US Oil and Gas Import Dependence: Department of Energy Projections in 2011

It is far easier to talk about energy independence than it is to achieve it. Ever since the oil embargo of 1973 and the sudden rise in prices that followed, US political leaders have called for such independence. In January 1974, President Richard Nixon issued the following call for an end to energy imports: “At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide jobs, to heat our homes, and to keep our transportation moving.” In practice, US imports rose from 3.2 MMBD in 1973 to 5.3 million BD in 1980, and have continued to rise since.

President after President has  claimed to pursue the same fantasy – although now with some moderation. President Obama called for a reduction of one-third by 2025 in a speech on March 30, 2011, using  an import level of roughly 11 million barrels in 2008. He also warned that, “there are no quick fixes…”(but that) “we will keep on being a victim to shifts in the oil market until we get serious about a long-term policy for secure, affordable energy.”

The Burke Chair has developed a new brief that addresses these issues. It is called US Oil and Gas Import Dependence: Department of Energy Projections in 2011, and is available on the CSIS web site at:

The briefing is based on new projections by the Energy Information Agency of the Department of Energy, which were issued in is Annual Energy Forecast in late April 2011. These estimates reflect some of the progress that President Obama called for, but it makes it clear that the US is likely to remain just as strategically dependent on oil imports through 2035 – the last year covered in EIA/DOE estimates – as it is today.

US Petroleum Imports Remain High Through 2025 In Spite of Increased Prices and Increased Domestic Production of Oil and Alternative Fuels

These trends are shown in the first section of this briefing – which shows how the new projections of US imports compare with those for 2010 and 2009. It is clear that the level of US import dependence has consistently been projected to decline somewhat over time, and would decline far more sharply if extremely high oil prices create a far more rapid and extensive conversion to alternative fuels, and efforts at increased conservation and efficiency.

At the same time, the reference case – which is based on very favorable assumptions about technology, alternative liquids, and future demand – still leaves the US dependent on imports equal to over 40% of its consumption in the far more likely reference case – rising to over 60% in the low price case. These are still critical levels of strategic dependence, and the fourth and fifth charts in this section show that President Obama’s goal of a 33% reduction in the US import level in 2008 is no more credible than President Nixon’s goal of 100% in 1980.

 The most likely changes from present levels of imports do nothing to free the US from the threat of oil embargos or price spikes, or to reduce US interest in the security of critical areas for oil exports like the Gulf. In fact, this might be equally true of the more than 20% level of import dependence projected for the high price case.

The US economy would already be in crisis if the high price case did actually occur.
A major new drop in global exports and oil supplies would affect the US just as much as any other country. It would have to compete for imports on a global basis regardless of where such imports came from.

It would have to pay the world price of oil in such a crisis at a time when developing countries are projected to have vastly increased their demand for imports.  Accordingly, the percentage of oil imports relative to total US demand is not a realistic measure of import dependence or strategic value. It is the impact of any sustained loss of imports, or new crisis-driven price rises on the US economy that counts.

Moreover, the D0E/EIA analysis covers only part of US dependence. It only estimates direct petroleum and product imports. The US does, however, import immense amounts of manufacture goods. Those from Asia are particularly dependent on access to Gulf oil exports, but this is true of all US imports of goods to a significant degree. As a result, the real world level of US strategic dependence on petroleum imports should include estimates of indirect as well as direct imports – and this might well exceed another one million barrels a day.

Furthermore, the US is steadily more dependent on the health of  the global economy, and bound by treaty to share imports with other OECD nations in a major crisis. This US cannot isolate itself from the reality that any major interruption in oil exports and a critical rise in price would affect its overall economic and strategic interests both throughout the world and in the US domestic economy.

Little Change Will Take Place in the Dependence of the US Transportation Sector on Liquid Fuels

The next section highlights the fact that US energy dependence is not fungible in terms of demand. In spite of improved transportation efficiency, hybrids, and electric cars, US demand for energy liquids is projected to increase through 2035.  Industrial demand for liquids is also projected to remain nearly constant.

Alternative liquids will help reduce total demand for imports, but not the critical impact petroleum has on one sector of the US economy: transportation.

Rising US and Global Dependence on Gulf Oil Exports

It is also clear from DOE/EIA projections that the Gulf will become a steadily more strategically critical area in spite of new oil and gas discoveries in other regions – including the US. This will make potential threats like Iran, terrorist groups such as Al Qa’ida, and instability in other countries around the Gulf just as strategically important to the US in the future as it is today.

It highlights the critical value of: Saudi Arabia and the other Southern Gulf oil exporters;  finding ways to contain and defend against Iran that do not paralyze its ability to sustain and expand its future exports; and the need to bring Iraq back on line as a major exporter.

Reduced US dependence on Gas Imports

There is, however, good news in a number of areas as well.
First, the next section shows that DOE/EIA projects a significant reduction in US gas imports. It is important to note that this is already considered in the model’s projections of future US oil imports, but that scarcely makes added – and cheaper – US domestic gas supplies less important.

DOE/EIA Assumptions for 2011 Include Major Increases in Domestic Production and Alternative Liquids

Second, the DOE/EIA projections in this section of the brief show that the US still has large supplies of potential offshore oil resources, and will make major progress in developing and producing alternative fuels.

There are, however, important caveats to such “good news.”

•    First, US politics put far too much emphasis on the rapid exploitation of offshore reserves. This may benefit part of the US petroleum industry, but it is strategically reckless and environmentally stupid.

Nothing the US can credibly do over a given period of time will actually reduce US strategic dependence on petroleum imports. It simply does not make sense to rush out a “deplete America first” as long as cheaper imports are available at moderate prices.

Moreover, as the BP oil spill in the Gulf of Mexico showed in 2010, there is still much to learn about safe offshore drilling. As long as enough drilling activity exists to improve safety and reduce cost, the US is better off waiting – knowing that only a truly radical innovation in technology  could alter this situation.

•    Second, the rise in alternative fuel supply now comes at the cost of food supplies, environmental impact on the land, and using petroleum to distil biofuels. It is far from clear that this will not add to global food supply and cost problems, create environmental damage of a different kind from carbon emissions and the many pollutants associated with large-scale American agriculture, and limit any energy gain in terms of savings in petroleum or other non-bioliquids.

Once again, it may make sense to ease the pressure in such efforts to see how improvements in the technology for other non-conventional liquids compare, determine whether biofuels for cellulose and other sources can be cost-effective, and take advantage of moderate cost/moderate risk petroleum imports while they are still available.

Increased Global Demand for Oil will be Driven by Developing States, Present New Strategic Challenges, and Raise Prices

The next section is not necessarily “bad news,” but it does illustrate that while developed nations like the US may be able to limit their petroleum and gas imports in the near and mid-term, world markets and supply/demand – as well as the global economy – will continue to be driven by massive ongoing increases in global energy demand. The emergence of the developing world – particularly China, India, and other parts of Asia – seems to make this virtually inevitable.

Price Estimates Highlight Need to Recycle Petroleum Dollars

Finally, the DOE/EIA projections indicate that there are likely to be major, sustained increases in real oil prices (constant dollars) through 2035 and beyond.

It is also important to note that the price projections for 2009, 2010, and 2011 are so close together that they raise questions about how timely they are – given the price rises that have already occurred. Saudi Arabia still sees a $70-80 a barrel price as a proper sustained price, however, and that would actually be lower that the reference price after 2015.

The other factor that stops this from being bad news is that while higher prices raise the price of energy in the US, they also stimulate the production of alternative liquids and new sources of domestic energy. Under-pricing petroleum has its costs as well as its benefits.