Why resist exports?

March 19, 2012
In the political hubbub over the proposed Keystone XL pipeline between Alberta and the US Gulf Coast, an especially peculiar argument has emerged that should be put to rest before it does real damage.

In the political hubbub over the proposed Keystone XL pipeline between Alberta and the US Gulf Coast, an especially peculiar argument has emerged that should be put to rest before it does real damage. It treats oil exports by the US with revulsion.

Suddenly, anxiety arises in some quarters over the thought that hydrocarbon molecules originating in the Canadian oil sands might end up somewhere other than Canada or the US. In response to a Republican transportation bill amendment that would have authorized Keystone XL without presidential approval, Senate Democrats offered a measure prohibiting shipment outside the US of any of the imported oil. Both measures failed.

Discussing the issue on the CNN Sunday news program "State of the Union," Senate Majority Leader Harry Reid (D-Nev.) on Mar. 11 said, "Under the way it's constructed now, all the oil would be sold elsewhere. We can't have that." He interrupted the interviewer to add, "When I say elsewhere I mean some other country."

The horror.

Political jockeying

This is political jockeying, of course. President Barack Obama has made clear he won't approve the project until the already well-studied proposal has been studied some more—so he doesn't have to alienate environmental groups while running for reelection. Congressional Republicans are pressing the issue to embarrass him about the unemployment rate and price of gasoline. Their Democratic counterparts have the difficult chore of trying to make the president's stance look sensible. Both sides exaggerate.

Even amid a torrent of political utterance notably uninformed about energy, however, the expressed distaste for exported oil is perplexing. And Reid did nothing to elevate discourse when, after criticizing Republicans for overstating job creation related to the pipeline project, he asserted that "all the oil" would flow to "some other country."

By "oil," not even Reid, who hasn't established himself as especially insightful about the substance, can mean the blended bitumen the pipeline would carry to the Gulf Coast. Refineries at the pipeline's far ends are the world's best-equipped to handle the material. They need it to run at optimum rates. It makes no sense to suggest the heavy oil would bypass those refineries, where its value is highest, to board tankers bound for refining centers less able to process it.

The majority leader's position was sturdier if he meant the oil would be sold elsewhere after processing. That seems to have been the prospect targeted by his colleagues in the ill-fated export ban. But objections to the export of products made from Canadian bitumen raise two questions. The first is how anyone would be able to distinguish gasoline or diesel made from Canadian feedstock from products derived from crude produced in the US. The answer, that enforcement would resort to some formula involving net volumes, raises the second and more important question: What do Democrats think the US would gain by limiting the export of oil products, whatever the source of raw material?

At last check, exports were considered good for the economy. In 2011, for the first time since 1949, the US became a net product exporter. Citing Department of Commerce trade data, the Energy Information Administration says the value of oil product exports last year, at $111.1 billion, was second only to that of vehicle exports. A positive trade position on oil products, and its moderating effect on the overall trade deficit, might be difficult to maintain with refineries closing on the East Coast. But it's hardly regrettable.

Security not issue

And energy security shouldn't be the issue, if that's what Democrats hope to imply. Refiners won't short home markets to sell abroad, and incur the extra costs of doing so, if they want to stay in business.

Exports of oil products based on Canadian oil should be welcomed, not resisted. Refiners making money by upgrading low-value feedstock from Canada might even hire more workers. At last check, hiring workers was considered good for the economy, too.

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