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Is the US Really Energy Independent?

Geoffrey Styles's picture
GSW Strategy Group, LLC

Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant and advisor, helping organizations...

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Toward the end of Sunday night’s presidential debate I was startled to hear Secretary Clinton reply to an audience question by stating, “We are now for the first time ever energy-independent.” If the price of oil were $100, rather than $50, that might have constituted a “Free Poland” moment, recalling President Ford’s famous gaffe in a 1976 debate.

This point is likely to get lost in the dueling fact-checking of both candidates’ numerous claims, but while the overall US energy deficit has fallen from about a quarter of total consumption (net of exports) in 2008 to just 11% in 2015, we still import 8 million barrels per day of oil from other countries. That includes over 3 million barrels per day from OPEC, a figure that has been growing again as US oil and gas drilling slowed following the collapse of oil prices in late 2104.

Oil has always been at the heart of our notions of energy security and energy independence, because it is our most geopolitically sensitive energy source and the one for which it is hardest to devise large-scale substitutes. So although the US is certainly in a better overall position than it has been in decades, with progress on multiple aspects of energy, it is not yet energy independent, especially where it counts the most.

Moreover, the policies that Mrs. Clinton has proposed would, at least initially, be likely to expand that gap by imposing additional restrictions on hydraulic fracturing, or “fracking.” Mr. Trump, for his part, seemed to devote much of his response to Mr. Bone’s debate question talking about coal, which while still a significant player in electricity production has become largely irrelevant to the topic of energy independence, because its use is being displaced by other domestic energy sources, mainly natural gas and renewables like wind and solar power.

In fact, of the various contributors to the energy independence gains the US has made from 2008-15 (shown in blue in the above chart) the largest depend on fracking. Oil still makes up most of our remaining energy deficit, after help from a million barrels per day of ethanol–50% of the energy content of which comes from domestic natural gas. Electric vehicles also help, but the roughly 400,000 on the road in the US today displace the equivalent of only about 12,000 barrels per day of oil products, too small to be visible on the scale of this graph. As a result, continued fracking of shale and tight oil resources must be the linchpin of any realistic strategy to close the remaining US energy deficit within the next decade or so.

I understand that Secretary Clinton’s proposed energy policies put a higher priority on addressing climate change. However, she raised the issue of energy independence in the second debate, even though her proposals are unlikely to deliver it in the foreseeable future–or preserve our present, hard-won reduced dependence on foreign energy sources. Anyone who doubts that this is a pocketbook issue should recall where oil and gasoline prices were just three years ago, before US shale added over 4 million barrels per day to global oil supplies.

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Rick Engebretson's picture
Rick Engebretson on Oct 12, 2016

Minnesota weather teaches a person that facts matter. When it’s 80 degrees outside in summer the wise Minnesotan is planning for 2 feet of snow and months of sub-freezing weather in winter. Migrating birds love our rich summer, but wisely head south in autumn. Lewis and Clark headed out to “discover” the US west, and were lucky the gracious natives took care of them in mud bunkers for winter. Reality happens.

Hillary Clinton supporters are at best naive, more likely ignorant, possibly insane. We face a very real possibility of economic decline, industrial dependency, and a global oil war from Russia to Syria to the South China Sea. It isn’t “climate change” causing all the current strategic conflicts.

We could have had a serious discussion of this problem this election year. But, as you say, she denies the problem even exists. Mud bunkers are worth considering right now.

Full disclosure; I didn’t watch the last 2 debates. Maybe the next. So thanks for confirming how pathetic this election has become.

Geoffrey Styles's picture
Geoffrey Styles on Oct 13, 2016

Rick,
“I share your pain” doesn’t quite cover it. Yesterday on Twitter I ran across another possible interpretation of Secretary Clinton’s bold assertion about energy independence. Instead of a mistake, could it have been a marker, a declaration of victory in our 40-year quest for energy independence to allow us to focus on clean green energy from here on out, without those nasty fossil fuels?

The success or failure of governments hinges on choices like that. President Obama aggressively promoted renewables and energy efficiency, but at least with regard to fracking his administration has been careful not to kill the goose that was responsible for much of the job growth and whatever paltry economic growth we enjoyed from 2010-14. It’s easy to forget that, with oil prices low and the oil industry–and oil regions like Texas and N. Dakota–looking like laggards at the moment.

