America is more energy independent than ever
A recent Citibank research note got my attention.
“Total gross crude and other liquid exports hit a record of 11.128 million barrels per day, more than the total output of either Russia or Saudi Arabia,” Citi energy analysts wrote on March 1. “U.S. net crude imports fell to lows not seen since the 1950s.”
You won’t hear the Biden administration bragging about these fossil-fuel developments, but they’re welcome nonetheless. More U.S. energy production will put downward pressure on gasoline and electricity prices and make the United States less vulnerable against Russian efforts to use energy as a weapon.
Many Americans think U.S. “energy independence” is a thing of the past, overtaken by President Biden’s focus on green energy. But Citi is highlighting data showing that American dependence on foreign energy has continued to decline under President Biden, even besting levels reached under President Trump, who championed fossil fuels.
U.S. energy independence is a bit of a misnomer, since it implies the nation can produce all the energy it needs for its own consumption, without buying any from foreign countries. It doesn’t work like that. We import certain types of fuel to certain regions because it’s cheaper or more efficient than sending U.S. product there. Same with exports: U.S. producers can sometimes earn more selling overseas than at home. Energy markets are complex, and it doesn’t make sense to limit production or consumption to domestic sources.
But the degree of dependence on foreign energy does matter, and that trend has been dramatically improving for years. The fracking revolution produced a boom in U.S. oil and natural gas production beginning around 2011, and that has continued, with only a few interruptions (such as the COVID pandemic). In 2015, President Obama signed a law allowing the export of U.S. crude oil for the first time in 40 years. U.S. production went higher still, with the opening of new foreign markets triggering more drilling that coincidentally benefited Americans through lower prices.
In 2019, the United States became a net energy exporter for the first time since the 1950s. That means in terms of all forms of energy—oil, gas, coal, refined products and so on—the United States exports more than it imports, as measured in BTUs. The United States has remained a net energy exporter ever since. The trend didn’t change when Biden took office, even though he has bashed fossil fuels and signed sweeping legislation to boost green energy.
As a champion of green energy, Biden landed in a awkward spot last year as oil prices surged and gasoline hit $5 per gallon, enraging drivers. Biden urged U.S. energy companies to produce more oil and gas, ignoring basic economics weighing on the industry. Energy industry profitability was terrible for several years leading up to 2021, forcing drillers to invest less in new production and boost payouts to shareholders. The global push to replace carbon fuel with renewables further depressed new fossil-fuel investment. Biden likely knows all this, but it's politically easy to bash oil companies Americans love to hate.
Yet higher prices caused by tight global markets and Russia’s war in Ukraine are bringing more U.S. supply onto the market, anyway. The U.S. Energy Information Administration forecasts U.S. oil production of 12.5 million barrels per day in 2023, inching up to 12.6 million barrels next year. That would slightly exceed the 2019 record of 12.3 million barrels per day. Natural gas is often a byproduct of oil drilling and will likely hit new production records this year and next, as well.
[Follow Rick Newman on Twitter, sign up for his newsletter or drop him a note.]
Adding renewable energy capacity improves energy independence, since solar power and wind on their own aren’t exportable. It’s possible to export some of the electricity renewable energy generates, but that’s not practical at scale. Renewables will likely rise from 22% of U.S. electricity production in 2022 to 26% by 2024, according to Intl. Energy Agency (IEA), with that share likely to continue rising.
None of this means energy prices will plunge, unfortunately. Sanctions relating to Russia’s invasion of Ukraine are beginning to bite, with Russian production of both oil and natural gas likely to decline this year. “The well-supplied oil balance at the start of 2023 could quickly tighten as western sanctions affect Russian production and exports,” the IEA advised in late February. China’s reopening after a year of COVID-related shutdowns could also boost global demand for energy and push prices up. Oil prices are set in global markets and the United States can only affect that by adding to global supply.
U.S. energy firms are also unwilling to subsidize low prices by overproducing, as they did during the years leading up to the COVID pandemic in 2020. That especially applies to refineries, which are costly to build and upgrade. U.S. refining capacity has actually declined slightly since 2020, as operators close underperforming facilities.
Chevron CEO Mike Wirth said last year he didn’t think the industry would ever build another U.S. oil refinery because regulation is too difficult and the return on investment takes too long. That bottleneck will put a floor on gasoline prices and raise the spread between the wholesale price of oil and the retail price of refined products such as gasoline. Biden has complained about higher profit margins for refiners, but he hasn't done anything to cut the red tape or the cost of building new refineries.
As U.S. production of U.S. oil and natural gas hits new records, so do exports. Biden has threatened to halt U.S. energy exports if domestic prices get too high, but that’s populist posturing with no teeth. The simple idea is that exporting more leaves less energy for Americans, and therefore raises prices. But U.S. drillers would also produce less, and maybe a lot less, if they couldn’t earn money through exports. And again, the biggest effect on retail prices isn’t the supply of raw energy, it’s tight refining capacity.
Those additional U.S. energy exports, meanwhile, are helping Europe weather the near-total shutoff of natural gas from Russia. And more U.S. oil in world markets will help keep prices steady if Russian production drops off, as expected. The United States can’t keep all its energy to itself, but adding to global capacity is good for Americans, anyway.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
Click here for politics news related to business and money
Read the latest financial and business news from Yahoo Finance