The Untold Story on U.S. Foreign Oil Dependency.
Background Points for Today’s Blog:
(1) In discussing U.S. foreign oil dependency, two measures are used: (2) Under laws imposed after the Arab oil embargo of the 1970s, U.S. companies can export refined fuel such as gasoline and diesel but not crude oil itself. |
Typically when U.S. foreign oil dependency is being discussed in the Media, it will be the net imports
number that is cited. Using this benchmark, the EIA states “In 2012, about 40% of the petroleum used by the United States was imported from foreign countries — the lowest level since 1991″. For 2013 (using non-finalized data from the EIA), estimated net imports were 33% — the lowest level since 1986.
1 The above 2013 values are not official. In 2012 per the EIA, about 57% of the crude oil processed in U.S. refineries was imported.
Historical Perspective: The significance between gross versus net imports is a relatively recent development. For decades prior to the current boom in domestic oil production, yearly U.S. petroleum exports were very constant at approximately 5% of total supply. However, during the past 7 years, two things have dramatically changed:
bpd — barrels per day.
Gross Imports: |
In a world where all oil was the same (type and price), use of net imports would be totally appropriate. After all, this would be an example of American refining technology ingenuity where we import oil, refine and then export it into world markets better (lower costs) than anybody else. However, this isn’t what’s happening. Not all oil is the same type (light versus heavy crude) or priced the same (U.S. versus World oil prices).
Understanding Some Oil Basics 101: In long-term forecasts through 2040, the Department of Energy projects that U.S. dependency on imported oil (net imports) will stubbornly be above +30%.
Oil Production & Consumption:
With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex. The bad news is many U.S. refineries (especially on the West Coast and Atlantic Seaboard) can not use this lighter oil. Prior to the shale boom, U.S. refiners spent billions of dollars to configure their plants for heavier and sour foreign oils (from Canada and OPEC countries of Venezuela, Saudi Arabia, and Iraq).
The below chart from the EIA illustrates this above point. While U.S. imports of light crudes have been reduced dramatically in recent years (displaced by new oil production from North Dakota, Texas, etc.), imports of heavy crudes have remained constant.
Digging Deeper into the Data: Contradictory to what is reported in the Media, OPEC (not Canada) remains the largest oil importer to the U.S. While statements that Canada is the largest crude oil importer is not a “pants on fire” misrepresentation — it is “Spin Doctors” at work. Although it is again technically correct that Canada is the largest single country importer, this fails to recognize that OPEC (comprised of 12 countries) is a cartel and operates as a single entity.
(2013) Importer to the U.S. |
(2013) Oil Refiner for the World. |
In addition to gasoline exports, a major growth market for U.S. refiners is diesel fuel (especially Europe and South America). A large number of European refining plants have closed, as they can not compete with U.S. produced diesel.
U.S. Petroleum Exports: As discussed in prior blogs, a major reason in the unprecedented surge in U.S. petroleum exports is the price difference between U.S. and Internationally traded crude oil.
U.S. (WTI) Versus International (Brent)
During the current U.S. oil boom, the benchmark price for domestic oil (West Texas Intermediate — WTI) has been below the international benchmark for crude (Brent). As a result, many U.S. refineries have been using lower cost WTI priced oil, refining it (e.g., gasoline, diesel), and then pricing the refined products into international markets (where competing foreign refiners must pay the higher cost Brent price for crude oil).
Since it is legal for refined oil products to be exported, a refiner’s access to lower cost domestic oil does not necessarily translate to cheaper gas for the US driver and consumer. A U.S. refiner could as easily sell their product to the international market if that would maximize their profit. This explains why even with dramatic increases in domestic crude oil production (especially in the last 3 years), U.S. gasoline prices have basically remained unchanged.
Refined Products Exports: Many U.S. Refiners (along the Gulf Coast) use lower cost domestic oil (WTI), but price their products (gasoline, diesel) into an international gasoline and diesel market based heavily on more expensive Brent. The cheaper WTI becomes in relation to Brent, U.S. refiners make more profits and increase world market share.
Related News Stories:
U.S. Oil Boom Drives Gasoline & Diesel Exports — (Fox Business News).
Impact of Lifting Ban on U.S. Crude Oil Exports — (Wall St. Journal).
Source: http://greenenergy.blogspot.com/2014/07/the-untold-story-on-us-foreign-oil.html
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Nice job, as far as you went…ie: Refinery designs vs WTI vs Brent.
However, you didn’t address the API gravity differential in pricing.
The “heavy/sour” crudes are sold for much less per bbl, than any of the “light/sweets”…
Bonny Light/Brass river/Brent are all world “marker crudes” for prices (as FOB) the loading docks.
These are all “very easy to crack” crudes…in fact, you could tune many industrial engines to run on such “crude oil” without any refining – just degas it so the injector spray is uniform.
Saudi blend and WTI are “close to each other” in API gravity…but, there are many sub-grades from Saudi (and, other OPEC states/fields) that are much heavier/lower gravity crudes – which sell for much less per bbl. Ergo: the comparison of “Brent” alone to WTI is a miss-nomer;
To continue, after the fat-finger attack:
… I a miss-nommer; due to the basic difference in API Gravity in the first place….AND: WTI has a built in $1.05/bbl pipeline tariff (or, it use to be this value) – which is NOT present in the Munger Oilgram pricing of Brent. Then, you have the Tanker Bottoms fees and costs, along with LC costs from any prime bank of the world to figure into those “lower overseas prices/bbl” before you reach an: Apples to Apples comparison.
I agree, our refiners have been caught out with our current light oil boom….but, they can still process our light crudes with their plants as is – by a simple “by-pass” of some specialized parts, like reformers, etc… It might require a change in their Cat Converters pack, which is like 1 to 5 million each – very small change in this world of refining.
The real issue here is “supply safety” or, more simply put: Threats to constant supplies of crude!
Everytime someone shoots a gun in the middle east – crude from there ‘jumps in price” some amount…IF enough guns are shot, like say IRAN goes hot with Saudi…we could see $50/bbl war zone premium (payable directly to Lloyds of London for insurance)…but, it still runs up the costs before refining which means $7-8/gal gas at the pump… Whereas, if the true “bulk” of our crude supplies come from USA/Canada via pipelines…there is no to very little change in price of gas here in the USA… This loophole of “exporting refined products” is being used to the max by our refiners to maximize their profits, at the expense of USA consumers!.. Some of these “products” are simply an initial crack to light gas oil and distillate – which is basic diesel or JP1 kerosene. There are currently something like 500k BOPD “topping plants” being constructed or planned for this exact trade/sale/loophole. AND, the resulting Heavy gas oil and other bottoms will then provide much more suitable feed stocks for our Heavy crude designed refineries.
Remember those “very low” gas prices last early spring?… The world demand for diesel was super high and our refineries wanted to cash in on that premium trade…but, they make gasoline when they run crude, no matter how hard they try…and, we were swimming in gasoline then, our tanks were full…. So, they dropped the prices to force more into the market…freeing up some tanks so they could run more diesel for overseas (mostly So America and Africa) sales..
There does need to be some “adjustments” to this “export of products” loophole…like a variable tax rate that tracks the so called “premium” market overseas…said taxes should be earmarked for a portion of our Highways Trust Fund…that part that is actually spent on roads and bridges – NOT the fake part of “bike lanes” and “mass transit boondoggles”.. There could also be a variable wellhead tax (Federal) imposed to accomplish the same effect, or as a fine tune component vs that “export tax” noted above… a few cents per bbl would allow for our Strategic Petroleum Reserve to remain full and available for any middle east war in the future – while not costing American tax payers’ a dime, for once…