What? We’re exporting crude from our strategic reserve?
In the news today . . . I am hearing the crude oil from our strategic petroleum reserve will be exported to India because it is too high in sulfur to refine in the USA.
What? Since when can’t Americans refine our own high sulfur crude?
Not long ago, we imported as much high sulfur crude as possible because our refiners made more money refining high sulfur (cheap) crude into premium American gasoline.
Investors are told we have “complex” refineries with cokers and high pressure hydrotreaters that provide flexibility to swallow up heavy, high sulfur, cheap crudes and crack them into premium American fuels. We have converted whole refineries into high sulfur crude refineries. The heavier, the higher the sulfur, the cheaper the crude, the better.
What has changed? Are we now to believe American refineries can only handle boutique low sulfur crudes?
The biggest change is the change in our gasoline sulfur specification to 10 ppm sulfur maximum. That new sulfur specification, called Tier 3, is handcuffing North American refineries that used to be able to make premium gasoline from high sulfur crudes. The Tier 3 sulfur spec applies to all gasoline sold in the USA. Tier 3 is a long, interesting story. Much has been written about this overlooked story on this blog and in our publications.
Here’s what is happening. The crude from the strategic petroleum reserve will be exported to India where it will be refined into high octane, low sulfur gasoline that meets the Tier 3 spec, which will then be imported back to the US and sold to US motorists.
Evidently, this is a more economical solution than trying to process our own strategic crude in our own, now inadequate, refineries.
But it’s a surprising and costly solution.
Indian refineries are winners. They capture the high margin from refining otherwise worthless crude into premium Tier 3 gasoline and selling it into the lucrative US market.
Losers include American consumers, who pay more for imported Indian gasoline, and investors in the stocks of those refining companies who continue to ignore, or deny, the facts of life about how Tier 3 is handcuffing their refining flexibility and shrinking their profit margins.