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Why is diesel exported when there is a shortage?

by SuperiorInvest

After my recent article – Why is the US running out of diesel? — one reader pointed out that I left one factor out of my analysis. Even as the U.S. faces one of its worst diesel shortages on record, U.S. companies export more than a million barrels of distillate per day.

That’s fair, but it’s not a new development. American companies were exporting more than a million barrels of distillates per day for about ten years. So the obvious question is why this is done.

The short and simple answer is that companies do it because they can and because they make more money doing it than selling in the U.S. Consumers may complain, but at the end of the day these companies are trying to make as much money as possible and that means selling products to the highest bidder .

A U.S. Gulf Coast refinery wishing to ship distillates to the East Coast must comply with the Jones Act, which requires that any cargo transported between U.S. ports be carried by U.S. ships with U.S. crews. This can increase costs and make it more economical for Gulf Coast refineries to export to Europe or South America.

Another important point to note is that sometimes spirits are exported because the product does not meet US standards.

For example, in 2006 the EPA began phasing in additional regulations to reduce the amount of sulfur in diesel fuel to 15 parts per million (PPM). This required costly investment by refiners to comply, but some refiners chose to continue producing high-sulfur diesel and export it to countries with less stringent regulations. This practice continues to this day and explains some of the exports.

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

Another obvious question – one I often ask – is why don’t we ban companies from exporting fuel during a fuel crisis? This is ultimately a political question. Would the crisis be alleviated if such a ban were introduced? It’s hard to say no, but it would deepen the crisis elsewhere.

Europe is already facing a fuel crisis due to the situation in Ukraine. They are relying on US exports to help lighten their fuel load heading into the winter.

The American consumer may say it’s not our problem, but we’re not doing it for altruistic reasons. Some countries are worse off than the US when it comes to fuel supplies and are willing to pay more to get it. This is, in a nutshell, why companies export diesel when it is scarce.

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