Walking Contradiction - The Import-Export Mismatch and What it Means for U.S. 'Big 3' Production

The world is full of paradoxes and apparent contradictions, like the phrase “this page intentionally left blank” on an otherwise empty page in a government report, and the energy sector is no different. The U.S. is the world’s largest exporter of the “Big 3” petroleum products — gasoline, diesel/gasoil and jet fuel/kerosene — but it still imports significant volumes of those very same products. That paradox, which is not unlike the U.S.’s need to both export and import various grades of crude oil, is tied to a mismatch between where the product is produced and where it is consumed. In today’s RBN blog, we look at the factors that contribute to that mismatch and what it means for U.S. “Big 3” production and exports going forward.

Let’s begin with the basics. PADD 3, which is primarily composed of the Gulf Coast states, is long all of the “Big 3” products (to the tune of 5.8 MMb/d in 2022) and accounts for the lion’s share of U.S. product exports (gray layer in right graph in Figure 1). In turn, PADD 1 (East Coast) accounts for about three-quarters of U.S. product imports (dark-blue layer in left graph). Those imports are needed because PADD 3 movements to PADD 1 are limited by pipeline capacity, and the two major pipelines traveling from the Gulf Coast to the East Coast (Colonial and the former Plantation Pipeline, now called the Products Pipeline) are generally full, which leaves PADD 1 in need of barrels. Overall, PADD 1 brought in about 3.8 MMb/d of gasoline, diesel and jet fuel in 2022 — most of it by pipe from PADD 3, with smaller volumes sourced from PADD 2 (Midwest) and via imports.

Another contributor to the export/import paradox is the Jones Act, which requires all waterborne freight movements within the U.S. to be carried on U.S.-built, -flagged and -crewed vessels. (We’ve written a lot about the Jones Act and its impact over the years, most recently in 2020’s Time Will Tell). Instead of moving products from PADD 3 to PADD 1 by ship, the Jones Act makes it less expensive for PADD 3 to export incremental products and for PADD 1 to import products, primarily from Europe and Canada.