A unique feature of shale gas and oil is how quickly their production can respond to changes in price or regulations. The conventional oil and gas part of the industry has experienced hostility and neglect before, but it had a lot of inertia. Stop drilling today, and production goes on for years before the decline becomes noticeable. Not so with shale. A quick and determined effort to curtail fracking could produce a fairly rapid decline in output–and resulting hike in energy prices–just in time for a reelection fight in 2020.

Sean OM's picture
Sean OM on Oct 13, 2016

Geoffrey,
I think what you are missing is for the first 8 months of this year, while the US only sold 92k electric vehicles(BEV + PHEV), there were 441k sold worldwide. Both the US and China are up over 1% in electric car sales last month, and if you count hybrids (non-plugin) the US has been over 3% for about the 4 months.

I am not saying EVs are adequate for everyone at this point, but battery technology is highly competitive and making improvements at a fairly rapid pace.

Rick Engebretson's picture
Rick Engebretson on Oct 13, 2016

Thanks Geoffrey. So today US missiles are responding to missiles from Yemen. A better question is, “where are we NOT fighting FOR access to oil (except Canada)?” But Hillary wants to talk about sex and race.

Yes, I know they are putting the screws to us. I was actually told about this plan in the 1980s. Not enough room in my mud bunker for you Geoff, sorry.

Mark Heslep's picture
Mark Heslep on Oct 13, 2016

… A better question is, “where are we NOT fighting FOR access to oil (except Canada)?”

You don’t specify who “we” are, but note that, with the development of shale oil, the US has been the world’s largest producer of petroleum since 2013, and the margin between 1st and 2nd place is increasing.

http://www.eia.gov/todayinenergy/images/2016.05.23/main.png

US oil imports from outside N. America are now about 16% of US consumption. It’s no stretch to imagine that figure going to zero.

Engineer- Poet's picture
Engineer- Poet on Oct 13, 2016

It’s a stretch to imagine it at today’s low prices.  When shale-oil operations start going bankrupt we’re going to see a bunch of stuff shut in.

Mark Heslep's picture
Mark Heslep on Oct 13, 2016

There have already been a hundred North American oil and gas producer bankruptcies. This is bad for oil and gas employees, bad for those that were too quick to lend money to the producers, not so bad for oil and gas production. Bankruptcy means a stop to paying debts; it does not mean firms necessarily vanish or stop producing. Exiting bankruptcy, they are debt free.

The fall in prices and competition has also placed pressure on efficiency. In 2010, the average rig in the Eagle Ford field produced ~100 bbl/day. In 2016 rig production is over 1000 bbl/day. US shale production now has a break-even range of $40 to $65 per bbl (field average), with a couple producers citing break even under $20/bbl. Today’s price of oil is $50/bbl.

Source: WSJ

Engineer- Poet's picture
Engineer- Poet on Oct 13, 2016

So in a few places people are making good money, a lot of them are still losing money even after the recent price rise and need another 30% just to hit breakeven.

The decline rate of shale production is rather steep, and pulling companies back into the business requires pretty good profits especially after a bust.  This is not a recipe for energy independence on the current petroleum model.  Natural gas would make it much easier, but there’s no great move in that direction… probably because it’s not in the interest of the people pulling the strings.

Rick Engebretson's picture
Rick Engebretson on Oct 14, 2016

Mark, please excuse that I don’t take your colorful bar charts too seriously. For more complex math charts I enjoy playing with XForms-toolkit charts. There is a nice example of stripcharts that can use periodic functions and superposition that is revealing.

If you add the cost and uncertainty of all the military conflicts in oil producing regions from Nigeria to Iraq and elsewhere the picture is dire. I don’t know all the groups fighting, or the cost of all the bombs, or the cost of the resulting destruction, or the cost of environment and climate change, or the financial cost.

The current US oil policy is similar to the tattoos some choose. It is too ugly to try understand what the many issues are. I don’t blame Hillary Clinton for hiding it under an ugly wardrobe. I just think we need to stop adding tattoos.

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

Not “my” charts Rick. The source of the graphics was the WSJ, and they in turn cite DOE, MacKenzie, PIRA Energy.

