Palcher S. et al. 2008. Crude and Refined Oil Imported to the United States. The oil drum.
Article:
CRUDE AND REFINED OIL IMPORTED TO THE UNITED STATES
Definition
The Energy Information Administration defines crude oil as “a mixture of hydrocarbons that exist in liquid phase in natural underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities.” They define imported crude oil as “Receipts of crude oil into the 50 states and the District of Columbia from foreign countries, Puerto Rico, the Virgin Islands and other US possessions and territories.” The definition is probably increasingly inadequate because the United States imports an increasing proportion of refined oil and the total imported oil, both crude and refined, is normally what is considered. This oil can come from many parts of the world but Canada, Mexico, Venezuela, the Middle East and North and West Africa have been traditionally the major suppliers. The term “imported oil” thus refers to all oil no matter where it came from or no matter the precise form.
History
Before World War I the demand for oil was reasonably constant and few or no shortages occurred within the U.S. During World War I, however, the importance of oil for military operations and of controlling domestic oil demand came to be realized. It was the first realization that humanity was becoming dependent on oil resources, although after the war that concept was rapidly forgotten.
In the 1950s the various oil exporting countries realized that oil production could be regulated in order to regulate prices throughout the world. In 1960 OPEC (The Organization of Petroleum Exporting Countries) was formed with originally five founding members, Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. By the end of 1971 Qatar, Indonesia, Libya, United Arab Emirates, Algeria, and Nigeria had joined the organization (WTRG economics, 2006). OPEC was a very important actor in the “energy crisis” of the 1970s. Most people today view the two oil crises as one, but there were actually two separate “crises” with at least two separate causes. The first real “oil crisis” was in 1973 and was caused by the Yom Kippur War. On October 6th 1973 – on the Jewish holiday “Yom Kippur” - Egypt and Syrian troops invaded Israel following long standing altercations amongst the participants. The troops of Egypt and Syria were supported by the Arabic world, and those of Israel were supported by the US. In response to the support of Israel the OAPEC (the Arabic part of OPEC) declared an oil embargo at October 20th against the US, the Netherlands and other states helping Israel. This was the beginning of the 1973 energy crisis when the oil prices tripled. The issue was exacerbated by a main pipeline in the Middle East being ruptured by a bulldozer. The second oil crisis occurred in 1979 when the Iranian Revolution started as Iranians rebelled against the Shaw of Iran (who had been installed by US intervention some decades earlier). During this period the oil prices (corrected for inflation) rose to the highest levels ever seen in the U.S. The total increase over 7 years was a factor of ten, from $3.50 a barrel to $35.
Figure 1: history of crude oil prices, in 2006 US dollars, with some main influences from political events (source: WTRG Economics). The price has increased subsequently to as much as $100 a barrel.
The US had imported small amounts of oil since the beginning of the 20th century, but after a peak in the domestic oil production in the beginning of the 70s, imports increased rapidly. The dependency on ever more expensive imported crude oil resources was a very new phenomenon for Americans and was evidenced by economic stagnation, inflation, long lines to purchase gasoline and a reduction in National confidence. But in time the US started to import less oil even though domestic production continued to decline. This was due mainly to a reduction in demand and hence price as companies and municipalities had made large investments into making plants, buildings, and equipment more energy efficient, and also the shift in electricity production from oil more towards coal and gas. Around 1986, the price of oil dropped sharply. A surplus in supply relative to demand occurred and continued until about 2000. The effects of these and other events can be seen in Figure 1. From the mid 1980s until the end of 2001 the oil supplies became more secure, the US oil demand grew steadily, but the domestic crude oil production continued to decline. In reaction the US started to again import more and more crude oil to satisfy the demand, and in 2005 about 60 percent of the US crude oil supply was imported. These oil imports cost as of 2007 was about 250 billion dollars a year, much of it paid for through debt, so that with interest the cost will in the future be larger. Figure 2 shows the historical pattern of imports of crude oil to the US.
Figure 2. US dependence on imported petroleum, 1960-2005 (Source: EIA, monthly energy review, Sept 2006)
According to the EIA (The US Energy Information Agency, Annual energy review 2005)) about 52% of the total US petroleum consumption in 1950 was in the transport sector. In 2005 it was 68%. Thus today more than two thirds of the total petroleum products consumed in the US is used by the transport industry. Since there is no ready substitute for this petroleum on the scale required this is the most vulnerable aspect of the US energy situation.
