Who's Profiting From Gasoline Exports?

The U.S. Energy Information Administration reports that as of the end of July 2013, the United States produced roughly 2 billion barrels of finished gasoline and exported almost 80 million barrels of it. While the price of gasoline dropped over the past year, many Americans would still welcome even cheaper gasoline. Instead of fuming at the pump, prudent investors look to capitalize on this export activity. Here are three companies profiting from gasoline exports.

Adjusting to a changing world
Created from the break-up of ConocoPhillips, Phillips 66 (NYSE: PSX  ) produces gasoline and other refined products. Phillips also exports the stuff. In fact, the company claims it has the capacity to export 320,000 barrels of gasoline or other distillates (e.g. diesel fuel) a day. Through the third quarter of 2013, Phillips actual export rate ran 190,000 barrels a day, the fourth quarter in a row the company reported rising export volumes.

Phillips believes the export market will be important to its business, especially in Central and South America. Which is not to say the European market will be ignored. Phillips has long been exporting diesel and gasoline to The Old World, and with U.S. crude supplanting more expensive African crude at its East Coast refineries, expect exports to contribute a greater share of corporate revenues.

The third quarter showed Phillips earnings a bit under those of the second quarter. Given rising crude oil costs this past quarter, this is not surprising. Phillips did generate enough cash flow to pay its growing dividend and fund it capital expenses. Debt declined and a stock repurchase program will continue. With the more recent decline in crude prices, I would expect better earnings next quarter.

Exporting gasoline, diesel and...methanol?
Traditionally a refiner of heavy sour crude with its inherent cost advantage, Valero Energy (NYSE: VLO  ) is no stranger to exports. According to its recent earnings conference call, Valero exported 193,000 barrels of diesel and 91,000 barrels of gasoline every day of the third quarter. The fourth quarter will see even more. The usual cost advantage of sour versus light crude has shrunk, so Valero has modified its refineries to accommodate more light crude oil. This should enhance profits going forward.

Beyond refining oil, Valero plans to produce methanol. Turns out, methanol can be made from natural gas and is used for waste water treatment and a host of chemical products. The U.S. currently imports 5 million tons of methanol or 89% of its needs each year. For Valero, converting natural gas to methanol is a bolt on process with a ready domestic market. Valero also hopes to capture a growing Asian market. Given the price spread between the cost of natural gas and methanol, methanol could be a significant driver of revenue once the process gets online in 2017.

Like Phillips, Valero took its lumps with higher crude oil prices this past quarter. These lumps were partially offset by higher profit margins for its ethanol division. However, Valero anticipates better results in the fourth quarter, again, as domestic crude prices decline.

Pipelines for exports
Most investors view Enterprise Products Partners (NYSE: EPD  ) as a midstream energy pipeline company. And that it is. Enterprise also operates pipelines and other assets for the export market. Specifically, the company operates a natural gas liquids import/export facility at the Houston Ship Channel. This facility allows the export of butane, propane, and propylene by ship or by barge. Enterprise currently is in the process of expanding this facility to increase its capacity by three cargoes a month by early 2015. This is in addition to a previous expansion completed this past March. This looks to be a lucrative business as Enterprise is contracted out through 2015.

Gasoline exports are on the horizon. Enterprise owns or owns a stake in three different pipeline assets connected to two Texas coast terminals. These assets will export refined products with an eye toward the Central and South American markets. The first of these terminals should come online in the first quarter of 2014, the other terminal three to six months later.

This export activity will add more revenues to a company already well known for steadily growing revenue and distributions. Enterprise's current yield is around 4.5% and its distribution has grown for the past 36 quarters. Even better, the distribution ratio is a healthy 1.5 and its debt-to-EBITDA and cost of debt have been declining. Not hard to see why Enterprise is a favorite among investors.

Final Foolish thoughts
Valero CEO William Klesse, in response to an investor question, stated exports will be "a huge part of the future" for refiners. With a slowly improving price differential between North American crude versus imports and growing foreign demand for diesel and gasoline, U.S. refiners look increasingly attractive. However, given the volatility of oil prices, Enterprise may prove the safest investment of the lot. Regardless of commodity prices, Enterprise makes money on a diversity of exported products. With more export capacity coming online, expect more revenues from this already successful business.

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