US Consumers Subsidizing Venezuela Gasoline at 18 Cents a Gallon

EconMatters's picture

By EconMatters



Overall, Gasoline Exports net loss for economic productivity 


The gasoline market is well supplied, but if it weren`t for gasoline exports, the united states would have much cheaper gasoline, and the economy would reap the benefits of cheaper inputs which would fuel greater growth in the US. For example, I imagine college students, truck drivers and small business owners would be much more profitable paying a dollar less per gallon for gas over a year`s time. 


Gulf Coast Refiners


The refiners along the gulf coast have a strategic advantage in using the WTI oil input price, making refined products, and then selling them based upon globally benchmarked Brent Oil inputs. So quite the incentive to export as much refined products as possible with these attractive margins.



Consumers vs. Corporations


As with most transactions there are winners and losers, and US consumers are the big loser while refiners and the corporations that own them are the big winners. In short, the US consumer is subsidizing the refiners’ profit margins. 


LNG Export Debate


It is ironic that another industry the Petrochemical Industry is lobbying heavily against LNG exports, saying that they could contribute to raising natural gas prices, which they use as a feedstock, and this would hurt their profitability and operating margins. 


Dow Chemical Company has been a vocal critic of ramping up LNG exports, and Exxon Corporation has been on the other side of this issue. Exxon would benefit from higher natural gas prices due to their increased presence in natural gas over the last decade, and Dow Chemical who has moved operations to the US to take advantage of cheaper input costs would be hurt by rising natural gas prices.


Consumers Need Voice in Washington


I guess it is too bad consumers don`t have a large advocate group in Washington looking out for their interests when it comes to gasoline exports unlike the powerful fortune 500 companies. It is obvious that congressional loyalties go to the powerful lobbyist groups representing large highly profitable corporations, and not to consumers who elect these individuals into office. 


When in doubt always follow the money, and US consumers are not organized on issues that affect them, and they lack the money to influence politicians on issues that affect their bottom line. 


Salt in the Wound


If that wasn`t depressing enough for US consumers, here is a little salt to rub into that wound. If the US wasn`t exporting so much gasoline and refined products it is obvious that given the lack of demand, the abundance of oil, the sizable refining capacity, and the need to generate revenue, gasoline and refined products would be much cheaper in the US. If you don`t believe me, ask the experts in Dow Chemical why they are fighting LNG exports so vigorously?  


Venezuelan Subsidies 


Here is the salt, Venezuela whose government under President Hugo Chávez subsidizes gasoline for their citizens, so Venezuelans pay in the neighborhood of 18 cents a gallon, and much of this gasoline comes from the US in the form of exports. For example, U.S. exports of gasoline to Venezuela climbed to a record high of 85,000 barrels a day in November of 2012, and total petroleum products are well over 200,000 barrels per day of refined products being imported from US refinery operators.


No Incentives 


Ergo, the US has a tighter than otherwise refined products market due to increased exports to countries like Venezuela, so US citizens pay higher prices for the illusion of a tighter end products market, and Venezuelans who have no incentive to use fuel efficiently due to below market subsidies, demand more and more exports from the US, raising fuel costs on US consumers, while they pay ridiculously low consumption prices. 


What do US Consumers get out of Exporting Gasoline to South America?


Furthermore, Venezuela is a country with leadership via Chavez who routinely bad mouths the US, and nationalized the entire Oil industry in Venezuela, and has neglected to properly upgrade their oil and refining infrastructure. 


Why should US citizens be subsidizing big oil refiners, and in the process subsidizing Chavez`s inefficient use of energy, when these resources could be better used at home.


Let Chavez procure all his refined products from China, it would raise his costs enormously, and he would have to modernize his oil operations thus boosting efficiencies, given the higher costs of importing refined products from China. 


What`s in it for the US, besides higher profits for US refiners? It isn`t good for US consumers, or our political interests in the region. The sooner the Chavez regime is forced by market forces to embrace capitalistic ideas the faster the economy in Venezuela starts to use energy more responsibly and efficiently.


In fact, if Venezuela had their act together given their cheap input oil cost structure, provided they upgrade their infrastructure, the US should be importing gasoline and refined products from Venezuela at much lower costs than products cost today. The Adam Smith argument for maximizing global economic goods and services through country specific efficiencies and scale is underlying my assertion here.



Exports shouldn`t sacrifice US Consumers in the process


I am all for exporting, but not at the expense of our own citizens, and not for the purpose of subsidizing inefficient uses of energy, and governmental policies worse than our own, and we are pretty bad on a lot of governmental policy fronts. 


The US should be encouraging Venezuela which is sitting on the second largest supply of proven oil reserves, to enable free market forces to come in and maximize those resources, so the world can benefit from cheaper energy. 


The last thing the US should be doing is helping subsidize Venezuelan socialism through cheaper refined products at the expense of US citizens than they could otherwise get from China or other parts of the globe. It’s just bad policy all the way around unless you’re a US refinery along the gulf coast!


Yes, 18 Cents a Gallon


The next time your filling up at the pump for $4 a gallon just take solace in the fact that Venezuelans are paying 18 cents a gallon, too bad Dow Chemical hasn`t represented your interests on this issue in the past!


Further Reading - Delta Airlines Got An Oil Refinery: The Math Does Not Work


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TicoTiger's picture

"The last thing the US should be doing is helping subsidize Venezuelan socialism through cheaper refined products at the expense of US citizens."

