Changes Downstream: Import Substitution and the Rise of U.S. Product Exports
The rise in U.S. crude production, coupled with the restrictions on its export, has been causing a surge in U.S. refinery crude runs. Currently, U.S. refinery utilization rates are averaging 91.5%. But utilization rates are not uniform across the U.S. They are significantly higher in regions with access to inexpensive crudes. Figure 4 shows the trend in U.S. refinery utilization rates by Petroleum Administration Defense District (PADD.) The PADDs are:
- PADD 1—U.S. East Coast
- PADD 2—U.S. Great Lakes and Midwest
- PADD 3—U.S. Gulf Coast
- PADD 4—U.S. Rocky Mountains
- PADD 5—U.S. West Coast, including Alaska and Hawai’i
In the year 2000, PADD 5 had the lowest utilization rates, 87.5%, while PADDs 2, 3 and 4 all had very high utilization rates of 94 – 95% (considered close to the maximum possible rate). The drop in refinery utilization seen in 2008 – 2009 is attributed to the spike in oil prices and the U.S. economic recession, which cut into demand. But the high prices also stimulated domestic crude production from the shale plays that were under development. As the U.S. economy improved in the 2012 – 2015 period, U.S. oil demand rose as well, and refinery throughput climbed. The U.S. Energy Information Administration (EIA) reports that U.S. oil demand rose by 883 kbpd between 2012 and the first eight months of 2015. Gross inputs to refining grew at an even faster rate, increasing by 1070 kbpd during the same period of time, with the excess flowing into the export pool.
As the figure demonstrates, refinery utilization recovered first in PADDs 2, 3 and 4. These are the areas in the center of the country with the best access to pipeline supply of domestic crude and Canadian crude. Refinery utilization on the East Coast and West Coast continued to languish. On the East Coast, utilization rates plummeted below 70%, until some refinery capacity was idled and eventually closed. On the West Coast, utilization rates fell to around 80%. In PADD 5, refinery throughput is now more or less flat, but utilization rates have improved to 86 – 87% because of capacity shut-ins.
In contrast, refinery throughput has risen at refineries with access to inexpensive feedstocks. This has reduced product import requirements. In the year 2000, the U.S. imported 1556 kbpd of finished petroleum products. Refined product imports continued to grow, reaching 2075 kbpd in 2005. Following this, crude production and crude runs continued to grow while demand stagnated, particularly during the worst years of the economic recession. U.S. refined product imports dropped from their peak of 2075 kbpd to just 628 kbpd in 2014, before the recent low prices and demand recovery caused a moderate rebound in imports to 778 kbpd during the January – August period of 2015.
In the overall product balance, U.S. refinery net production of petroleum products expanded by 2 million barrels per day during the decade from 2005 to 2015, whereas U.S. demand fell by 1.4 million barrels per day. This has created a swing of 3.4 mmbpd of new refined product in the Western Hemisphere. The change in product trade has been dramatic, with even stronger links to other Western Hemisphere markets. Figure 5 shows the surge in U.S. gasoline exports. During the 1993 – 2006 period, gasoline exports were in the vicinity of 100 kbpd. The drop in demand and rise in refinery throughput caused exports to rise to approximately 400 – 450 kbpd during the last five years. The great majority of this is exported to other Western Hemisphere countries.
The growth in U.S. diesel exports has been even more dramatic. Figure 6 shows the growth in U.S. diesel exports by destination. Europe is a key market, with smaller volumes heading to the Middle East, Africa, Asia and the Pacific. The U.S. is now exporting over 1.1 million barrels per day of diesel. Once again, the Western Hemisphere is the main destination. From 1993 through 2004, U.S. diesel exports to the Western Hemisphere typically were around 100 kbpd. They are currently averaging approximately 760 kbpd, and they are reaching even the smallest and most far-flung island markets in the Caribbean. Even though many of these markets are small, collectively they are one of the most important and growing markets in the world.
