Reliance on foreign gasoline is growing

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Reliance on foreign gasoline is growing

U.S. refineries are unable to meet surge in demand

By BRETT CLANTON

2007 Houston Chronicle

As domestic refineries hit their limit and gasoline demand continues to rise, oil companies are importing more gasoline from beyond U.S. borders to keep America driving.

Gasoline shipped in from abroad now accounts for more than 11 percent of the total gasoline used in the U.S., roughly double the share of imports a decade ago, according to Energy Information Administration data.

Importing energy to power the world's biggest economy is nothing new. The U.S. already brings in more than 60 percent of the crude oil it uses to make gasoline, diesel fuel and other products from rubber tires to plastic bags.

But the sharp growth in imported gasoline is a relatively recent phenomenon.

Through the years, gasoline imports have been used to offset supply disruptions or to bolster fuel stockpiles during peak demand periods. Last week, for instance, a surge of imports arrived that will help boost depleted U.S. fuel inventories and possibly ease soaring gas prices during the busy summer driving season.

Paradoxically, however, the nation's growing reliance on gasoline imports has been partly to blame for getting us to $3 gas again this year, and could raise broader questions about how the U.S. will secure long-term energy supplies.

Sky-high pump prices recently brought the point home.

After drivers used more gasoline than expected this spring, U.S. refineries, crippled by a spate of outages, could only do so much to boost output. And when oil companies searched for imports to fill the gap, they came up short. The foreign gasoline was heading to other countries that had problems.

That pushed U.S. prices higher.

"Actually, there wasn't enough gasoline to supply the world demand," said Doug MacIntyre, an Energy Information Administration analyst.

Gasoline imports are likely to be a permanent part of the nation's fuel supply, yet there may be less pressure to import in coming years.

"We can see a point at which the balance starts to tip," said Mike Wilcox, analyst with Wood MacKenzie in Edinburgh, Scotland. "But it's not tomorrow. It's not next year. It's probably beyond that."

Several large U.S. refinery expansions under way will soon give domestic gasoline makers greater ability to respond to shortages. Refineries being built in the Middle East and India, coupled with growing gasoline surpluses in Europe, also could make imports more accessible and possibly cheaper.

The growth in U.S. gasoline imports has been concentrated in gasoline blending components, rather than "finished" gasoline that can be put right in the fuel tank.

The biggest suppliers of imported gasoline are a random bunch, led by the U.S. Virgin Islands, where a massive Hovensa refinery, co-owned by Venezuela's state-owned oil company, targets this market. The U.S. government defines imported gasoline as any that comes from outside the continental U.S.

European nations including the United Kingdom, France and Spain are also major suppliers because drivers in those countries are shifting to fuel-efficient diesel vehicles. Since the modern refining process that produces diesel also yields gasoline, the countries have been left with large surpluses.

Generally, foreign countries steer gasoline shipments to the U.S. when tight supplies here drive wholesale prices upward.

"When you have prices here that are attractive enough for them, as they are now, then it attracts more imports and that stabilizes and eventually brings down prices," said Sheraz Mian, senior analyst with Zacks Investment Research in Chicago.

Case in point: Last week, U.S. gasoline imports averaged 1.6 million barrels per day, the third-highest recorded weekly average ever.

The extra supply helped drop the national average price for regular unleaded to $3.19 a gallon Thursday, after hitting a record $3.23 a gallon last week, according to AAA.

But despite the rise in imports and rise in domestic gasoline production, inventories remain low by historical standards, meaning pump prices could stay high this summer.

Major oil companies contacted by the Houston Chronicle either declined to comment on their gasoline import strategies, citing competitive reasons, or could not make someone available to comment.

But Bill Holbrook, spokesman for the National Petrochemical and Refiners Association, said the rise in imports highlights the need for more refining capacity in the U.S.

"We're squeezing every drop of gasoline and diesel we can out of a barrel of crude," said Holbrook. "Do we need more domestic capacity? Absolutely, and that's why most, if not nearly all, companies have plans to continue expansions at existing facilities around the country."

Planned expansions at a Motiva refinery in Port Arthur and a Marathon plant in Garyville, La., will add nearly half a million barrels of capacity — the equivalent of two major refineries — by the end of the decade.

But Mian, the Zacks analyst, doubts the additions will reduce the need for gasoline imports.

"It's barely, if at all, keeping pace with the annual demand growth creep," he said.

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