“Nigeria to Iraq and elsewhere the picture is dire…”

Oil production data tells me the US no longer requires oil from the like of Nigeria or Iraq. Those places may produce marginally cheaper oil, but there’s little chance of a supply shortage in N. America should they vanish. See my comment elsewhere.

http://www.theenergycollective.com/geoffrey-styles/2390386/is-the-us-rea...

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

EP –

So in a few places people are making good money, a lot of them are still losing money even after the recent price rise and need another 30% just to hit breakeven…

I expect existing US production neglects the more expensive fields and attends to those where a profit is made, and that the bankruptcies have further encouraged the concentration of production in profitable fields. Meanwhile, as the graphics/data indicate, cost to produce US shale oil continues to fall across the board.

The decline rate of shale production is rather steep…

IIRC, compared to traditional sandstone reservoir production, yes the initial rate of decline for a shale well *was* about twice as steep in the beginning, say 7-8 years ago. Since then I believe the initial decline rates have lessened some with improved know-how. More importantly, in the later years of production, after that initial faster drop, a couple shale wells together can have the same average production as one traditional, and drilling a lot of shale wells (or equivalently, more horizontal runs per well) is increasingly feasible.

The rig count and oil production data supports the idea that existing shale wales have some staying power. Rig count has fallen from ~1500 a couple years ago to ~400 in 2016, but US oil production is only off 10%. . All of US gas production (0.9 BCF/day) btw is now done with a remarkable ~100 rigs.

…pulling companies back into the business requires pretty good profits especially after a bust. …

No so much for shale. Big projects in deep-water are unlikely to bounce back. From the WSJ artticle:

As the oil markets ponder where production will resume when prices pick back up, one clear answer has emerged: America. Goldman Sachs forecasts the U.S. will be pumping an additional 600,000 to 700,000 barrels of oil a day by the end of next year—making up for every drop lost in the bust.

…the greatest consequence of the Saudi decision and subsequent price drop is that it has delayed costly oil megaprojects, from deep-water platforms off Angola to oil-sands mines in Canada….

“The U.S. isn’t the marginal barrel but the most flexible,” said R.T. Dukes, an analyst at Wood Mackenzie. “We’ll be the fastest to snap back.”

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

Geoffrey-

..we still import 8 million barrels per day of oil from other countries. That includes over 3 million barrels per day from OPEC, a figure that has been growing again as US oil and gas drilling slowed following the collapse of oil prices in late 2104.

With regard to petroleum, Romney’s 2012 energy independence goal is turning out to be quite plausible; that is, he posited a goal of energy independence for North America by 2020. Using the 2015 record, US petroleum imports were 7.3 Mbbl/day. Mexico and Canada contributed 3.9 Mbbl/day, leaving a deficit of 3.4 Mbbl/day from outside N. America including OPEC. However, the US now exports a significant amount, 0.5 Mbbl/day of crude oil and another 2.8 Mbbl/day of “finished products”, i.e. the like of gasoline. The leaves net US imports (2015) from outside of N. America at 0.2 Mbbl/day. If the export of the “other liquids” category (e.g. fuel ethanol) is included at 0.5 Mbbl/day then the US already has liquid fuel energy Independence when included with N. America.

If oil prices should return to levels making even the most expensive domestic fields profitable (~$65/bbl), then history (2012-2015) indicates the US industry can increase production at the rate of 1 Mbbl/year.

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

Sean OM's picture
Sean OM on Oct 14, 2016

If oil prices should return to levels making even the most expensive domestic fields profitable (~$65/bbl), then history (2012-2015) indicates the US industry can increase production at the rate of 1 Mbbl/year.

There is this magical market force now. Geoffrey stated the conundrum. If OPEC limits production to raise prices, more people are likely to jump ship to EVs which again lowers demand and prices. There are already 2M Electric vehicles on the road in the world so they aren’t going away.

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

“there were 441k sold worldwide.”

Versus ~75 million global vehicles sold annually. Whether globally or in the US, plug-ins are less than a 1/2 percent of sales. It will be some time before plugins dent oil consumption to the extent of, say, eliminating the production of small OPEC country.

