• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

The Road to Energy Independence

The fact the U.S. is now a net exporter of refined oil products raises interesting questions for the oil industry.
By GLENN WILLIAMS
Mar 09, 2012 | 03:00 PM EST
Stocks quotes in this article: VLO, MPC, HFC, WNR, COP, XOM, BP, TOT

It appears as if North America is becoming energy independent.

For several years, there has been virtually no oil in our nation's power grids and our electricity is energy independent. Domestic oil is experiencing similar trends; for the first time in decades, the U.S. increased domestic production and decreased consumption. Now, for the first time since 1949, the U.S. has become a net exporter of refined products.

The Energy Information Administration reports strong global demand helped propel distillate exports. Refiners had access to increased supplies of crude oil imports from Canada, which topped 2 million barrels per day in 2011 for the first time, and from North Dakota's Bakken formation.

To be clear, the U.S. remains a net importer of crude oil. But U.S. refineries are using that oil to produces a variety of petroleum products, including naphtha, gasoline, kerosene/jet fuel, gas oil or diesel distillate, lubricating oil, heavy gas/fuel oil, and residuals. Many of these products are consumed domestically, but a growing number are being shipped to foreign markets.

The fact the U.S. recently became a net exporter of refined products raises interesting questions about the Keystone XL pipeline, the price of gasoline and domestic drilling. The Keystone pipeline is a project designed to import more crude from Canada to U.S. refineries (the project recently failed to get enough votes in Congress to be built). Given that the U.S. is now a net exporter of petroleum products, do we really need to import additional Canadian oil to achieve the national goals of energy security and energy independence?

Another question addresses gasoline prices. If we "Drill Here, Drill Now," will we pay less at the local gas station, as Newt Gingrich suggests, or will we simply export more petroleum products?

Finally, is "our oil" really ours?

Exporting high-valued refined products helps the U.S. in several ways. First, it helps the balance of payments. According to the Commerce Department, petroleum products ranked second in value of all U.S. exports in 2011 at $111.1 billion per year (automobiles were first). This is up 60% from 2010.

Second, exporting $111 billion per year worth of refined products derails the argument that importing crude oil damages the economy. At least a third of what America spends on foreign crude oil comes back in the form of revenues from exported products.

Also, building and operating pipelines and refineries creates jobs. Most of these jobs are high-paying and permanent.

Because crude oil is internationally fungible, international markets benefit when North America drills for more crude oil. Like crude oil, refined products are participating in international markets and their pricing is influenced by normal market forces. If Americans are unwilling to pay market prices for domestically produced refined products, other countries appear willing to take it off our hands. So, it is not "our oil" unless we consume all of it -- and we are not.

Just who is buying American petroleum products? According to the EIA's December 2011 report, Mexico, the Netherlands and Canada were the top three customers for American products. Trailing the top three are Chile, Brazil and China. Surprisingly absent from the top of EIA's list is Japan, which bought less of our products than Panama did.

They are not all buying the same product. Mexico imports a considerable amount of finished motor gasoline. The Netherlands is the top importer of U.S. fuel oil. Canada imports jet fuel, fuel oil and a variety of other refined products from the U.S.

Selling to these countries are companies such as Exxon Mobil (XOM), BP (BP), Total SA (TOT) and other major integrated oil and gas companies. But America's newfound position as a net exporter of refined products has been a boon to independent oil refiners such as Valero Energy (VLO), Marathon Petroleum (MPC), HollyFrontier (HFC) and Western Refining (WNR), which benefit from plentiful oil supplies in the middle of the country.

Phillips 66, the refining business that's being spun off by ConocoPhillips (COP), should also benefit. However, Phillips 66 remains part of ConocoPhillips until second quarter, possibly May, when the parent company expects to complete the spinoff.

Free markets provide surprising opportunities for American energy companies. As North America produces more fuels, and as crack spreads (the difference between the price of crude oil and petroleum products) increase, exporting becomes an increasingly profitable business.

I assume that Newt Gingrich has honorable intentions. But his oversimplification of complex energy markets may be raising false expectations and stimulating inappropriate reactions. Under free markets, "Drill Here, Drill Now, Pay Less" may not necessarily lower domestic energy prices to the levels he suggests.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Williams had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Energy

More from Energy

FuelCell Energy's Charts Tell Us a Bearish Story

Bruce Kamich
Apr 13, 2021 10:16 AM EDT

The speculative runup in FCEL seems to be over. Approach with caution.

These Stocks Are Losing Energy

Ed Ponsi
Apr 13, 2021 8:30 AM EDT

Several signs point to underperformance for energy names in the near term.

Avoid Tanking Up on Schlumberger

Bruce Kamich
Apr 12, 2021 11:48 AM EDT

Instead, the charts advise taking profits. Here's why.

Plug Power Is Still Unplugged

Bruce Kamich
Apr 12, 2021 11:21 AM EDT

The charts of PLUG are bearish and losing power.

Retirees: Get Plugged Into This Dividend Stock

Bob Ciura
Apr 7, 2021 12:27 PM EDT

Evergy is a high yield utility stock offering dependable dividends.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • 11:18 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 5 Pillars of Exceptional Trading
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login