Has the U.S. now reached a level of energy independence?

Is the US now energy independent?

President Donald Trump earlier in January made the following statement: “Over the last three years under my leadership, our economy is stronger than ever before and America has achieved energy independence.” Is this true?

We will concede that since the first energy crisis in the 1970s, the discussion of whether the U.S. is energy independent has generally focused on oil. “Energy” could mean other things. The U.S. is a net exporter of coal. With the explosion of LNG exports in recent years, it has become a net exporter of natural gas as well.

What has led some declarations of U.S. energy independence is the fact that for the last two months, the U.S. Energy Information Administration’s monthly statistical report has had a negative number under the category of net petroleum imports. It means that when you add in every barrel of petroleum shipped out of the U.S. — crude, products, natural gas liquids like propane and butane — there was more petroleum exported than imported. Hence, the U.S. is “energy independent” in the sense that it ships out more barrels of everything petroleum than it imports.

Is it that simple?

Far from it. Let’s look at some basic numbers from the October 2019 report, the most recent of the EIA:

• U.S. field production of crude oil was 12.6 million b/d. Inputs of crude into refineries were 16.1 million b/d. But that October number was significantly below the norm because of heavy refinery maintenance. In July, for example, throughput was 17.84 million b/d. Whether it was October or August, the U.S. needed to bring in crude oil to fill that gap.

• Total U.S. consumption of all petroleum and biofuels is generally between 20 million and 21 million b/d. Total production of all U.S. petroleum, natural gas liquids (like propane, which are considered petroleum) and biofuels is about 18.7 million b/d. So right there, an imbalance exists. 

• It’s a big country. The U.S. produces lots of oil in Texas, North Dakota, Louisiana and  Oklahoma (to cite the leading producers east of the Rockies.) It also produces a significant amount in California. But California’s production and shipments down from Alaska are nowhere near big enough to serve the needs of that state or the rest of the West Coast. So in October, the West Coast area known as PADD 5 brought in about 1.7 million b/d of crude imports. The amount of oil it brought in from other areas of the country, presumably all by rail, worked out to less than 1,000 b/d. It’s simply far easier to import its crude requirement rather than bring it from over the Rocky Mountains or the Cascades into the Puget Sound refineries. (It would need to be by rail. There are no pipelines.)

Are there other considerations with crude imports and exports that mean we’ll always be a petroleum importer even though on net we’re an exporter?

Yes, and quality is a key factor in answering that question. The U.S. has seen its crude  production soar from about 5 million b/d in 2008 to almost 13 million b/d now. That’s the result of the shale revolution in places like North Dakota, the Eagle Ford in south Texas and the Permian basin in Texas and New Mexico. But a lot of that oil is “light,” with a high number for what is known as API gravity. Where there’s a problem with the U.S. refining system is that for years that system invested to refine what it expected would be an increasingly heavy barrel that would be imported from Venezuela, Mexico and the Canadian oil sands, among other sources. But Mexican and Venezuela output plummeted and the U.S. began pumping out light crude. 

The refining system then had three pathways: It could massively invest to make these refineries more suited to light crudes, but given the always precarious financial position of refining, that probably would have killed some refineries; it could run light crudes through heavy refineries, a highly inefficient process; or it could keep processing heavy oil — much of it imported — through the highly developed refineries of the U.S., considered some of the world’s most complex. And it could take the light stuff and ship it out, which it is doing to the tune of more than 3 million b/d and at times topping 4 million b/d. The latter approach is clearly the most economically efficient, and that’s what has mostly happened.  

When you look at the net export figure, are there numbers that go into it that most people won’t think about?

There are two big ones. The shale revolution in the U.S. has unleashed a gigantic surge in the output of natural gas liquids: propane, different types of butane, ethane. The production far exceeds the U.S. ability to consume it so exports are necessary. In October, the U.S. exported 1.17 million b/d of propane. Ten years ago, it exported 20,000 b/d. Ethane is a product that had been problematic to export because it needed costly refrigeration and liquefaction. But the economics on it became so strong that the U.S. in October exported 314,000 b/d of ethane. Ten years ago, nobody even kept records of ethane exports because they didn’t exist.

The second category is petroleum coke. We mentioned earlier the high level of complexity in the U.S. refining system. That includes a significant amount of a process known as coking, which can take heavier intermediate petroleum products and squeeze more diesel and gasoline out of them. But the process leaves behind a product called petroleum coke, which can be used in various industrial processes, like aluminum smelting. The U.S. exports anywhere between 500,000 to 600,000 b/d of petroleum coke. That’s in that figure for net exports. 

What’s your point?

The oil supply chain is complex and there’s often a mismatch — geographically or quality — between what’s coming out of the ground or refineries and what the nation needs. Imports and exports allow “free passage” through those mismatches.

The focus on Mideast oil dependence is usually tied up with crude. What is the situation regarding the key transportation products like diesel and gasoline?

As we’ve noted, the U.S. doesn’t produce anywhere near enough crude to feed its refineries, much less its roughly 20 million to 21 million b/d in petroleum consumption. So clearly, the position of U.S. net exporter isn’t coming from crude. Even as the U.S. is also importing lots of products, it’s exporting lots of products too. 

Why doesn’t it just make sense to keep everything here?

As mentioned before, there are mismatches. U.S. refineries are tremendously complex and are considered some of the most sophisticated in the world. But they can’t make the precise right amount of products to match consumption. Some of the better refineries are in one location, while the less complex might be in another. Given that the capacity to move products around the country is robust but still not perfect, it makes sense in many cases to export some products and import that same product into another part of the country. Also, the economics of the West Coast for imports and exports are likely to be completely different than the Gulf Coast or East Coast. So for example in October, the U.S. exported about 5.5 million b/d of distillates, including diesel. It also imported 1.2 million b/d of distillates. The split on gasoline was 3.5 million b/d of imports and 843,000 b/d of exports. But that’s an aggregate number; those ratios don’t hold in each of the country’s major refining regions. There are  hundreds of individual transactions going into each of those barrels and the economics of each of them differ. That’s why the U.S. is a big importer and exporter at the same time.

So is the U.S. energy independent?

If your definition is we export more than import, then yes, then we have reached U.S. energy independence. But as you can see here, it’s far more complex than that. 

John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

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