Despite Calls for Energy Independence, U.S. Keeps Guzzling Foreign Oil

U.S. refiners aren’t prepared to process domestic crude, and it’s unclear if industry can adapt.

AP Photo/David Goldman
Brian Dabbs
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Brian Dabbs
Feb. 12, 2018, 6:51 p.m.

The Trump administration is aiming to put the U.S. on the fast track toward energy independence, unleashing fossil-fuel production through a long-running series of regulatory rollbacks.

Energy Department statisticians bolstered that ambition last week with projections that the U.S. will be a net energy exporter by 2022—four years earlier than previously expected.

But the country faces a reality that nearly ensures domestic consumers will continue to rely on the most controversial foreign energy product for years, even decades, to come. U.S. companies will continue to import a steady flow of crude oil—between 6.5 million and 8 million barrels a day—through 2050, according to the Energy Department’s top trend-analysis agency, the Energy Information Administration.

The reason boils down to global economics and an esoteric, molecular condition of crude: U.S. refiners are ill-equipped to process the lighter, sweet crude yielded through domestic production.

“The best economic outcome is to ship some of our light, sweet overseas and import some of the heavy, sour out there,” Kevin Book, a top energy analyst at ClearView Energy Partners, told National Journal. “Independence is possible. The only question is the price.”

U.S. gulf refiners prefer the heavier, sour crude produced in Canada, Mexico, Saudi Arabia, and Venezuela—the largest crude exporters to the U.S. market. Despite recent pledges from Valero Energy and Marathon Petroleum Corporation to shift the refining capacity to light crude, the U.S. refinery fleet would have to undergo a seismic shift in operations in order to process domestic crude at scale, energy experts say.

“If we wanted to process more of the light crude, we could build more of that kind of stuff. But I guess the question is, is it worthwhile to do that when you could export the stuff?” said Howard Gruenspecht, a senior energy economist at the Massachusetts Institute of Technology and the deputy EIA administrator from 2003 to 2017. “It’s like a straight economics kind of question.”

Crude density determines the light and heavy weight classifications, while sulfur content distinguishes sweet from sour.

A March 2017 White House executive order, dubbed the Energy Independence Policy, called on federal agencies to scale back regulations on the oil and gas, as well as coal, industries.

“Together, we are going to start a new energy revolution, one that celebrates American production on American soil. We want to make our goods here instead of shipping them in from other countries all over the world,” President Trump said at the time. “We believe in those really magnificent words: made in the U.S.A.”

In late 2015, President Obama signed off on removal of the 40-year-old U.S. crude-oil-export ban, and production and petroleum exports have grown. Crude production is set to hit 10.3 million barrels a day in 2018, far outpacing the record of 9.6 barrels a day set in 1970. Gas production and exports are also expected to rise dramatically.

But the U.S. is expected to import 7.4 million barrels a day in 2018, followed by a steady and slight decline that finishes up at 7.06 million barrels a day in 2050, according to EIA data. The data supplements the agency’s annual energy outlook, which was released to the public on Feb. 6.

American policymakers have long sought to disentangle the U.S. from oil produced in restive Middle Eastern and Latin American countries. The 1973 Arab oil embargo led to shortages and dramatically increased prices for U.S. consumers, spurring clean-energy initiatives to avert similar crises in the future. Landmark energy laws passed in 2005 and 2007 put in place biofuel-blending mandates to further decrease that dependence.

Some lawmakers are urging the Trump administration to implement policies to decrease oil demand.

Sen. Maria Cantwell, the top Democrat on the Energy and Natural Resources Committee, told National Journal the administration should bolster biodiesel incentives. The budget deal passed last week provided a one-year retroactive extension of a biodiesel tax credit, a sorely insufficient gesture to the industry, according to advocates.

Sen. Ed Markey, a member of the Environment and Public Works Committee, urged Environmental Protection Agency Administrator Scott Pruitt in late January to strengthen fuel-economy standards in order to crack down on demand.

“We still import 3 million barrels of oil a day from Saudi Arabia, Libya, Kuwait, Iraq, Qatar. We should not be importing oil from these countries,” Markey told Pruitt. “We’re sending young men and women in uniform over to the Middle East to continue to protect that oil coming in from the Middle East, and we have a moral responsibility to put our fuel-economy standards at the highest possible level.”

The EPA, in consultation with the Transportation Department, is set to determine by April whether the Obama administration standards for car and light-truck emissions for years 2022-2025 will remain in place.

Meanwhile, most analysts expect dramatic growth in electric-vehicle production and use. That trend could slash overall demand for refined oil products. But regardless of increases in biodiesel consumption or crackdowns on vehicle emissions, the U.S. refining capacity is still unprepared to process domestic crude, according to experts. The EIA data incorporates expectations in refining and other technology growth, but bases its projections on current laws and regulations.

Still, one key lawmaker says he’s throwing his weight behind U.S. industry’s ability to adapt.

“I’m betting on America becoming energy-independent and being the world’s leader in oils and liquids production,” Sen. Steve Daines, a member of the energy committee who represents Montana, told National Journal. “Oil production is moving faster than the ability for the refinery capacity to catch up for whether it’s sweet or sour crude. That’s the issue.”

Montana is part of a shale-oil boom sweeping the nation. The Bakken shale region, which encompasses Montana, produces the light, sweet oil, which is not conducive to Gulf and Midwest refineries. Oil production in the Rocky Mountain and Dakotas region is expected to rise dramatically in the coming decades, surpassed only by production in Texas and New Mexico, according to the EIA.

The EIA is mandated to model industry growth and trends. But most experts agree the data isn’t rock solid.

“Long-term projections about oil are a sucker’s game. It’s too complex for anyone to seriously model,” Book said. “To the best of my knowledge, [the EIA has] no licensed psychics.”

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