Why Is Diesel Being Exported During A Shortage?

Following my recent article — Why The U.S. Has A Diesel Shortage — one reader pointed out that I omitted one factor from my analysis. Even as the U.S. grapples with one of the worst diesel shortages on record, U.S. companies are exporting more than a million barrels of distillates a day.

That’s a fair point, but it isn’t a new development. U.S. companies have been exporting more than a million barrels a day of distillates for about a decade. The obvious question, then, is why this is being done.

The short and simple answer is that companies are doing it because they can, and because they are making more money doing this than selling it in the U.S. Consumers may complain, but ultimately these companies are trying to make as much money as they can, and that means selling products to the highest bidders.

A U.S. Gulf Coast refiner who wishes to ship distillates to the East Coast must abide by the Jones Act, which requires any cargo shipped between U.S. ports to be carried by U.S. ships, with American crews. This can drive up costs, and make it more economical for that Gulf Coast refiner to export to Europe or South America.

Another important point to note is that sometimes distillates are exported because the product doesn’t meet U.S. standards.

For example, in 2006 EPA began to phase-in more regulations to lower the amount of sulfur in diesel fuel to 15 parts per million (PPM). This required costly investments by refiners to comply, but some refines chose to continue making high sulfur diesel, and to export that to countries with less stringent regulations. That practice continues today, and explains some of the exports.

That is ultimately a business decision for each company, although it’s understandable that consumers would be upset by such decisions.

The other obvious question — which I am often asked — is why we don’t ban companies from exporting fuel during a fuel crisis? That’s ultimately a political question. Would the crisis be eased if such a ban were in place? It’s hard to argue that it wouldn’t, but it would exacerbate the crisis elsewhere.

Europe is already grappling with a fuel crisis due to situation in Ukraine. They are relying on U.S. exports to help ease their fuel burdens headed into winter.

An American consumer may say that this isn’t our problem, but this isn’t being done for altruistic reasons. Some countries are in worse shape than the U.S. with respect to fuel supplies, and they are willing to pay more to obtain them. That, in a nutshell, is why companies are exporting diesel during a diesel shortage.