In 2006, following 35 years of declining U.S. oil production, net monthly imports of crude oil and finished products had climbed to more than 13 million barrels per day (BPD).
What’s happened since is nothing short of amazing. Last week, the Energy Information Administration (EIA) reported that U.S. crude oil production had reached 10.38 million BPD.
This represents an increase of more than 1.2 million BPD in the past year and is more than 5 million BPD higher than March 2006 production levels.
U.S. crude oil demand has fluctuated a bit in recent years but presently stands at just over 20 million BPD, which is about the same level as in 2006.
Given the 10 million BPD difference between U.S. oil demand and U.S. oil production, one might think that the U.S. is still dependent on foreign countries for 50% of our crude oil. But it’s more complicated than that.
U.S. refineries have invested billions of dollars into equipment to process heavy, sour (i.e., contains sulfur compounds) crudes. Most of the new oil production in the U.S. is light and sweet, which isn’t as economically attractive for refiners who have invested in equipment to process the lower grades (which are much cheaper).
Thus, U.S. oil producers have been exporting an increasing amount of oil, while U.S. refiners import the cheaper heavy grades. In just the past four years, U.S. crude oil exports have jumped from nearly nothing to more than 1.5 million BPD:
But the U.S. also exports finished products like gasoline and diesel. In fact, a growing fraction of the oil being consumed in the U.S. is simply being refined and exported. In 2011, the U.S. became a net exporter of finished products (e.g., diesel, gasoline, etc.) for the first time since 1949. Finished product exports have continued to grow since:
Note that this graphic reflects the difference between the finished products we import and those we export.
When all the factors are considered, the impact of growing U.S. oil production becomes clear. The overall balance between U.S. imports and exports of both crude oil and finished products fell to 2.6 million BPD in December. That is the lowest level since the EIA began tracking this category in 1973:
Last fall the International Energy Agency declared in its World Energy Outlook 2017 that the U.S. could be a net exporter of oil within a decade. On the current trajectory, net imports could indeed turn into net exports in 2020.
Incidentally, 2020 is also the last year that the IEA projects that supply growth will keep up with demand growth — given the present level of global investments. I will address that possibility in the next column.