Resource base
The crude oil resources which can be found outside the US are still large, although “large” depends on the definition and who is doing the analysis. The world has consumed about one trillion barrels as of 2006, which can serve as a benchmark. There are probably at least 3 to 5 trillion barrels left in the ground, but the trick is, what proportion of that can be extracted? The usual proportion that can be extracted is given as about 35 percent, but there is a huge variation depending upon the specifics of the field (Deffeyes 2005). The US Geological Survey undertook a very exhaustive survey in 2000 (USGS 2000). They gave a 95 percent confidence (i.e. very high probability of that much oil being ultimately produced) of 1.9 trillion barrels, a median (50 percent probability) value of 2.9 trillion barrels, and a high (5 percent probability) value of 4.0 trillion barrels. These numbers imply that the world has extracted and consumed from about a quarter to about one half of all of the oil it will ever extract. Much of the variability in those numbers depends upon what proportion of the oil in place can be extracted. Obviously increasing the proportion extracted usually increases the energy cost of that barrel, but it might make the reserve estimates substantially larger.
According to the Oil and Gas Journal (Dec 19th, 2005) the world’s proven reserves of oil (crude oil, natural gas liquids, condensates and non-conventional oil) amounted to 1.293 trillion barrels. About 62% of these reserves are located in the Middle East and North Africa. Figure 3 shows the top twenty countries with proven oil reserves. There are two caveats that go with this figure: the first is that there is considerable controversy about the actual size of the reserves of most OPEC nations as there was a suspiciously large jump in reserves of these nations following the 1986 agreement to allow pumpage in proportion to reserves. Thus as much as a half of the reserves of some nations might be “political” vs “geological” reserves. The second is that the majority of the reserves for Canada are “unconventional” crude oil resources (mainly oil sands). While these reserves are large their rate of exploitation is likely to be restricted by the needs for water, natural gas or environmental or social issues.
Given that the United States is the world’s largest consumer its need to import is obvious. These estimates represent values with, at least in theory, a very high probability of actually being extracted. In addition it is likely that an unknown quantity of other oil resources will be found and added to these reserves. If that number is small and Canada’s unconventional oil sands are not included then this assessment would not be too different from the USGS (2000) low value. Thus if the USGS median or high quantities of conventional oil are to be realized a great deal of additional oil must be found, which would require a large change in the finding patterns we have witnessed since about 1970.
Figure 3, Top twenty countries proven oil reserves (at the end of 2005). Note that Canada includes non-conventional proven reserves. (Source: Oil and Gas Journal, December 19th, 2005). The reserves to production ratio indicates the number of years of production at present rates that would exhaust known reserves.
EROI
Methodology
The EROI of imported oil for the US (from the perspective of the US), must be calculated differently from how it is done for most other fuels. The EROI for actually getting the oil to the surface (i.e. the oil produced divided by the energy required to get it) is covered in a forthcoming publication on global oil and gas (Gagnon and Hall,Appendix A) and was roughly 35:1 and declining as of 1999. But the actual energy cost to the importing nation is not simply the energy cost of recovering the oil from the ground and shipping it across the ocean but rather is the energy that must be used to generate the goods and services that in (a net sense) must be traded for that oil, and this depends on the price of a barrel of oil relative to the prices of the goods and services exported to get foreign exchange (Hall, Cleveland and Kaufmann 1986, chapter 8, originally authored by Robert Kaufmann). This methodology can be applied only to an individual country and has little to do with the fundamental EROI of global oil and gas. In a sense the money we spend to provide our imported oil supports export nation’s government subsidies (both as dollars and the energy associated with those expenditures) to the burgeoning populations and the often opulent life-styles of their leaders. These supplier nations, of course, gain enormous financial leverage because of the US’s and the world’s increased addiction to a resource that most countries can no longer fully supply for themselves, and for which there are no, or certainly no easy, substitutes. In addition, since almost all US economic transactions are done in terms of dollars and not energy, we are forced to, again, translate economic transactions done in terms of dollars to energy values using energy intensities of economic activities. (If you are unhappy with this use of energy intensities of economic activity then you must ask the government (or someone) to keep a separate set of books based on Joules!) The EROI for an imported fuel can change dramatically as the price of oil relative to our exported goods and services increases and decreases due to economic, political, meteorological, psychological and other factors, and the cost to the U.S. recently is far above production costs (in both dollars and energy) due, I suppose, mostly to the geography of supply and demand. As imported oil gets more expensive and diverts more of the total economic activity of importing nations, then, as suggested in our first post, the discretionary money and energy available to the population becomes less. We have examined these issues in some detail for Costa Rica and other countries, where they may have an even larger impact than in e.g. the U.S.
