U.S. Energy "Independence": Facts and Truths

By Maxxwell A.R. Chatsko - January 22, 2012 | Tickers: BP, XOM | 0 Comments

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Four short years ago during the presidential primaries several topics dominated the debates: the wars in Iraq and Afghanistan, the economy, healthcare, and alternative energy. Now in 2012 the Iraq War has officially ended, the economy is thawing, national healthcare seems to be an afterthought, and alternative energy is trying to hide the black eye named Solyndra. It is still early – too early for presidential anything in my opinion – but the national conversation has yet to shift to alternative energy. The hotter topics will probably be natural gas “fracking” in Pennsylvania and Texas and the Keystone XL Pipeline. However, the mistake that is corn ethanol owes much of its existence to the presidential primaries. If the politically charged phrase “energy independence” is uttered in the coming months will you be able to separate the facts from the politics? 

Can Wind and Solar Result in "Independence”?

No. Wind, solar, and geothermal combined to produce 1.33% of the United States’ total energy production in 2010. We can add the ancient hydroelectric power to boost the number to 5.33%. “But wait that isn’t fair” you say, “all of those are used in electricity generation! Let’s look at that.” You are absolutely correct. In fact, wind, solar, biomass, geothermal, and hydroelectric – all terms under the “renewable” umbrella – combined for a whopping 10% of United States electricity generation in 2010. Meanwhile, coal produced 45%, natural gas produced 24%, and nuclear energy produced 20% for a combined 89% of total electricity generation. I would argue all of those sources are produced domestically and are just as “American” as renewables. The bottom line: solar and wind will not result in "independence” because they do not and will not displace energy imports. 

How dependent is the U.S. on foreign oil?

Is the United States dependent on other countries for transportation fuels? Yes, but would you expect the world’s largest consumer of oil to be independent? Well, we can all hope that day will come. While we are waiting for biofuels to catch up let’s consider some hard numbers and see if it is really as gloomy as we are led to believe.

In 2010 the United States consumed crude oil at a clip of 19.1 million barrels per day (MMbd) – more than any country in the world and good enough for 22% of total world consumption. However, we were third in world production with 5.5 MMbd. After accounting for exports net imports totaled 9.4 MMbd, or 49.2% of consumption. That means the United States provided 50.8% of its crude oil from domestic production or by offsetting consumption via trade. Given all the gloom and doom, fire and brimstone talk surrounding our oil dependence I am willing to bet some of you are a little surprised.

Approximately 49% of all imported crude oil (11.8 MMbd) originated in the Western Hemisphere. Only 18% was pumped from the sands of the Persian Gulf, which was third behind Africa at 23%. The 2010 top five:

Refining Oil: Market Trends and Keystone XL

The great majority of our refining capabilities are located on the Gulf Coast. In fact, the top six refineries are all located in the region as well as 15 of the top 25. Exxon Mobil (NYSE: XOM) owns the top two refineries and four in the top 25. BP (NYSE: BP) owns the largest refinery outside of the Gulf Coast located at Whiting, Indiana. The plant has been around since 1889 and is currently being modernized for a few billion dollars – aka upgraded to handle heavier crudes from the Tar Sands.

Unfortunately, energy companies hold no special place in their hearts for American consumers and will follow market trends for the highest return. Thanks to capitalism, sometimes it may actually make more sense for Gulf Coast refiners to export gasoline to Mexico and import gasoline from Europe rather than send the original gasoline to the East Coast. That should remind energy independence advocates that “drill baby, drill!” may not result in fewer oil imports.

A current example of this is the Keystone XL pipeline. If you clicked on the link above for a list of the top American refineries (my trap worked!) you may have noticed that a good amount of our refining capacity is in Illinois and Indiana. These are fueled by Canadian Tar Sands via the Enbridge and Kinder Morgan Express Pipelines (map) and are eventually connected to the Gulf Coast with other pipelines. So, why does the Keystone XL largely bypass these refineries? (They will be connected with extensions to existing pipelines, but this will be marginal.) The short answer is that the landlocked refineries of Illinois and Indiana are not capable of direct exports. Therefore, building new refineries to increase Midwest capacity won’t make much of a difference. Some array of new pipelines is necessary.

Are there alternatives? Yes, but they are pretty disruptive. A pipeline could be built from the Midwest to say, Newark, NJ for export to Europe. It is approximately the same distance to the East Coast as it is to the Gulf Coast from Whiting. If oil prices continue their upward climb, then it might actually work out given the right circumstances. This is plausible, but would require additional permits, refineries, and shifts in market trends. Of course, higher oil prices also bode well for the current Keystone XL pipeline. Therefore, not very likely to happen.

Coming Back to Earth

Now, before you go and shower in the stuff because you think the United States is "just fine", let’s consider some sobering realities. The financial fiasco of 2009 resulted in the lowest total energy consumption for the United States since 1995 and the lowest consumption of transportation fuels since 2002. Even 2010 was on par with 2003-2004 – quite a considerable drop given the momentum behind fuel consumption patterns. Unfortunately, the world will likely never see such low consumption again. That means the Keystone XL (or other pipelines) will one day be a reality. Would the United States be smart to replace the almost 50% of crude oil it imports with domestic fuels from any source (natural gas, biofuels, coal-liquefaction)? Of course, but that is still some time away.

The discussion about fuels and crude oil cannot take place without serious consideration of peak oil, crude oil prices, biofuels, and other macro and micro movements. These topics and more will be given the time they deserve in future articles.

Did you enjoy this article? Follow me on Twitter to keep up with my future posts on energy @BlacknGoldFool.

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