The Truth about Exports vs. “Political Theater” and “Stunts”

1)    KXL is not a crude export pipeline

2)    The vast majority of crude oil refined in the U.S. has remained in the U.S. (products not used or in limited demand in the U.S. have been exported)

3)    President Obama’s National Export Initiative calls for doubling exports by the end of next year; any petroleum products that are exported not only help reduce our trade deficit but also help us meet this goal.

In a recent New Yorker piece, “The President and the Pipeline,” Ryan Lizza calls Tom Steyer’s anti-Keystone XL ads a “stunt” and good “political theater,” but adds that “as a lesson in global-oil economics, the [most recent] ad lacked context.”

Here Lizza is talking specifically about the claim that Steyer and his allies have been trying to push for months – that the Canadian oil sands would simply pass through the Keystone XL pipeline and be exported.  At first, Keystone XL opponents tried to imply that the oil would be shipped straight from Canada to the Gulf then loaded immediately on ships to be refined elsewhere – case in point would be All Risk No Reward’s recent ad or Tom Steyer’s previous ad, which appeared via his anti-Keystone XL group NextGen.

FACT: As we’ve noted before, a license from the Department of Commerce is required in order for the United States to export crude.  The State Department has also already addressed this issue and found opponents’ claims to be false.  From the State Department:

“In addition to the concerns expressed about exports of refined products, there is a question of whether the oil sands/Western Canadian Select (WCS) crude oil transported into Gulf Coast markets via the proposed Project may be simply “passed through” the market and loaded onto vessels for ultimate sale in markets such as Asia or Europe. Under the current market outlooks, such an option is unlikely to be economically justified primarily due to transportation costs. Once the WCSB crude oil arrives at the Gulf Coast, the refiners there have a significant competitive advantage in processing it compared to foreign refiners because the foreign refiners would have to incur additional transportation charges to have the crude oil delivered from the Gulf Coast to their location.”

When confronted with the fact that their argument is false, Keystone XL opponents simply made a slight shift from talking about crude exports to talking about refined petroleum exports, as Steyer did in his most recent ad. But as even Lizza notes, this argument lacks context as well.

FACT: The State Department has found that refined product export trends are “unlikely to be significantly impacted” by Keystone XL.  Lizza provides the fact check himself, reporting:

“Much of the gasoline, diesel, and other fuels produced at Valero is sent north by pipeline. ‘If you’re consuming product anywhere in the Northeast United States, the majority of that product is made on the Gulf Coast,’ he [Greg Gentry, Valero’s General Manager in Port Arthur] said. The rest is sold in foreign markets, a fact that Steyer and other opponents of Keystone have seized upon to argue that Canadian oil would do little to achieve oil independence for America. But there’s a world market for refined products, and American refiners sell according to market demands, no matter what country they buy their crude oil from. Keystone wouldn’t change that basic fact of the international oil market.”

Why is it unlikely that Keystone XL will significantly impact refined petroleum exports?   As a recent IHS CERA report found, refineries in the Gulf have a “strong appetite for heavy crude” so they will continue to refine heavy oils regardless of the Keystone XL decision.  If approved, Keystone XL would replace imports of heavy crude from countries such as Venezuela and Mexico with Canadian oil sands crude.  On the flip side, if Keystone XL isn’t built, these refineries will continue to refine heavy crude – they will just have to import more of it from overseas.  In fact, as IHS CERA states, Venezuela “will be the number one beneficiary of a negative decision” on Keystone XL.

Perhaps what makes Steyer’s claims so outlandish is that they completely ignore what’s happening today when it comes to exports. Separate and apart from Keystone XL, thanks to our recent oil and gas boom, the United States has been exporting refined petroleum products, like diesel, that don’t have a strong market in the United States – and this has preserved jobs and strengthened the economy.

A new report by IHS CERA has found that due to increased domestic oil and gas development – which has allowed for the United States to export refined energy products – our trade deficit will be reduced by more than $164 billion in 2020, which is equivalent to one-third of the current deficit.  It goes on to mention that “for energy products in which the United States is a large net importer, namely crude oil, each barrel of increased production cancels out an equivalent imported barrel.” Bloomberg had a similar take on the situation, reporting:

Now that U.S. refiners are replacing imported crude with domestic oil from North Dakota, Texas, and Oklahoma, trade is starting to be less of a drag on the economy. In 2011, the U.S. became a net exporter of petroleum products for the first time in 60 years. The U.S. has always been a refining powerhouse, particularly along the Gulf Coast, which accounts for about 70 percent of all U.S. petroleum exports. Now that refiners have an abundant supply of high quality, relatively cheap crude to tap domestically, they can really flex their muscles abroad.

This even has the White House celebrating. Remember, President Obama’s 2010 National Export Initiative called for doubling our exports by the end of next year.  In an August 29 blog post, “Reducing America’s Dependence on Foreign Oil As a Strategy to Increase Economic Growth and Reduce Economic Vulnerability,” the White House celebrated progress towards this goal citing domestic oil and gas production as one of the primary reasons our trade deficit has fallen:

“And through June 2013, the petroleum share of the real trade deficit in goods has fallen from over 40 percent in 2009 to 25 percent since then, a pattern that will improve as foreign imports continue to fall and domestic production continues to rise (see chart).  Economic news like this is just one more reason for us to celebrate the resurgence of domestic oil and gas production.”

In the end, Steyer’s argument is not only flat out wrong and disingenuous, it completely ignores current economic realities. Further, the opposite of Steyer’s argument would hold: it’s if we don’t build Keystone XL that Canadian oil sands would likely be shipped directly to places like China – and as a result, the United States would have to import more crude oil from Venezuela, which would be the “number one beneficiary of a negative decision” on Keystone XL.

And that just goes to show how out of touch Steyer’s claims are.

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