America, The Rising Petro Power

If you are old enough to recall the 1970s, you remember when Americans lined up at gas pumps, and stations closed after a few hours of business when their tanks ran dry.

For us old-timers, who can look back on those times, it may come as a bit of a shock to learn that this year, for the first time in many decades, the United States may end up as a net exporter of gasoline.

During this past September, the U.S. exported 430,000 more barrels of gasoline a day than it imported. Experts expect the trend to continue for the balance of the year, creating a trade surplus for 2011 overall.

This is good news for the country because the rise in gasoline exports is part of an overall movement toward a more stable trade balance. From the second quarter to the third quarter of this year, the trade gap narrowed 7.3 percent to a deficit of $135.6 billion. The country’s total current-account deficit for the quarter was the lowest it has been in two years.

A major factor in the rise of gasoline exports has been falling domestic demand. Gasoline consumption has dropped about 8 percent since its peak in 2007, from 9.6 million barrels a day to 8.8 million barrels a day. In part this decline has been due to the recession, but there are other forces at play as well. Americans are driving more fuel-efficient cars. Around 70 percent of the nation’s gasoline supply is now blended with ethanol, according to the American Coalition for Ethanol, a trade group. And, because of high gas prices, more people have turned to other means of transportation, including buses, which are usually powered by diesel and sometimes by natural gas or electricity, but almost never by gasoline. In the first nine months of this year, Americans collectively took the bus 130 million more times than in the same period of 2010, a 2 percent increase.

The availability of American-refined gasoline for export is also connected to the ongoing natural gas supply glut. Stored inventories of natural gas now appear set to exceed last year’s record, keeping prices at rock bottom. In response, many homeowners, particularly in the Northeast, have switched from oil heat to natural gas. That, in turn, frees up more oil to be used as diesel fuel, making diesel more cost-competitive with gasoline. As some American drivers have switched to diesel-powered vehicles, refineries have been left with more gasoline to sell elsewhere. If this trend continues, it is possible that some makers of hybrid cars will start marrying their battery technology to diesel-powered, rather than gasoline-fueled, engines, which would further increase the gasoline surplus.

But since our national economic policy seems to favor preventing growth at every turn, there is already speculation that politicians may put an artificial end to the gasoline trade surplus. The problem is that American drivers (read voters) don’t like paying high gasoline prices based on global markets when they know their own country is producing a surplus. Tom Kloza, chief oil analyst at the Oil Price Information Service, told CNN Money he expects politicians to raise the idea of export restrictions, which would force refineries to keep more of their gasoline here in order to bring down prices for American drivers.

I drive quite a bit, probably more than the average American. And I don’t like paying high prices for gas any more than anyone else. But I have no desire for the government to subsidize my gasoline consumption by interfering with exports.

By forcing American refineries to focus on a market where there is not much demand for their products, we would succeed only in sabotaging one of our own industries just as it is starting to provide us with a valuable trade asset. If restrictions were imposed, refiners would stop investing in improvements and expansion to U.S. refineries and, instead, would direct their investments to offshore plants, ultimately taking jobs with them. Export restrictions would also short-circuit the natural supply and demand forces powering the movement toward hybrid vehicles. This would put an end to a trend that, in the long term, promises to help us use our energy more efficiently.

We need our politicians to accept the gasoline trade surplus as the good thing it is and resist driving progress away on artificially cheap gas.

About Larry M. Elkin 508 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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