Jesper Antonsson's picture
Jesper Antonsson on Oct 14, 2016

If we separate the break-even price of US tight oil into real production costs (capital, O&M, labor) and money transfers (lease costs, taxes.)… Good plays were at $20 in real production costs already in 2014 and now with a non-overheated market and better tech and efficiency, I’d be surprised if we weren’t down to $10.

Mark Heslep's picture
Mark Heslep on Oct 14, 2016

At least one firm claims 2016 production costs of a particular well type in the Permian Basis at over $2/BOE, over $4/BOE with taxes.

Pioneer Natural Resources, slide 18
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjM1NzIyfENoa...

Hops Gegangen's picture
Hops Gegangen on Oct 16, 2016

If the price of Brent rose to $140/bbl, the U.S. would quickly become not only independent, but an exporter of oil and gas. But that isn’t going to happen short of wars.

Jesper Antonsson's picture
Jesper Antonsson on Oct 16, 2016

The market is fairly inelastic. Europe in general has twice the gas price of the US, due to taxes. Yet the plug-in volumes are quite low. Sweden helps by offering a cash incentive of almost $5000 for EVs and half that for PHEV, and that has got the rate of sales up to 3%. Germany who didn’t have such incentives in H1 2016, however, had a rate of 0.5%.
http://media.nejdetkanviinte.se/2016/08/PHEV.png

Of course, I expect EVs to win eventually, but right now, high oil prices doesn’t do much.

Jesper Antonsson's picture
Jesper Antonsson on Oct 16, 2016

Global plug-in sales H1 2016 was up 49% y-o-y, so 2016 in total will likely end up in the 600-700k range. So we’re above 0.5% now, approaching 1%. It is not unreasonable to assume this growth rate can be sustained for a while, so 2020 could give us above 3 million plugins. However, you’re right that we’re not close to a small OPEC country even then. As a back-of-the-envelope calculation, plugins might replace some 100 kbpd demand in the year 2020.

Engineer- Poet's picture
Engineer- Poet on Oct 16, 2016

plugins might replace some 100 kbpd demand in the year 2020.

I had to go over your numbers just to be sure I understood them.  Based on my own experience of going from 26 MPG in 2004 to averaging 130+ MPG from 2013 to now, and 13,000 mi/yr, I’m saving about 400 gallons/yr.  That is 0.026 bbl/day.

3 million vehicles @ 0.026 bbl/day/vehicle is 78k bbl/day.

But if it grows at 40%/yr, it doubles every 2 years.  In 2022, it would be ~160 kbbk/d.  In 2024, ~320.  Sometime in 2027, it would cross over 1 mmbbl/d.

World LDV sales were 88.8 million in 2015.  If they become plug-in hybrids and saved 0.026 bbl/day/vehicle, the savings would mount up at a rate of 2.3 million bbl/day/year, more than 25% of world oil demand gone in just 10 years.

Jesper Antonsson's picture
Jesper Antonsson on Oct 16, 2016

The savings in my calculation was from the cumulative amount of plugins in 2020, some 8 million. With your figures, that’d save 78*8/3 = 208 kbpd. But being European, I was using with better original MPG and a few less miles.

At 40% y-o-y growth from 3 million in 2020, 8M cumulative, we’d be at 16 million in sales and 54 million cumulative in 2025, and that would yield 1.3 Mbpd savings with your figures.

Mark Heslep's picture
Mark Heslep on Oct 16, 2016

… the cumulative amount of plugins in 2020, some 8 million.

So, 7.5 million new EVs in the next 38 months? Given the battery supply limitations, that rate of growth seems just very unlikely by 2020. Tesla’s Gigafactory when fully online allows some 500K vehicles per year, doubling the global output of Li-ion, and there are no announcements of other factories that large breaking ground. More can be built, sure, but not overnight. Also, I don’t see the government subsidies holding into mult-million/yr volume.

Caveat: small battery, plug-in hybrids might get there.

Engineer- Poet's picture
Engineer- Poet on Oct 16, 2016

Caveat: small battery, plug-in hybrids might get there.

Try “would”.  35 GWh/yr @ 10 kWh/vehicle is 3.5 million vehicles/yr.  If you started in 2018 you’d have it done in 2020.  My Fusion Energi carries about 7.5 kWh.

Mark Heslep's picture
Mark Heslep on Oct 16, 2016

Aye, good point.

