Critics of TransCanada Corp.'s Keystone XL project often argue that Canada should reap the full benefits of its natural resources, rather than exporting its petroleum riches south of the border. Head to the U.S. and, ironically, you can hear the same discussion. Much of America's newfound oil wealth is being shipped abroad, which is worrying Americans who figured they had a "made-in-the-USA" solution to the country's energy needs.
Since 1975, U.S. federal law has banned raw crude from being exported in the interests of national energy security. The legislation, however, doesn't cover refined products, such as gasoline or diesel. American refineries are free to export as much refined product as they can sell. And these days that's a lot.
Refineries in the U.S. are shipping record amounts of gasoline around the world, exporting the fruits of the country's shale revolution to some of the same countries that not long ago were relied upon for crude supply. Tankers full of gasoline and diesel fuel – made from shale oil pulled out of places such as North Dakota and Texas – are being shipped to the Middle East, South America (including Venezuela), Nigeria, and the rest of West Africa.
Added up, the U.S. shipped a record 3.2 million barrels a day of gasoline, diesel, and other refined products in September, according to the U.S. Energy Information Administration. That number is nearly 65 per cent more than the U.S. was shipping in 2010, before the shale revolution took off in earnest. Three years ago, the U.S. was a net importer of gasoline and other refined petroleum products. Today, it's a net exporter.
It's easy to see why. Refiners in the U.S. are enjoying the double-barreled advantage of soaring home-grown oil supply and domestic gasoline demand that continues to limp along with the country's tepid economic growth. The ban on crude exports, originally adopted following the OPEC-inspired energy shock, has effectively turned into a subsidy for U.S. refiners. The millions of barrels of oil being pulled out of new shale plays has nowhere to go.
In Canada, the dynamics of North America's oil market led to what's not so affectionately known as the bitumen bubble. A glut of oil in the U.S. Midwest caused bitumen from Alberta's oil sands to trade as much as $50 (U.S.) a barrel below the going rate in the rest of the world. The price of benchmark U.S. crude, similarly, is trading at a discount to world prices of anywhere from $10 to $25 a barrel.
With that kind of price advantage on feedstock, U.S. refiners have rarely had it so good. European refineries, in contrast, are taking it on the chin. Not only are they paying world prices for oil, but their traditional business of exporting surplus gasoline to the U.S. is shrinking and they're rapidly seeing their product get displaced in other markets, such as Africa, by cheaper gasoline from the U.S.
American motorists may well be wondering when they'll share in the boom times from the shale revolution. Despite record gains in domestic oil production, U.S. drivers are still paying more than $3.30 a gallon to fill up. U.S. oil production is up by 2 million barrels a day since 2011, so why aren't pump prices falling to two bucks a gallon? The answer, of course, is all that U.S.-made gasoline now being burned offshore.
Shipping hundreds of thousands of barrels a day around the continent by rail comes with clear worries for public safety, as well as the environment, that are already being realized. The logic behind the continued expansion of oil-by-rail is tested even further given how much of that rail traffic ends up at coastal refineries that process the crude into gasoline for drivers in the Middle East, Venezuela and Nigeria.
The political cover of North American energy security is allowing Big Oil to frack and drill as fast as it can. Isn't it worth asking who's really benefitting from the shale revolution?
Jeff Rubin is a former chief economist of CIBC World Markets and the author of the award-winning Why Your World Is About To Get A Whole Lot Smaller as well as The End of Growth.