The voice of reason.
Gas prices are very high right now and there have been some predictions that by summer they may go as high as four or five dollars. So like most people I was shocked to find out that gasoline was our biggest export in 2011. (In a first, gas and other fuels are top U.S. export)
My initial reaction was that we should ban the export of gas, and force refiners to sell it domestically because it would increase supply and help reduce prices. I think that there is a good chance that most people had a similar reaction when reading that news story. However, after thinking about it more carefully I have come to a different conclusion. In part, I was persuaded by the Friedman article “A Good Question” that I wrote about in a previous post. He writes that exporting gasoline and natural gas can provide a competitive advantage to the US. Also by letting refineries export oil they become more profitable and bring in more revenue which could be used for researching new energy technology. Perhaps more importantly those refineries are increasing production and hiring new workers.
Gas prices are high right now and they are hurting family budgets across the country. However, putting an end to gasoline exportation may not significantly lower prices. The American Petroleum Institute (API) estimated the the US only exports 4% of its gasoline. Although, my calculations put that number around 5-6%.1 It is hard to determine what impact this is really having on the price at the pump. My inclination is to believe that a five percent in inventory would not significantly lower prices. One of the main reasons that gas prices are high is that oil prices are high. There are 42 gallons in a barrel of oil so at $100 a barrel that comes to $2.38 just for a gallon of crude oil, add to that the cost of refining (about 50¢ a gallon2) and transportation and distribution and it comes pretty close to the prices seen at the pump. This leads to the question ‘why is the price of oil so high?’ However, that is a complicated topic and will have to be addressed in another post.
Gas prices are high right now but, an export moratorium is not the best solution. For one, the effectiveness of such a solution would be questionable and two, the refineries are using exports to boost profits which in turn provides an incentive to boost production, which again provides an incentive to hire more workers. So the American people have a choice: demand an export moratorium that would have questionable impact or let the refineries continue to expand exports (hopefully production too) and become more profitable. This profit will also bring in more jobs and revenue. This revenue could then be invested in green technology that could one day ween us off of oil and other fossil fuels. The decision that we face is not easy but it is one that must be made with the future in mind.
1 I tried to check the API’s estimate of 4% and I came to the conclusion that the exports were 5-6% of US production. There was, however, a large discrepancy in the data. The results varied widely (from 5-30%!) depending upon which sources I used.
2 According to an API estimate.
“Petroleum and other Liquids”: EIA: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFEXUS1&f=M
“In a first, gas and other fuels are top U.S. export,” USA Today: http://www.usatoday.com/money/industries/energy/story/2011-12-31/united-states-export/52298812/1
“US gasoline production hits record numbers, demand increases,” PennEnergy: http://www.pennenergy.com/index/petroleum/display/5706697804/articles/pennenergy/petroleum/refining/2010/05/us-gasoline_production.html
“Frequently Asked Questions,” EIA.gov: http://www.eia.gov/tools/faqs/faq.cfm?id=23&t=10
“As gas prices rise, should US oil industry stop exporting?” The Christian Science Monitor: http://www.csmonitor.com/USA/2012/0223/As-gas-prices-rise-should-US-oil-industry-stop-exporting
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