U.S. oil imports have declined very significantly over the past four years. The Obama Administration claims credit for increased oil production and reduced U.S. oil imports based on recent policy changes. Mitt Romney proposes other changes to substantially decrease future U.S. imports. All politics aside, what factors have actually contributed towards reducing U.S. oil imports recently?
To begin this analysis we will review historic U.S. crude & petroleum oil imports, oil consumption and domestic production trends.
DOE/EIA MER Petroleum Overview Data 1973-2012, Annual Averages
Total U.S. ‘net’ oil imports (gross imports minus exports) were at lowest levels during the early 1980’s following the Iranian revolution, and increased to a maximum of 12.5 MBD (million barrels per day) by 2005. Imports have since declined very significantly. Since 1973 U.S. domestic oil production (crude oil + natural gas (NG) liquids) declined continuously to a minimum of 6.7 MBD in 2008. This decline of production was due to a combination of restricted access to on-/offshore reserves and depletion of existing fully developed reserves. Oil + NG liquids production have increased continuously over the past four years largely due to significant drilling technology development breakthroughs. U.S. total petroleum oil consumption has varied from a low of 15.2 MBD in 1983 up to a maximum of 20.8 MBD in 2005. Petroleum oil consumption has declined since 2005 due to a number of factors that will be covered in detail.
Do you recognize a historic supply-demand pattern? U.S. oil consumption has generally trended the level of net imports over the years. This trend appears to have changed since about 2007, the beginning of the economic recession and a year before U.S. total crude oil and NG liquids production began increasing. So, what major factors have contributed to recent reduced U.S. net oil imports?
DOE/EIA MER Petroleum Overview Data 2008-12, Full Year Annual Averages
2012 estimates based on MER/STEO data. Gains + Adjustments include refining gains, stock changes and other EIA petroleum oil balance adjustments.
The above EIA data shows the primary factors that contributed to the 3.3 MBD reduced U.S. net imports 2008-12. The largest factor has been the combination of increased crude oil and NG liquids production and the second largest factor is reduced petroleum oil consumption. Significant increases in petroleum oil refining volume gains (processing efficiency) accounts for the majority of the ‘gains and adjustments’ developed by the EIA.
How much has the current Administration’s recent policy change to open additional Federal on-/off-shore areas to new development contributed to increased oil & NG liquids production? Developing new oil & gas reserves is fairly complex. The process involves competitively bidding for available reserves, seismic surveying, permitting, drilling exploratory & production wells, installing infrastructure (roads, utilities, pipelines, intermediate storage, etc.), and expanding/putting the most economic oil & gas fields into full production. This overall process normally takes 3-5 years from bidding/planning-to-full production. The current Administration’s new policy to open Federal on-/offshore areas for possible development did not begin until 2010. The timing of this policy change, the multiple year process required to develop new production, and the fact that nearly all recent oil & gas development has occurred on non-Federal and private land, makes the current Administration’s claimed credit for significant 2008-12 increased oil & gas production not very feasible or significant.
Declining U.S. petroleum oil consumption is the second most significant contributing factor towards reduced net oil imports. Which U.S. End-use sectors have contributed the most towards reduced petroleum oil consumption?
EIA MER Petroleum Consumption by Sector 2008-12, Annual Averages
The Residential sector petroleum oil consumption has decreased slightly 2008-12 due to a combination of energy efficiency improvements supported by the current Administration and the economic recession impacts. Following the housing bubble and massive foreclosures, a large number of homes were vacant 2008-12, which reduced petroleum heating oil and LPG consumption significantly. The recent energy efficiency improvements are estimated to contribute about 20% of total reduced Residential sector petroleum consumption or about 1% of total U.S. reduced petroleum consumption. The Commercial sector petroleum oil consumption surprisingly increased slightly during this same period. This includes petroleum heating oil and motor fuels consumed in stationary engines/equipment.
The Electric sector has experienced the third largest reduction of petroleum oil consumption and has decreased by about 50% 2008-12. Reduced Electric sector petroleum has been due to ‘fuel switching’ from more expensive petroleum distillate and residual fuel oils to lower cost natural gas, and substantially expanded renewable capacity. Renewable power has been strongly supported by the current Administration and has increased from 3.1% to 5.9% of total U.S. power generation (excluding hydropower) 2008-12. Added renewable power possibly accounted for 50% of total reduced Electric sector petroleum consumption and about 6% of total U.S. reduced petroleum consumption.
The Industrial sector petroleum consumption decreased very significantly 2008-12. Reduction in petroleum has been due to a broad range of factors, mostly related to the economy. As the recession increased, Industrial output decreased. This factor reduced overall consumption of petroleum oil including heating fuels and (non-road) equipment motor fuels. Other reductions included decline in metals production (less petroleum coke), reduced petrochemical production (less petroleum feedstocks), and reduced road work by cities and states (less asphalt).
The Transportation sector has overwhelmingly been the largest source of reduced petroleum oil consumption among all End-use sectors. Which Transportation modes have contributed most towards this reduced petroleum oil consumption?
