Musings: U.S. Oil Imports at Risk and at Odds with Obama Goal

One of the objectives of the Obama administration's energy policy is to reduce the dependency of the United States on imported oil. This has been a goal of virtually every previous administration starting with President Nixon in 1972. For most of this time, oil imports have grown as U.S. domestic oil production declined and oil consumption steadily rose. The average of the four weeks ending June 12th, the United States imported about 12.0 million barrels a day (b/d) of crude oil and refined product out of estimated daily demand of about 21.4 million b/d of consumption. Total imports represent about 56% of the total oil demand in this country. Our total demand estimate includes the volume of refined product exported from the U.S. since it demonstrates our total exposure to imports.

The latest data on crude oil and refined product imports by country is through March 2009. That month's data shows a total import volume of 12.5 million b/d with Canada being our leading supplier with 2.4 million b/d, Mexico second at 1.2 million b/d, Venezuela third at 1.1 million b/d, Saudi Arabia fourth at 1.0 million b/d and Nigeria fifth at 0.9 million b/d. The interesting thing is that these top five countries have remained in our top five suppliers since at least 2000.


As we look at these five countries we are drawn to the point that at least three of them have serious long-term supply challenges that could result in their not being able to sustain their current exports to the U.S. That could mean the U.S. will become more dependent on other foreign suppliers or welcome increased volumes from our two most solid suppliers - Canada and Saudi Arabia. Each of these countries present policy issues that the Obama administration needs to deal with. But first let's look at the supply challenges of the other three top suppliers.


When we look at a chart of production by each of the five countries since 1965 through 2008, it becomes clear that Saudi Arabia and Canada have been essentially on growth trajectories. Each of these countries has significant oil reserves, although Canada's are from the tar deposits near Ft. McMurray in northern Alberta. Both Mexico and Venezuela have produced substantially more oil in the past then currently, but each suffers from problems that are contributing to falling production that endangers U.S. oil supplies. Mexico's oil production is in a long-term, rapid decline as the giant offshore Cantarell field is being rapidly depleted. The ability of Pemex, the state-owned oil company, to overcome its technical shortcomings for deepwater exploration in the Gulf of Mexico and extract more oil from several large onshore fields with highly complex geology is in doubt. For the first five months of 2009, Pemex's production has fallen by 7.9% to 2.65 million barrels per day. The Mexican constitutional restriction against any non-government entity gaining ownership of domestic hydrocarbons has made the country less attractive for major independent oil majors to become involved. While these western companies possess the knowhow for deepwater exploration, they are reluctant to enter into service contracts where there is no upside to the value of their technological knowledge and skills.

Venezuela's case is quite different and reflects the political situation within the country. Since President Hugo Chavez assumed power, and was re-elected, he has strengthened his control over revenue generating businesses in Venezuela. Not only has he grabbed control over income, which he has used to build greater support among the poor in Venezuela through monetary grants and free services, he has driven the knowledge workers of the oil industry from the country since they were seen as his foes. Lacking the technological capabilities and with reduced reinvestment in the business, Venezuela's production has fallen despite Pres. Chavez's claim that the country is still producing at its much higher OPEC quota. Unless conditions change, and/or Pres. Chavez reverses his policy of giving cheap oil to neighboring countries to earn political support for his socialist agenda, Venezuela's oil supplies are likely to continue to decline. The recent investment programs by China and other countries will make new Venezuelan oil supplies off-limits to the United States.

While Nigeria offers the possibility for increased supplies, the ongoing violence and terror reign in the country that has resulted in shut-downs of production and export operations makes the country suspect as a dependable source of oil. The long-standing corruption issues that have plagued western oil and oilfield service companies are also likely to make Nigeria a less attractive country for the petroleum industry to work in. These conditions could change, but much like subprime mortgages, Nigerian assets have a toxic quality to them.

There are clearly other countries that could step forward to replace the declining production from Mexico, Venezuela and Nigeria. However, the global oil production lost from these three countries, coupled with the general aging of producing oilfields around the world suggests that we will be looking at higher oil prices in the future. The easiest way for the Obama administration to achieve both its energy and environmental goals is to encourage the development of all types of alternative fuel sources, especially those for power generation. Unfortunately, this administration has fallen into the trap of picking energy winners and losers as it has with the banks and automakers.

