Analysis: As U.S. petroleum use falls, oil refiners look abroad
NEW YORK (Reuters) - U.S. oil refiners are shipping fuels to foreign markets to restore profits battered by sputtering domestic demand, signaling a historic shift in the global oil trade.
Gasoline-guzzling Americans have cut consumption while emerging markets including nearby Latin America have seen demand grow beyond the capacity of local refineries. That has prompted U.S. plants to revive an export-oriented merchant model dormant for 50 years.
Top oil consumer the United States is close to becoming a net oil product exporter for the first time in decades. This would have been unthinkable during the 1990s and 2000s, when U.S. gasoline demand rose in every year but one, according U.S. Energy Information Administration (EIA) data.
Total U.S. oil product demand is up modestly this year, EIA data shows. Still, last month's demand of 17.2 million bpd was down 12 percent from the peak of 19.5 million bpd in 2008.
Total U.S. crude and product stocks are at 20-year highs. Exports have doubled since 2004 to a record over 2 million barrels-per-day (bpd) this year, according to the EIA.
Exports are becoming common for some refineries. Nationwide, net refined product imports slid to 85,000 bpd earlier this month from around 3 million bpd in 2005, EIA data showed.
But experts say only the most nimble and best-situated U.S. refiners can compete for export markets with merchant plants in Asia and Europe, due to a surplus in world refining capacity. Some U.S. plants, they warn, still face the threat of closure.
"U.S. refiners with a domestic supply mentality are facing a new reality," said Mark Routt, a consultant at KBC. "If you aren't exporting, or can't, or won't, you will die."
Over the past two years, five U.S. refineries have been permanently shut or indefinitely idled, cutting U.S. refining capacity by 294,300 bpd to 16.9 million bpd.
Since last September, the United States has consistently been a net gasoline exporter for the first time since 1961, and distillate exports are near the highest levels on record.
With domestic markets slumping, exports are a lifeline for sophisticated plants along the southern Gulf Coast. Cargoes from there can reach some Latin American markets in less than a week, a third of the time they take to ship from Asia.
Top U.S. independent refiner Valero Inc. (VLO.N) sent a fifth of its distillate output to Latin America last quarter, helping it swing to a quarterly profit from a year-ago loss.
Integrated oil majors are also jumping into the export game, industry sources say. Houston-based Marathon Oil (MRO.N) recently built a dedicated export dock near its Garyville, Louisiana refinery.
BACK TO THE '50s
As far back as the late 1800s Standard Oil founder John D. Rockefeller relied on U.S. fuel shipments to Europe to make his company the world's top refiner.
But the last time the U.S. refining sector exported in today's proportions was in the 1940s and 1950s. Since then, U.S. fuel demand has usually outstripped domestic supply.
U.S. refineries still comprise about a fifth of world capacity, but foreign markets for oil are now much faster-growing. In Brazil, for instance, fuel sales are up 12 percent over the last year alone.
As Americans seek fuel efficiency and use more alternative fuels, gasoline use is down. U.S. demand for petroleum-based gasoline - excluding plant-based ethanol for blending - may never return to a peak of 8.9 million bpd reached in 2005, the EIA estimates, with 2010 demand forecast at 8.2 million bpd.
Meanwhile, demand for refined oil is still surging in China, India and Latin American countries. The International Energy Agency expects that these and other non-OECD countries would account for 93 percent of new oil demand by 2030.
That portends a radical shift in global consumption, even though the United States still burns more than twice the oil used by No. 2 consumer China.
"The point is that U.S. demand is no longer the sole barometer in oil markets," said Phil Flynn of PFGBest in Chicago. "Exports make a difference."
U.S. oil demand this year fell to around 22 percent of the world total from 24.3 percent in 2006. Exports have reached 10 percent of U.S. refinery production, allowing plant utilization rates to exceed 90 percent for four straight weeks this summer, a rate they never reached during 2009.
More exports could help whittle down historically high U.S. petroleum stocks if U.S. plants can edge out European competitors, which produce a surplus of gasoline, or in India, the site of a 1.2 million bpd export-oriented complex operated by Reliance Industries.
"There is a structural surplus in world refining capacity," said Ed Morse, a managing director at Credit Suisse in New York. "Some regions are in a better position than others."
While the United States hasn't built a refinery in decades, new plants have sprung up in Asia, with more on the way.
Due to its proximity and hunger for fuel, Latin America is the top destination for U.S. fuel exports.
Latin America and Caribbean economies are growing 4 percent a year on average, according to the IMF, and local fuel supply can't meet demand. That trend should hold, since the region has only 100,000 bpd of new refining capacity slated to come online through 2011, according to Reuters data, and no major expansions planned until 2013 or beyond.
U.S. product exports to the region more than doubled to 879,000 bpd in 2009 from 420,000 bpd in 2004.
Several factors have grown import demand: Shoddy plant maintenance and power shortages in oil exporter Venezuela, Chile's recent earthquake, maintenance in Brazil, and plants left idle in Aruba and Curacao this year.
In Ecuador, local plants meet less than half of fuel demand.
Mexico, the region's top importer, buys 40 percent of its gasoline from abroad.
U.S. Gulf Coast plants can rely partially on Mexican and South American markets, but refiners in the Pacific Northwest, East Coast, Midwest and Hawaii are more reliant on regional demand, said Routt, since they have fewer export options.
Of course, plants can try to ship fuel anywhere that prices offset cost of freight. With tanker rates at relatively cheap levels, some product shipments also flow to Europe and Asia.
For years, world refiners often sought to maximize output of gasoline, the light motor fuel preferred by U.S. drivers.
Now, global demand is tilting in favor of distillates -- China's most-used oil product -- and heavier, dirtier residual fuel oil, which offer more industrial uses. U.S. plants increased their proportion of distillate in eight of the last 10 years, while boosting gasoline yields in only two.
Valero, with five Gulf Coast refineries, sent 160,000 bpd of distillates to Latin America last quarter. Plant expansions in Texas and Louisiana will focus on these fuels, said company spokesman Bill Day.
Preliminary data shows U.S. distillate exports shot to 770,000 bpd earlier this month, the highest in at least two years. But official Customs data, which is released after a lag of two months, may show the United States already became a net oil product exporter this month, oil analysts at Goldman Sachs wrote in a report last week, estimating that export volumes were well above preliminary estimates.
(Additional reporting by Kristen Hays in Houston; Editing by David Gregorio)
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