Nathan Wilson's picture
Nathan Wilson on Oct 16, 2016

The commonly accepted wisdom says gaining “energy independence” depends mainly on reducing oil imports. But it seems to me we can’t be independent if we are both dependent on oil and bound to the world oil market (e.g. will a price crash or spike in another country affect us? Yes, even with zero imports!).

I would assume global trade agreements prevent us from throwing up trade barriers for oil, so we need to decrease our dependence on oil.

Obviously battery electric vehicles (BEVs) help decrease our oil use and dependence. Efficiency improvements for gasoline & diesel vehicles decreases oil use (but not oil dependence). Use of CNG and LNG help reduce oil use and foreign market dependence, since the higher cost of international gas shipment also provides some degree of independence for the US gas market.

Carbon-free synfuels made from sustainable electricity (i.e. hydrogen and ammonia) would also boost energy independence, as they also involve higher shipping cost than oil (especially hydrogen).

Jesper Antonsson's picture
Jesper Antonsson on Oct 17, 2016

We’re already at 1.5 million, so 6.5 million new EVs, and until mid 2020, there’s 44 months. Given current pace, say 50k per month, we’d add 2.2 million, so we’re talking a tripling in average rate. Tesla is planning more than a tripling, and my guess is others are too, and also many car makers are adding plug-in models to their lineups.

Geoffrey Styles's picture
Geoffrey Styles on Oct 17, 2016

The comments from others below address the larger context of EV sales, though it’s also worth noting that the global car parc stands at something like 1 billion vehicles, well over 99% of which will require petroleum fuels or compatible substitutes for many years, no matter what happens to annual EV sales. While EVs and the broader spectrum of cars that substitute either grid- or self-generated electricity for fuel seem likely to dampen and eventually negate growth in gasoline and diesel sales, that doesn’t necessarily result in a precipitous decline in demand for oil.

We also need to think about the uncertainties governing EV sales, some of which were identified below (battery capacity, battery production.) What’s driving demand? Surely EV sales grow more slowly in a world of $50-60 oil than in one of $80-100 oil. It’s also worth noting the substantial role of government subsidies in driving EV demand. In the US that amounts to $7,500-12,500 or more per car, depending on jurisdiction. That can’t be sustained much longer, and the US federal tax credit is already set to phase out based on sales by manufacturer, as I recall. Can EVs sustain growth at 50% per year with little or no incentives?

Extrapolating current rates of growth involves other risks, too. Based on comparisons to other product classes, it seems unlikely that EV sales would reach mass-market scale before unsubsidized EVs are consistently beating internal combustion engine cars on most of the major categories of performance that matter to consumers, including initial cost, cost per mile, resale value, and all the relevant dimensions of convenience (range, recharging time, etc.) Now layer in the simultaneous advances in vehicle autonomy and the adoption of non-owned mobility models, and it gets even harder to gauge the pace of ICE displacement.

Geoffrey Styles's picture
Geoffrey Styles on Oct 17, 2016

Nathan,
It’s certainly getting easier to envision a future in which we don’t rely on oil for anything but lubricants and feedstock for petrochemicals. The technology is available today; it’s just a matter of scale. But scale is the key to almost every energy question that matters, and in most cases it means none of these transitions can happen nearly as quickly as many hope or choose to believe, and some won’t happen at all, or not in anything like the way we would imagine today, because the alternatives we see today will be superseded by something better or different before they reach mass scale.

Engineer- Poet's picture
Engineer- Poet on Oct 17, 2016

the global car parc stands at something like 1 billion vehicles, well over 99% of which will require petroleum fuels or compatible substitutes for many years, no matter what happens to annual EV sales.

But how much, though?

I read a while back that the average LDV travels half of its lifetime mileage in its first 6 years.  It may be road-worthy for 20, but its average fuel consumption per year will be much lower in the out years.  The corollary is that replacing today’s new ICEVs with EVs would cut fleet fuel consumption in half in just 6 years.

Mark Heslep's picture
Mark Heslep on Oct 17, 2016

also worth noting the substantial role of government subsidies in driving EV demand. In the US that amounts to $7,500-12,500 or more per car, depending on jurisdiction

$40,000 in states like California, including zero emissions vehicle credits

Mark Heslep's picture
Mark Heslep on Nov 28, 2016

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