We exclude from this analysis the interest on the debt with which we increasingly pay for oil—but that would increase the energy cost of the oil assuming the debt is eventually paid. We derive the EROI in a way similar to other EROI calculations in that we divide the energy of the delivered crude oil by the energy required to obtain it. However in this case it is the energy used in the general economy to generate enough exported goods and services to pay for that oil. More specifically, the energy delivered is determined by the energy content of one barrel of imported oil, about 6,164 MegaJoules/barrel, by the energy required to generate the dollar cost of an imported barrel, that is by multiplying the international price of a barrel of oil (i.e. in nominal dollars) by the average energy intensity of the US economy (in MJ/nominal dollar) for that specific year (equation 2). In other words to get the foreign exchange to buy one barrel of crude oil the U.S. needs to generate enough goods and services to be sold abroad to generate the necessary money to buy it. This methodology calculates the energy cost to the U.S. economy to import the energy contained in crude oil, using monetary values as a transitional stage. For an example, a farmer has to earn money to buy one gallon of gas so he has to sell some of his or her crop, much of which goes overseas. To produce the crop he has to do economic work, which is by definition an energy-intensive procedure, usually requiring oil or some other energy source. So to earn the money to buy his or her fuel he has to invest a certain amount of energy in growing and harvesting the crop. While the farmer does not pay the supplier in Mexico or Saudi Arabia directly the oil importer must, using in part that farmer’s purchases. How much energy we as a nation must invest on average to get the energy embodied in one barrel of crude oil is calculated in formula 1.
Where: Eboe = Energy content of one barrel of oil equivalent (6164 MJ/boe)
Eintensity,y = Energy intensity of the total US economy in year: (MJ/USD/y)
Pboe = Price of one barrel of oil equivalent in year: (USD/boe/y)
Econs = Total energy consumed in the US in year: (MJ/y)
GDP = Gross Domestic Product in year: (USD/y)
This study is based on Kaufmann’s (1986) analysis of EROI of imported oil. Kaufmann calculated the EROI of imported liquid petroleum by calculating the energy needed for sector-specific exports. However we could not follow the original methodology because much of the data needed is no longer collected by the US government. Thus we use the average value for the US national economy. The results of Kaufmann’s study, however, can be used to validate our results.
Results
Our estimated EROI values for crude oil imported to the US from 1968 until 2005 varies from about 45 to about 5 barrels of oil obtained per barrel invested in the general economy to make goods and services for export. These values are plotted as a time series in figure 4 along with the price of a barrel of oil in international markets. The effects of the first and second oil crisis can be seen clearly. In 1973 - after the first oil crisis started - the imported EROI for oil dropped from 26:1 to 9:1 as the price of a barrel of oil increased relative to the price of our exported goods – assuming that the goods and services we exported were as energy-intensive on average as the society in general. It cost the US society almost three times more energy (embodied in money and in the goods and services exported to pay for the oil imported) to gain the imported energy embodied in a barrel of crude oil than it cost to get domestic oil. Money lost its (energetic as well as monetary) value in terms of buying a barrel of oil. A second drop in the EROI to about 5:1 can be seen in the beginning of the 1980s. From 1986 until 2001 the price of a barrel of oil dropped and remained relatively low, while inflation had increased the dollar value of exported goods and services so that the EROI increased to as much as 55:1. But starting in about 1998 the price of oil gradually increased again (and more rapidly than the inflation of goods and services) and the EROI declined, a trend that appears to be continuing. The EROI for oil imported to the US declined during this period from 27:1 in 2001 to 15:1 in 2005. Given that as of September 2007 the price of a barrel of oil has increased to nearly $80 dollars a barrel with (thus far) a relatively small increase in general price levels (about 10 percent) we might assume that the EROI has continued to decline to perhaps 10 to 12 to one (and to much less by 2008). If the price of oil continues to increase rapidly compared to the price of exported goods and services then an increasing and very large proportion of the total output of the U.S. economy will be required to gain imported oil.