What a load of crap! I suppose whoever wrote this so-called article is trying to get a propaganda job with the NY Times or Washington Post. Chavez bashing at every chance is just so fashionable isn't it?

I wonder why the author didn't see fit to mention that CITGO is still offering subsidized heating oil for poor folks in the United States.

dirtbagger's picture

Isn't that kinda how capitalism is supposed to work?   Individuals and companies selling their product/services at the highest price.  Domestic NG is mired the $3.50 - $4.00 range and at these prices, some of the new production from the Eagle Ford shale is being burned at the well head. It is not worth piping to the market.   Export to Europe where prices are in the $12.00 range seems sensible.   Would the author also assert that exporting LNG to socialist Europe is also a bad idea - difficult to follow the logic here.

imapopulistnow's picture

The Author's articles are very popular in Argentina.

BattlegroundEurope2011's picture

Proven reserves....The US will "soon" disclose it is #1 in reserves.

Bicycle Repairman's picture

No way, dude.  Hubbard sez "the oil's all gone" and academia agrees.

gorillaonyourback's picture

who wrote this shit,,  venezuala has the crude.  really idiotic article waste of my time reading

DaveyJones's picture

not his first "unique" article on the subject

Dr. Kenneth Noisewater's picture

Meh, it's capitalism at work.  Make hay when the sun shines.


And voters have only themselves to thank for not approving more refinery capacity and making refining much more complicated thanks to the variety and seasonality of legal blends for various localities.

Bicycle Repairman's picture

"And voters have only themselves to thank for not approving more refinery capacity and making refining much more complicated thanks to the variety and seasonality of legal blends for various localities."


The voters did this?  ROTFLMAO!!

Bicycle Repairman's picture

The voters tell the oil companies and their bought and paid for political stooges what to do?  Like clean up the Gulf of Mexico?

ROTFLMAO!!  No way, dude.

adr's picture

Another reason to put a 80% tariff on exported petroleum products. Don't tell me Exxon wouldn't still make a giant profit.

Gas usage in the US is at decade lows, and the price at the pump has never been higher for this time of year. Why are we paying so much? Because it is more profitable to ship gasoline overseas than sell it here. Plus there isn't anywhere left to store it.

Bicycle Repairman's picture

This whole energy thing is so complicated.  When the oil runs out soon at least it will be easier to understand.

Stuck on Zero's picture

Geees.  The U.S. has to sell something to pay for imports.  Congress has seen fit to give away all our manufacturing industries so that we're relegated to third world raw material exports. 


Middle_Finger_Market's picture

At the end of the day the price of gas in the US is still cheap in comparison to the rest of the world. Ever heard of liters?? A HELLUVA lot less volume than GALLONS! Shit wake up America inflation for you guys is like real world for the rest of us not producing oil states...and you have guns, and you get disgruntled a lot eaier, via simpler things like the iPhone 4s ve iPhone 5, when we get disgruntled over clean vs dirty DRINKING stop being so fucking pathetic! You are the WORLDS RESERVE currency and WE FUCKING HATE YOU (Not because you are American, but because you foreign 'policy' sucks, because you have no regard for the responsibilty of you 'currency' and because 99% of your population would have no clue what the FUCK I am even talikng about! 

DaveyJones's picture

our foreign policy is pure imperialism with democracy frosting. And the true price of our gas is in the massive cost of our military industrial complex. If you consider that, the growing cost of war and everyone's hatred, and the growing opportunity cost of developing sustainable systems with what oil is left, we pay an absolutely stupid price.

Stackers's picture

Hey dont lump us Americans in with the psycopath oligarchs that run the corporation known as the US Federal Government. We are waking up in droves over here thank you very much.

Navymugsy's picture

And oil at Cushing continues to overflow:

Crude supplies grew by 2.6 million barrels, or 0.7 percent, to 371.7 million barrels, which is 9.6 percent above year-ago levels, the Energy Department's Energy Information Administration said in its weekly report.

Falconsixone's picture

18 under on a Par 4 

DaveyJones's picture

it's not consumers vs corporations. That's exactly how they want us defined. It's citizens vs corporations or, in other words, Citizens United.

economics9698's picture

Yea 18 cents a gallon and traffic is clogged 24/7.  Motorcycles are everywhere because no one can get anywhere without spending an hour or two in traffic.  Venezuela wishes gas was $4 a gallon, or at least those with any money. 

Ratscam's picture

just returned from shit hole Caracas with 100 kidnappings EVERY day!
40 liters, roughly 10 gallons costs 4 bolivars, approx. 70 cents.

Most people hand over 10 bolivars and say keep the change.

if they hike the gasoline price to production price levels, there will be riots in the streets.
A country without a stable currency is doomed, regardless wether it has repatriated its gold reserves, but not putting it to action. They call it Bolivar fuerte but all I see is a weakening currency waiting for a new name to replace it.

economics9698's picture

They are the most mind fucked economically backward nation I have ever seen.  Love the Chavista TV bragging about the farmers market.

DaveyJones's picture

On economies of scale, war subsidization and "derrivative" crime we might be #1

Stackers's picture

I hear great stories from clients down there, how people will fill fishing boats full of gas, go 5-6 miles off shore to waiting barges that buy it from $2/gal then take it to the caribbean and sell it for $5/gal


and good luck talking Chavez into letting free markets in Venzl. any time soon


and they have lots of oil, but its all high sulfer low grade oil that has be to refined twice.