EIA MER Transportation Sector Petroleum Consumption 2008-12, Annual Averages
All the different modes of transportation have experienced reduced petroleum motor fuels consumption 2008-12. The smallest reduction of Transportation sector petroleum consumption occurred within the specialty modes/supplies; aircraft aviation gasoline (av. gaso.), LPG motor fuels, and lubricants. The next smallest reduction has occurred in large marine vessel shipping that consumes heavy residual fuel oils. The reduction in marine shipments is largely related to the economy and reduced Industrial sector in-/output.
The third largest source of reduced Transportation sector petroleum motor fuels consumption is commercial jet fuel. This was largely due to the economic recession, and the resulting reduced passenger travel and reduced commerce transport. The second largest source of reduced transportation petroleum consumption is diesel motor fuel. Diesel motor fuels (on-road and off-road vehicles, and lighter marine shipping) have also been reduced primarily due to significant reductions in overall economic activity or reduced commercial diesel vehicle usage. Up to 25% of reduced diesel consumption has been due to a combination of increased biodiesel blending (more detail to follow) and new heavy duty truck increased fuel efficiency.
The largest source of reduced Transportation sector and total U.S. petroleum motor fuels consumption is gasoline. During 2008-12 reduced petroleum gasoline consumption was about 310 KBD (thousand barrels per day), which is equivalent to 35% of total U.S. reduced petroleum oil consumption. The cause for reduced petroleum gasoline consumption is due to a combination of new vehicles improved fuel efficiency, increased biofuels, and the economic recession. The number of registered on-road ‘light duty vehicles’ (LDV) that are primarily fueled by gasoline has increased steadily every year since World War II. In 2008 the total number of registered LDV’s peaked at 197 million. Registered LDV’s have since declined to about 190 million. In addition, the average annual ‘vehicle miles traveled’ (VMT) also declined significantly 2008-12. This historic reduction in U.S. total registered on-road LDV’s and VMT are largely related to the economic recession and the economy. The combination of reduced income of Households and possibly high un-/under-employment has caused fleet size and VMT to shrink significantly since the recession. Reduced fleet size and VMT is estimated to have contributed to about 5% of the 2008-12 reduced Transportation sector gasoline consumption.
New LDV sales were dropping substantially 2008-09 due to the recession (13 to 10 million LDV’s per year). Consistent with the American Recovery and Investment Act (2009) strategy of increased Government spending to possibly help improve the economy, Congress passed the ‘Car Allowance Rebate System’ (CARS). CARS was commonly called the ‘Cash-for-Clunkers’ program. Purchasers of new LDV’s received generous rebates (subsidies) for scrapping their older inefficient LDV’s. During 2009 the CARS program subsidized 690 thousand new LDV purchases for a total of $2.9 Billion. Although critics argue that CARS had insignificant impacts, since most purchases would have eventually occurred without the subsidies in the future, the program directionally did help encourage added LDV sales during 2009. In the best case, the current Administration’s CARS program contributed about 2% of the 2008-12 reduced Transportation sector gasoline consumption and about 1% of total U.S. reduced petroleum consumption.
The largest sources of Transportation sector reduced petroleum gasoline consumption 2008-12 was due to improved fuel efficiency of all new vehicles and increased biofuels. During 2008-12 consumers purchased 44 million LDV’s, with increasing fuel efficiency required by the CAFE standards (excluding the 690 thousand CARS qualified LDV’s). The 2008-12 CAFE standards were established under the Energy Independence and Security Act (EISA) in 2007. Increased (non-CARS) new purchased LDV fuel efficiency contributed to about 48% of total Transportation sector reduced gasoline consumption 2008-12. How much did the current Administration’s recent CAFE standards contribute to the Transportation sector’s 2008-12 reduced petroleum consumption and U.S. imports? The answer is zero. All effective 2008-12 CAFE standards were established by the previous Administration’s EISA 2007.
The balance of reduced Transportation sector gasoline and total U.S. net petroleum oil imports is due to increasing biofuels; primarily conventional ethanol. Not shown in Table: DOE/EIA MER Petroleum Overview Data 2008-12 is the increased conventional corn ethanol (and smaller amounts of soybean biodiesel). Increased ethanol biofuels accounted for about 45% of the total reduced Transportation petroleum gasoline consumption 2008-12. Increased ethanol (and biodiesel) blending resulted from the latest ‘Renewable Fuel Standard’ (RFS2); also created under EISA 2007. Similar to the bulk of new LDV purchases, the current Administration’s policies did not significantly affect biofuels production-consumption 2008-12.
Overall, the most significant factors that have reduced 2008-12 U.S. total crude and petroleum oil imports are: 1) increased crude oil and NG liquids production, 2) reduced petroleum oil consumption from increased energy efficiency improvements, increased biofuels and renewable power, and, 3) the weak economy. When the economy eventually returns to normal, petroleum consumption will likely increase. Unless continued increases in oil & gas production are achieved, and further increases in energy efficiency improvements and renewable energy capacity are made, we are not likely to continue reducing future oil imports at current rates.
So, how much credit for 2008-12 reduced U.S. oil consumption and net imports should be attributed to the current Administration? This analysis indicates the Administration’s continued support of renewable power and increased Residential efficiency, and the new CARS program have contributed to about 8% of total reduced U.S. petroleum oil consumption and about 2% of total reduced U.S. oil imports. The benefits from opening up addition Federal on-/offshore to new production, the future new CAFE standards, and further increase of renewable energy is yet to be developed.
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