Figure 4: EROI Imported Crude Oil into the US plotted with the crude oil price from 1968 until 2005, and validated against Kaufmann’s EROI (1986) for liquid petroleum . (Data from U.S. BEA, 2007; EIA, 2007).
When the EROI is examined against the total imported crude oil, a clear trend can be seen (Figure 5). In 1973 the EROI declined, but the amount of oil imported still increased (because of the decline in domestic US production, and the slow reaction in crude oil demand). In 1979 the quantity of imported crude oil stabilized and declined until 1985, because of slowed economic growth, some efficiency improvements, conservation, and especially an increase in the use of other energy sources (coal, gas, and nuclear energy). The inflation caused by increased oil prices takes a while to work through the economy but eventually makes exported goods more expensive so that in 1986 the EROI went back up to 24:1. The EROI remained relatively constant until 2001 but began to decline again. From 1986 until 2004 the amount of crude oil imported rose steadily even as its relative price increased.
The trend from 2001 until 2005 is similar to what occurred in 1973/74. In 1973 the oil embargo happened abruptly and the US government was not well prepared. The EROI decline happened quickly and steeply. Following 2001 a less steep decline in the EROI occurred. Currently the US is faced with an increased dependence on imported oil, the same trend as in 1970s, except that now the global peak is on the horizon, so a large increase in imports might not be possible. With this knowledge we can assume that the EROI (from the perpective of the US as importer) will decline in the near future, and after a little increase in the price of crude oil imports they may decline as well.
Figure 5: EROI plotted against total energy content in imported crude oil from 1968 until 2005. (Used data: BEA, 2007; EIA, 2007)
Validation
We compared our results with Kaufmann’s (1986) analysis which we read off his graphical output (Figure 4). Kaufmann’s EROI’s tend to have a very similar pattern to ours but are somewhat lower by from about 5 to 30 percent. The lower values perhaps can be explained by the differences in research boundaries or by the possible fact that exported goods and services are more energy-intensive than is the case for the general economy. The United States used to maintain much better energy (and other) statistics. Thus Kaufmann was able to derive sector-specific energy intensities, and multiply these by the weighted value of exported goods and services. Our values are more aggregated but show very similar trends, although at about a 5-30 percent smaller energy intensity than Kaufmann’s. Thus we can say that our aggregated estimates are reasonably but not perfectly validated by an earlier more detailed study. There is little we can do to improve on this until if or when the United States decides again to again maintain more comprehensive energy statistics. In the meantime it is probably safe to say that our analyses are conservative, that is represent a high estimate of the EROI for imported oil.
Environmental impacts
The environmental and social impacts for imported oil to the US include both spillage and routine releases of transported oil (e.g. Hall et al. 1978) but also all of the general impacts associated with the entire US economy, for it is the results of that economic activity that pays for the imports.
Literature Cited
Deffeyes, Kenneth S.. 2001. Hubbert’s Peak: The Impending World Oil Shortage. Princeton University Press. Princeton, N.J.
Bureau of Economic Administration, 2007
EIA (U.S. Energy Information Agency), 2007 (Accesed May 2007)
Gagnon, N. and C.A.S. Hall, Appendix A
Hall, C. A. S., R. Howarth, C. Vorosmarty and B. Moore. 1978. The environmental impact of energy use in the in the coastal zone. Annual Review of Energy 3: 395-475.
International Energy Agency, World energy outlook 2006, Paris, 2006. (
www.iea.org 5-23-2007)
Energy Information Administration, 2007, definitions, sources and Explanatory notes, Website:
www.eia.doe.gov , (6-29-2007)
Kaufmann, Robert. 1986. Imported Petroleum. Chapter 8 in Hall, C.A.S., C. Cleveland and R. Kaufmann. Energy and Resource Quality. Wiley Interscience, New York.
Oil and Gas Journal (Dec 19th, 2005)
US Geological Survey 2000.
WTRG Economics, 2006 (An on line oil information company