Electric and hybrid vehicles offer promise for cutting petroleum demand. Compressed-natural-gas vehicles represent another potential oil-saver. The new diesel engine technology developed in Europe and slowly making its way to the U.S. offers another cog in the fuel-transition movement. The problem we perceive is that the Obama administration has little sense about how best to accomplish this transition in power-train technology. The transition will take time and is best driven by market forces, in our opinion. While we are not big fans of higher taxes, we think that only by raising gasoline prices along with developing a mechanism to rebate the higher cost to lowincome people, can the transition to a more fuel-efficient vehicle fleet occur on any timely basis.

G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.


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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Sheila | Jul. 1, 2009
Why don't more politicians talk about opening up more drilling right here in the states? Onshore and offshore. This would create many jobs, plus make us less independent on foreign sources, but you never here this talked about on the news, it is always the fight between, raising taxes, going greener, etc. etc. I have no problem with going green gradually, but for now why not go with what we do have here and now. OIL AND GAS.

And like another poster stated, oil is not only used for gas it is used in much much more than we realize.

Bill | Jun. 29, 2009
Instead of a gas tax, why not apply a tariff for oil shipped to the US on a boat. Use this as a mechanism to keep oil prices at a level that would support domestic production and stabilize the boom and bust cycle. Also, the consistently higher prices would encourage the development of alternatives. Income from the tariff could be used by the government to pay for some of these initiatives as well.

William Boyle | Jun. 29, 2009
I've been of the opinion for years that the only way to truly become an energy efficient society is for the tax on gasoline (and other forms of energy) to go way up. We need to do this now so that we can prepare for the inevitable rather than to wait until we have a true crisis.


We passed a "Gas Guzzler" tax but watered it down so that it doesn't even apply to the worst offenders on the road -- mega SUVs.

We make Detroit responsible for fuel efficiency by setting fleet MPG requirements, but then offer cheap gas so that the fuel efficient cars are immensely unpopular.

We continue to pump billions into freeway expansion projects (i.e. I-10 in Houston) but make minimal investments into mass transit.

All of this would be solved if the cost of fuel in the US was on par with the rest of the world as around $5/gallon.

But, our politicians are too concerned about their personal positions of power to do what's right for the country. None of them have the courage to suggest a massive tax on gasoline.

Sidney | Jun. 29, 2009
Given the fact that the House passed the ACES bill by a margin of 7 votes, and most of the requirements in that bill are aimed at supposedly reducing our dependence on foreign oil. One fact that is being overlooked by the current administration is you cannot mandate change, the free market in the US has always adjusted to the demands of the consumer. Make all the alternative fuels and electric cars comparable to the current fossil fuel fleet and then we can start seeing a change. Otherwise we become a country that has everything legislated by government.

Nic | Jun. 27, 2009
South Africa for years has used coal to fuel technology ( see Sasol). A study was carried out during the last Bush administration, that using the coal reserves of the USA, could reduce the import dependency by approximately 11% and increase to 18 odd % over ten years. For obvious reasons the oil moguls pushed that one well under the carpet. This proven technology should offset the loss of imports from Mexico and Venezuela. It would also create about 85 000 to 100 000 direct and about 250 000 indirect jobs for the American people -- sorely needed at the moment.

Bill Simpson in Slidell | Jun. 27, 2009
Require an increasing percentage of new passenger vehicles & light trucks to be fueled by natural gas beginning in 4 or 5 years. Require stations to provide natural gas fueling pumps wherever natural gas service is available. That could displace a lot of gasoline. And engines running on natural gas with synthetic oil would probably last a lot longer than if they run on gasoline because natural gas burns so cleanly. No expensive new technology is needed. Check out the size of the shallow continental shelf north of Russia & imagine the gas & oil under that baby!

Mark | Jun. 26, 2009
Derect hit right on the head. I'm in the same situation. Another laid off oil field worker. I just don't get it. Americans want to drive cars but don't want to extract oil here in the US. We use more than any other country. We should be drilling in every state that has oil/gas. Such a case of denial.

Kevin | Jun. 26, 2009
Spot on as they say. My company makes most of its living from the oil energy industry (ships and drilling platforms). And that's a lot of tanker pulling into US ports daily. I support the use of alternative energy such as electric vehicles and only for the Urban environment. I recently bought a used one from the 1990s and found that the Feds and state don't give tax incentives, hybrid yes electric no. But with a huge switch to electric for urban transportation Nuclear energy and not wind generators would be required. If the government goes with the political solution Nuclear will be a tough sell. So it's the same old boss with a new hat. But if the market is allowed to work change will happen but hopefully not too fast.

