Why would an oil producing nation import gasoline?

They should have all the money they need to build local refineries.

Opportunity cost. Why build something that expensive to construct and run when you can import gasoline cheaper and devote your resources to pumping crude?

Also, government approvals. The government (provincial and federal here) need to approve the building of a refinery and I hear that’s pretty hard to get.

When I lived in Salt Lake City, the city once bought and imported salt for the city streets. This utterly confounded me. Coals to Newcastle, indeed.

Because exporting gasoline is big business. Canada is a net exporter of oil products. We could pull a Venezuela and simply take care of ourselves, but exporting oil and tying our exports to world markets is hugely good for the dollar. I am not an economist, and certainly don’t pretend to understand it all, but I know Canada’s economy is in very good shape and exporting oil and gasoline has a lot to do with it.

But then we have to import it again at a cost. I guess we don’t import ALL of it, but we bring back a good amount.

This is the reason we’re building a refinery by Edmonton. To handle all the oil sands product rather then exporting for refinement.

Setting up a refinery takes

  1. A whole chunk o change up front.
  2. A whole chunk o time
  3. A big chunk of technical expertise to build staff and run the thing.
  4. Money to operate the plant
  5. Markets for all the refined products.

Selling a refined product typically brings in better money than selling raw material and importing a refined product.
In the Edmonton example cited above the companies have a low cost of capital, they have plenty of technically trained people, and the have a good market for all the refined products. Whilst gasoline may be the main one , all the tars, petrochemicals and ethlylene derivatives all go to help pay back the huge up front cost and keep things ticking along. Now days refinery margins are good, but in times past, they were not great cash producers for the oil companies. Take a look at some annual reports and still most of the money and profits is in the crude oil exploration and production divisions.
Anyway the up front costs are recouped with the bigger revenue from a refined product.

Now in the case of the national oil companies , say NIOC in Iran, the economics are different. They may have that money in the bank, but it is then not available for social programs, funding the army, hookers, developing new crude resources and blow.
The payback in reduced import costs of refined materials does not come until much later
The construction times will probably be longer due to logistics. (ok in India some refineries were built very quickly)
The refinery will probably be more expensive – importation of a lot of expats and materials due to minimal manufacturing infrastructure.
The expertise to run the plants is not readily available in country and operating cost will be higher due to requirements to import much of the material.
There is not so much of a petrochemical infrastructure to buy the petrochem feedstocks, and if the do export, they may be less attractive than feedstocks available in the import country, so less revenue from sales.
This all adds up, and so the payback to offset the up front investment will take longer, and when balanced against using the cash for social programs and other gov expenditures, just does not make sense.
It may make sense for strategic reasons, such as avoiding the impact of a gasoline embargo.

Or more succinctly – what silenus said.


You have to take a closer look at the economics. How much can they sell the oil for? How much would it cost to invest in refining? What are they being charged for refining? etc.

Did you know that oak cut in N. Carolina ships to China and then ships back as solid oak furniture? Same reason. They get a good price for the raw material, and the value added processing after that is done more cheaply by someone else.

Is the answer something to do with the futures market of oil? :dubious:

eg It’s the year 2000: Canada is pretty sure she’ll be able to produce x amount of oil to sell to Germany in 2002 at an inflated price, so agrees to this (Germany is reckoning the expansion of it’s industry will need extra oil, and Canada is seen as a safe bet for buying in the future).

In 2002 Germany can buy the oil from Russia for less so pays a buy-out penalty to Canada. Canada has too much stock so sells to the US at a reduced price (but the buy-out penalty makes up for this), and the US has many refineries so can absorb the extra oil.

Pure guess, but could be one of the reasons.

I’m looking out of my office window and I can see construction for the new Washington Nationals stadium.

Surely, a refinery is cheaper than that to build and the return is greater and theoretically it would last longer.

Maybe I just don’t have a grip on this world oil market thing. sigh

In addition to NaturalBlondChap’s list, there’s:

  1. Crotch-deep red tape involved in building a new refinery, and especially…

3)Profit!!! High oil and gasoline prices hinge on perceived and actual scarcity. The US exports and simultaneously imports gasoline. We don’t have enough refineries to make all our own gasoline, but nobody wants to build new refineries. Doing so would bring down the price of gasoline, and would cut into the billions of record profits the oil companies are making. What kind of fool would do that?

Let us not confuse the needs of the nation’s people with the needs of the stockholders. Energy-biz decisions are made by corporations, not nations.

