National 1800 Massachusetts Avenue, Northwest Washington, DC 20036 202/659-1525 Serving America's Family Farmers PETROLEUM PRODUCT IMPORTS: May 1985 Growing U.S. dependence on foreign petroleum products could add an ominous new dimension to the continuing threat of petroleum supply disruptions. If this trend continues unabated, the next emergency is likely to involve a cut-off not only of crude oil but also of petroleum products. Remaining domestic refining capacity at that time may be inadequate to convert SPR crude oil into needed products. The consequences for agriculture and the nation would be devastating. 2. COMPARATIVE REFINING CAPACITIES, U.S. vs. OPEC 3. POTENTIAL EFFECT OF NEW OPEC EXPORT REFINERIES ON THE REFINING INDUSTRY IN THE UNITED STATES 4. U.S. AGRICULTURE AND THE RURAL PETROLEUM SYSTEM PETROLEUM PRODUCT IMPORTS Implications for U.S. Agriculture EXECUTIVE SUMMARY Farmer cooperatives' heavy involvement in energy emergency preparedness policy debate over the past 12 years hinges upon the fact that U.S. agriculture must have uninterrupted access to equitably-priced petroleum fuel supplies. Yet agriculture is perhaps most vulnerable to energy supply disruptions. It is this combination of need and vulnerability that led farmers to invest in their own cooperative petroleum system over the past 50 years. The cooperative system represents the only segment of the oil industry in which the consumers of its products are also its owners. This feature carries with it not only a unique accountability in terms of commitment of supply, service and price, but also a unique institutional perspective and sensitivity to this nation's energy security. History has demonstrated that even a relatively minor petroleum disruption can generate long gasoline lines, crisisdriven price increases and devastating macroeconomic consequences. Farmers were forced to pay as much as $5 billion more annually for their petroleum fuels from 1979 through 1983 as a result of the Iranian disruption alone. Imports of gasoline and middle distillates have increased more than three-fold within the last four years, and have approached 10 percent of domestic demand. Substantial evidence exists that this trend may continue. A new kind of vulnerability threatens to emerge, with potentially grave national security implications. Increasing petroleum product imports could displace sufficient domestic refining capacity to jeopardize the Strategic Petroleum Reserve's (SPR) effectiveness. Remaining domestic refining capacity at some point Supply disruptions in the past cut off crude oil. Farmers and other U.S. consumers require petroleum products, not crude oil. Refineries are necessary to accomplish that conversion. 50-921 0-85--11 EXECUTIVE SUMMARY (continued) Rising product imports exacerbate the current depression in the domestic refining industry. Cooperative refineries are disproportionately impacted, as they generally do not have offsetting crude oil earnings. Additionally, the agricultural economy is going through its Own severe economic crisis. A total of $675 million in cooperative refinery assets is potentially at risk. If cooperative refineries are forced to shut down, then their traditional role as the principal supply source for the cooperative distribution system would be replaced by dependence on imported products and a volatile spot market. These sources dry up quickly during a disruption, and a fuel shortage could quickly degenerate into a food crisis. Available information suggests that product imports will indeed continue to increase: Arab OPEC nations have already added or are in the process of adding four new refineries with a combined capacity in excess of 1,000,000 barrels per day. Most exports by these refineries will be targeted for the U.S. market. Almost half of all refining capacity, outside of Communist countries and the U.S., is now stateowned and controlled. Products from these refineries are often subsidized. The potential stakes are so high that petroleum product import trends, and their implications for U.S. agriculture and for national energy security, deserve the fullest investigation on an expedited basis. May, 1985 NCFC iii |