Scott | Jun. 26, 2009
We have plenty of domestic energy. Compressed Natural Gas works just fine in an internal combustion engine. Cars can be converted to run dual fuel (CNG and gasoline) allowing consumers to use whichever fuel makes the most sense based on price and refueling availability. Conversions could be done for less than the mark-up to buy a hybrid version of a conventional car. They are already doing this in other countries (Colombia), it is true that the range that one can get on a charge of CNG is less than many would like (lower energy density) but it would work just fine for the tens of millions of commuters that travel less than 50 miles round trip daily. Remember, the gasoline is there for back-up on longer trips. This would be a quick way for the US to stimulate the domestic economy, and increase energy security.For long term, nuclear, alternatives, and conservation can go a long way to reducing the amount of NG we burn for power generation, freeing it up for the transportation sector. Domestic NG reserves are abundant, we should use them for transportation.

Martin | Jun. 25, 2009
To those who say the US has the resources to be self sufficient in oil, I have to ask where they think that oil will come from. The US imports more oil than Saudi Arabia produces, reserves are relatively small and production is down 50% from its peak. It is very hard to believe that the US could triple its production from the current level. Urgent action to diversify supply and raise prices for oil via taxation would seem a more logical course of action for the longer term. Drilling the remaining reserves now merely perpetuates and deepens the dependency.

Mike | Jun. 24, 2009
Dose any one know that oil is in almost every thing we use.

Susan | Jun. 24, 2009
The Short-Term Energy Outlook from the Energy Information Administration shows that the U.S. should become "less dependent" on foreign oil due to two issues. First, decreased U.S. consumption because of the economic downturn; second, the projected increases in U.S. output due to Thunder Horse and Tahiti coming on line. Neither has anything to do with the current administration's budget proposals fostering the development of alternative fuel sources and raising taxes on U.S. oil & gas companies, so it will be interesting to see how much success the current administration will claim assuming the projections of the EIA are correct. Nothing like a slam dunk win that they had no part in planning or executing. (But predictions have been wrong before, so maybe they've conscientiously adopted a "belt and suspenders" approach, that is, if the plan doesn't work, it will look like it did; and if the plan does work, it will decrease the dependence more. A win-win for the administration with mixed results for consumers.)

Jack Snyder | Jun. 24, 2009
We should raise gasoline taxes at the federal level by 40 cents now, and every year, cumulatively, for the next 9 years. This will cut oil demand progressively, fund more sustainable development and transport, cut funding for terrorists, improve the environment, and help bring the federal deficit down--and all that is just a start. The price signal is what is needed to move the economy to greater sustainability; we have been too oil dependent too long...

Many will think not, but this would, in fact, create jobs in a new, more sustainable energy economy...

Derett | Jun. 24, 2009
I'm with Tim on this. Open up more fields to be drilled in. I've been laid off from working in the oil field for many months now, and seems to me fixing the short term problem would be to drill more ourselves rather than depend on others to give us oil. Plus what a boom in jobs for our country it would be....

Jeffrey J Brown | Jun. 24, 2009
The fact is that Peaks Happen, e.g. Texas & the North Sea--two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling--which respectively peaked in 1972 and 1999. When net exporting regions peak, the decline in net oil exports tends to show an accelerating rate of decline, e.g., the UK and Indonesia.

If one's rate of increase in consumption is fast enough, net exports crash even prior to a production peak, e.g., the US and China. The US went from finding its largest Lower 48 oil field, the East Texas Field, in 1930 to net importer status only 18 years later, in 1948--22 years before our production peaked.

My co-author, Samuel Foucher, has done some extensively modeling of the top five net oil exporters--Saudi Arabia; Russia; Norway; Iran and the UAE--which account for about half of world net oil exports. Our most likely assessment is that the top five will have shipped about one-third of their post-2005 cumulative net oil exports by the end of 2010, on their way to collectively approaching zero net oil exports some time around 2032 or so. For more information on our work, do a Google Search for Net Oil Exports + Jeffrey Brown.

