry facts are often hidden behind emotions and simplistic explanation models. For example, the oil industry is stated as an oil monopoly when in fact it is better described as an oil oligopoly. Using Yahoo search engine for "oil monopoly" provides nearly 40 million results and for "oil oligopoly" provides a little over 400 thousand results. It seems more writers need to go back to Economics 101. One factoid is how the barrel of crude oil is broken down into its constituent parts as this next passage summarizes.
Crude Oil : A Breakdown of Refined Volumes
The largest share of the 42 gallons of crude oil ends up as a finished motor gasoline. Motor gasoline accounts for 19.65 gallons (~ 47%) of the finished products produced from a barrel of crude oil. Next is distillate fuel or diesel at 10.03 gallons (~ 24%) . A distant third is jet fuel at only 4.07 gallons per barrel (~ 10%) of crude. Residual oil is typically around 1.72 gallons per barrel (~ 4%).

Other petroleum products that are created from a barrel of oil during the refining process include: still gas, petroleum coke, liquified refinery gas, asphalt and various oils for lubricants, kerosene, waxes and other miscellaneous products. These "other" hydrocarbon products account for the final 15% of the barrel or around 6.53 gallons of the 42 gallon barrel.

The article goes on to explain that diesel is also a primary driver of crude oil demand. Thus the one that is in short supply given the market price will be the driver of quantity supplied to the market. This also may help explain why high income countries trade petroleum products across their borders in both directions. In the short list above we saw the US exporting to Netherlands, Singapore, and Japan. Further down the list included countries such as Spain, France, Germany and Greece.

If the US wants to upset our suppliers of crude, or our trading partners, or even small nations in the region then it might be a good idea to restrict exports of petroleum products. But if want the efficiency of the markets to work, then the US needs to encourage more domestic production of refined petroleum products. This a value added product that uses our depth of human capital as well as extensive amounts of capital, while leaving our trading partners opportunities to specialize in what they do best. The breadth and depth of petroleum products, including all the blends of gasoline, makes the US a natural for increased specialization in this export area. Of course, this is a sector that could be called structurally rigid.

Misc. Links:
U.S. Imports & Exports
U.S. Total Crude Oil and Products Imports


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