Biofuels’ Impact on Gas, Diesel Exports

Consultant notes gasoline exports will rise while biodiesel meets higher diesel demand
By Erin Voegele | June 14, 2011

Changing domestic demand for fuel means the U.S. refining industry is exporting more gasoline in order to keep capacity in operation that would otherwise be idle. At the same time, domestic demand for diesel is increasing. Increased blending of biofuels under the RFS2 is also having an impact on U.S. fuel markets. Lynn Westfall, executive vice president of petroleum-consulting company Turner, Mason & Company, unravels the current state of domestic refining industry for Biodiesel Magazine.

 The U.S. refining industry ran at well below capacity last year, Westfall says. While some might think that increasing gasoline exports are taking fuel out of the U.S. marketplace and therefore increasing prices, Westfall stresses this is not the case. “We’re not taking way from the U.S. market to export,” he says. “We have plenty of capacity to make up for it. As a matter of fact, we haven’t even made up for the demand decline in the U.S. with exports. Demand since 2007 is down 3 percent, about 250,000 barrels a day, and we’ve only increased exports by about 200,000 barrels per day. We’ve got plenty of spare capacity and we haven’t even used that spare capacity yet to make up for the demand shortfall since 2007 due to the recession.”

According to Westfall, the U.S. refining industry is expected to export an increasing quantity of gasoline as ethanol further reduces demand for the fuel. In fact, if ethanol fulfills a significant share of RFS2 requirements, Westfall says it could add nearly 2 million barrels of fuel per day to the U.S. gasoline market. That amount of fuel is roughly equivalent to the output of 24 petroleum refineries.

However, the diesel markets will be an entirely different story. “We’re exporting about 15 percent of demand for diesel already,” Westfall says. Although diesel-replacement fuels currently are expected to play a more minor role in the future of the RFS2 when compared to gasoline replacements, like ethanol, that could change. For example, biodiesel and renewable diesel fuels could continue to take on a greater share of the advanced fuel pool under the program. Even if this happens, Westfall said that the impact of biodiesel on the U.S. refining industry will continue to be less significant than the impact of the ethanol industry.

“Unlike gasoline, diesel fuel demand is growing,” Westfall says. “Over the course of the next 10 years, we would expect growth in diesel demand to take up the biodiesel, even if it gets up to 10 percent [of the diesel market]. That’s only a 1 percent growth per year, while [the market for diesel] typically has been going up about 2 percent per year. Domestic demand will take up biodiesel plus production from refineries.”

There is another way biofuels could impact the U.S refining industry in a significant way. Several biorefining companies are working to develop renewable crude oils that could serve as feedstock for traditional petroleum refining facilities, resulting in a wide variety of biobased drop-in fuels and chemicals. “Certainly that would be the best economic solution,” Westfall says, noting that a refinery doesn’t care where crude comes from.

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