U.S. Energy Security Remains an Elusive Goal

5 MINS READJun 17, 2014 | 01:15 GMT

Recent events in Iraq, Ukraine and Russia have fueled debate about U.S. energy security. As of Monday, U.S. crude oil production stood at around 8.3 million barrels per day, the highest since the Reagan administration. The production of U.S. petroleum liquids, which include crude oil and other petroleum liquids such as butane, stood at the highest level since before the 1973 oil crisis. The growth of U.S. oil production has led many government officials, politicians, analysts and others to voice hopes that the United States could eventually become energy independent, or at least drive down the importance of oil imports from the Middle East and other regions. But the United States will remain deeply embedded in global energy markets regardless of how much oil and natural gas it pumps. 

According to the 2014 BP Statistical Review of World Energy, released Monday, the United States accounted for 20 percent of the world's oil consumption and 22 percent of the world's natural gas consumption. While technological advances in drilling have helped produce a dramatic increase in domestic hydrocarbon production, the sheer scale and size of U.S. oil and natural gas demand is unparalleled. While the United States is likely to become a net exporter of natural gas in the near future, it still imports 7 million barrels per day of oil despite increasing its production by nearly 3 million bpd since 2011. To put this into perspective, only one other country, China, consumes more than 5 million bpd. 

Making the United States truly energy independent would require a major technological advance that could undercut oil's unique quality of transportability. Refined oil in the form of diesel and gasoline is relatively cheap to produce and has a relatively high energy density, meaning a fairly low volume yields a fairly high amount of energy. This makes it the best energy source for powering the transportation sector. While the United States can produce natural gas for roughly the same cost as — or cheaper than — elsewhere in the world, its low energy density makes it relatively useless in a vehicle. Compressing natural gas increases its energy density and has made it an alternative to gasoline and diesel in some countries, but its energy density remains far below that of gasoline and diesel. Meanwhile, while liquefying natural gas is a common way of transporting it economically over long distances, it is much more expensive than the alternatives. 

Another option would be to shift the U.S. vehicle fleet to hybrids and electric vehicles, which are powered in part or in whole by batteries. This could replace gasoline- or diesel-powered vehicles in the distant future. Recent years have seen the introduction of low-cost electric models (Nissan Leaf, Chevy Volt) and models with an increased range in between charging (Tesla Model S). We expect that continued improvements in battery technology over the next several years will continue to bring costs down and ranges up. Tesla's recent announcement that it will make its patents available for others to use promises to increase the rate of advances in electric vehicle technology. But electric cars continue to make up a small fraction of the overall transportation sector. And while we expect to see a significant increase in the number of electric vehicles on the road over the next five years, the turnover rate for vehicle fleets remains slow. Even with an increased incorporation of improved electric vehicle technology, we expect gasoline and diesel to continue to dominate the transportation sector.

Without a technological revolution in the transit sector, the United States will continue to rely on Middle Eastern energy. U.S. crude oil imports from the Persian Gulf actually increased from 1.7 million bpd to more than 2 million bpd since 2010. This is because the U.S. energy market is hardly unified, and all qualities of crude oil are not identical. For example, the West Coast is not well-integrated into the U.S. oil pipeline infrastructure, while many refineries on the Gulf Coast have their operations optimized to specific types of oil — historically, this has meant oil with qualities closest to the oil produced in the Middle East or the Gulf of Mexico, which differ from most of the U.S. shale oil in production now and likely in the future. Refineries cannot effectively process crude mixtures of a drastically different quality without overhauling some of their facilities. 

Even if the United States was somehow able to produce all the oil it needed, it increasingly is becoming an exporter of petroleum products despite a ban on crude oil exports. This means that the price of refined products in the United States will move in tandem with global markets because private refiners can export their products if a price disparity arises that makes exports more lucrative. Thus, while the price of West Texas Intermediate — the crude oil benchmark for much of the United States — has remained below international prices for much of the last few years, its movements have followed international prices. 

None of this is to say that the United States does not stand to gain from greater energy production. It certainly improves the United States' trade balance, the health of regional economies based on oil production, and the domestic job market. Still, the strategic gains from energy independence will remain elusive.

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