By the way, the combined net exports from Venezuela, Mexico and Canada, three of our four largest supplies, have fallen from 5.3 mbpd in 1998 to 4.0 mbpd in 2008, and all three showed net export declines last year (EIA). By the end of this year, Mexico will probably have shipped about 90% of their post-2004 cumulative net oil exports.

John Grosso | Jun. 24, 2009
What I was wondering when reading this article is, if the US has a 100 year supply of natural gas and the equivalent BTU price of natural gas is between $25 - 30 per barrel of equivalent oil, would Gas to Liquids technology become feasible?

The last shipping cost figure Ive seen from the Middle East to the US GOM was $2.20 per MCF for LNG. And apparently there is a surplus of perhaps 4 BCF/day of LNG on the world market.

Any comments on the above or could it be the source of a follow up article? All articles by Mr. Brooks are very much welcomed.

Thank you

Tim Blood | Jun. 24, 2009
If the Obama administration wanted the U.S. to be less dependent on foreign oil it could happen by opening leases from California to Florida. By drilling more in the U.S. it would create more jobs and keep taxes generating. Therefore you would kill two birds with one stone. Drill & produce the oil from our country and we would be less dependent on foreign oil and it would create jobs at the same time.

David Harvey | Jun. 24, 2009
The cold reality appears to be that any transition to energy independence for America will take decades. While the appeal of "greener" sources is undeniable, scalability appears to be a significant, and extremely expensive, problem that may disappear with time but the pressing problem is what to do in the mean time.

It's time to look hard at the political, ethical and moral stability of the oil supplying countries discussed in the article. As leading economist Don Coxe states time and again, " It's not just the reserves in the ground, it's the flag flying above them." Canada, with its vast oil sands reserves, appear to be the logical choice as America's supply partner. Consider the other supplier countries using the same criteria, add the issue of security of transport under possible hostile conditions, and then wonder why the Obama administration hasn't already opened discussions with America's Northern neighbor to resolve any open issues, such as CO2 emissions, and get the deal done.

Joe Calahan | Jun. 24, 2009
Low income people do not need rebates for gasoline. They have to option to use public transportation, or purchase a high gas mileage vehicle. If they are low income due to being unemployed, they do not need a car.

robert ford | Jun. 24, 2009
Totally opposed to raising taxes on gasoline. Just makes more money available for the government to waste. Compressed natural gas and hydrogen powered engines make the most sense long term.

waylon house | Jun. 24, 2009
Clear and accurate analysis. Legal training (politicians) or communication (opinion makers) inadequate preparation/perspective to judge real world technological potentialities. Hence "nano" bubble and "global warming." US strategic resources being dispensed by large ignorant egos. Top down direction only inhibits or misdirects technological evolution. Hubris! Who do these guys think they are?

P.S. Imagine being RESPONSIBLE for designing a methane (not propane) driven vehicle that will ACTUALLY work as a practical vehicle. 1st fundamental obstacle - stored energy density for methane. No hand waving - need solution that will really work.

Garry Russell | Jun. 24, 2009
Although I understand the issues at hand with oil supplies for the United States, your suggestion that by raising gasoline prices and then rebating the increases to the lower income will only burden the middle class with more expenses lowering the standard of living. As you should know there is a greater supply of oil today than there has been in years. There are numerous oil tankers sitting offshore full of oil because there is no place unload it. Also, when the tanker sits offshore full of oil it is not included in the available oil for the market.

Ford Motor Company currently has the edge on fuel efficient technology and has several fuel efficient models on the market and slated for production.

Amir Rangwala | Jun. 24, 2009
We need to be independent now. We should increase exploration on land as well as offshore. We have the best people and advanced technology. If the government supports Domestic E&P it will not only create more jobs for our US graduates but also help small Oil & Gas companies to stay in business.

Glenn Parry | Jun. 24, 2009
Your assessment of the supply situation is right on the money. However, your last sentence is right out of the socialist playbook. When people demand that industry supply them with fuel efficent vehicles, the market place will control.

Larry M. Meyer | Jun. 24, 2009
I think that the time has come for the Obama Administration to stop causing difficulties for the Domestic Oil E&P Independent Companies by Canceling leases, applying Taxation and basically blocking domestic exploration and production and allow these entities to produce and contribute to America's energy needs!

Dan | Jun. 23, 2009
We have the resources in the United States to be energy independent; what we need is a government that will allow us to drill and explore here.


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