Actually, they’re made by nations. According to this list, the top petroleum companies by oil reserves are:

ARAMCO - Saudi Arabia - 295 billion bbl - State-run
NIOC - Iran - 287 billion bbl - State-run
Qatar Petroleum - Qatar - 165 billion bbl - State-run
ADNOC - UAE - 137 billion bbl - State-run
INOC - Iraq - 137 billion bbl - State-run
OAO Gazprom - Russia - 115 billion bbl - State-run
KPC - Kuwait - 107 billion bbl - State-run
PDVSA - Venuezuela - 102 billion bbl - State-run
NNOC - Nigeria - 62 billion bbl - State-run
NOC - Libya - 45 billion bbl - State-run
Sonatrach - Algeria - 40 billion bbl - State-run
OAO Rosneft - Russia - 35 billion bbl - State-run

See a pattern here? Now let’s compare these with the six “supermajors”, the biggest private energy companies in the world.

ExxonMobil - 74 billion bbl (I don’t trust this number at all, it looks like creative accounting via claimed agreements)
Royal Dutch Shell - 2 billion bbl
BP - 18 billion bbl
Total S.A. - 11 billion bbl
Chevron Corporation - 11 billion bbl
ConocoPhillips - 11 billion bbl
(This data is from OilVoice.)

The state-run concerns simply dwarf the private companies. No matter how big “Big Oil” seems to be, it’s a drop in the bucket compared to ARAMCO or NIOC or Gazprom. Now, “Big Oil” is much more efficient than the state-run companies - after all, they have to answer to their shareholders - but as far as proven reserves are concerned, the state-run operations are simply in a different league.

I’ve never understood this line of reasoning. Unless you have an absolute monopoly in a particular market, you can never make more money by selling less of a product. I don’t think you can make a credible case that there is no competition in either the oil or gasoline markets.

Perhaps, then, you can explain why nobody has built more refineries in the US. If your point is as simple as you say, it ought to be easy to explain. As for making more money by selling less, the members of OPEC would disagree with you.

Perhaps Crescend can explain, if energy-biz decisions are made by the government, why US oil companies are allowed to export gasoline to Asia, to the detriment of our national interest.

The OP asked “Why would an oil producing nation import gasoline?” Crescend’s big-picture chart does little to answer that question, which seemed to be aimed at the US.

(If anyone is wondering why I tacked “2) and 3) Profit!!!” onto NaturalBlondChap’s longer list, it’s a distant reference to the business plan of South Park’s underwear gnomes.)

[Three nitpicks, that don’t really bother Crescend’s overall trend]

Eventually, Iraq’s oil industry may be state-run, but right now the Iraqi government can’t find its way to the bathroom or pass an oil law. It’s being run by outside contractors while the rulers :rolleyes: decide which way is up.

In Russia, OAO Gazprom and OAO Rosneft claim to be independent corporations. It might even be true, but it’s hard to tell what’s really happening in Russia.

And another thing one has to consider is that more jobs are involved and that means it is better for the working man and likely the economy as a whole. It may seem like it would save some money on the cost of that piece of furniture if it was made nearby, but one has to wonder if the fact that it keeps truckers, trucking companies, gas companies, people that work in a refinery, etc down to the accountants that keep track of everything, in jobs is worth the extra 20-30 bucks per piece of furniture. Quite a few more jobs than are apparent are created because somebody exports raw goods and turns around and imports the refined product.

Jobs are good.

Because it is a huge investment for a company. They may spend 2 billion dollars building one, and 100 million a year running it (resources, salaries, etc), but if they only make 200 million a year from that refinery itself, it would take 20 years to see a return on that investment. Far too long to make the stockholders happy. (I made the numbers up, it is just an example of how companies think).

If it was MORE profitable and the ROI (Return on Investment) was in a shorter time period, they would build more.

Also you have to consider the time it takes to build it, government hurdles, political and social problems (nobody wants a refinery in their back yard), taxes or other fees and costs that may be added depending on location, etc. Also consider that even the big bad oil companies know that Oil isn’t going to last forever, so a 20 year ROI isn’t something they may be willing to do.

Importing it is much easier to the profit lines. And yes, they may make make more money by building more refineries, but they weigh everything by profit, risk and return on investment (among other things).

Oh, they’re corporations - but their major shareholder is the Russian Government. Irregardless of any back-room skulduggery, that in itself would put them firmly under the thumb of the state. If you add in the considerable amount of other clout that the government wields over their actions (issuing permits for all their operations, supporting them with state resources, passing bills regarding them specifically), they may as well be state organs.

Worldwide, the dominant factor in controlling the energy market is government input. In the U.S., the government plays a far smaller role - they don’t operate the oilfields, the refineries, or the transportation network. Neither do they set the prices. They certainly exert regulatory control, but that’s not much in comparison to what can be done with a fully state-owned enterprise.

As for why U.S. oil companies are allowed to export gasoline to Asia…because nobody passed a law preventing them from doing so. Yes, I know that this sounds facetious, but I mean it. Also, I believe - though I’m unsure - that our membership in the WTO would make passing such a trade restriction difficult.

You are right, and I was wrong. I apologize for wasting your time. I have no good reasons for writing what I wrote. :smack: