Why on Earth Is America Still Importing Energy?

A few weeks ago a ship carrying an ultralight oil known as condensate left the U.S. on its way to South Korea. While the oil was minimally refined and technically qualified as a refined petroleum product, it has been regarded by many as the first step to lifting America's four-decade-old ban on oil exports. But what is pretty surprising is that at the same time producers are seeking to export oil as well as additional volumes of natural gas and coal, America continues to import these same commodities from other countries. Lets take a close look why that's happening and why it's not likely to stop anytime soon. 

Why America still imports oil
Thanks to the combination of horizontal drilling and hydraulic fracturing, America has unlocked billions of barrels of oil trapped within tight shale formations. The surging production from shale, along with falling consumption, has led to a dramatic reduction in net oil imports, as the following chart notes.

Source: EIA 

But despite the surge in oil supply America still imports a lot of it. In 2013, 33% of the oil consumed in the U.S. was imported, which is the lowest level since 1985 and down from 40% the year before. That being said, even as oil imports drop, half of the oil consumed in American refineries is oil that has been imported. 

The reason American refineries prefer imported oil is because that's the oil these refineries have been equipped to handle. A bulk of the oil that's imported actually comes from the Canadian oil sands, which accounted for roughly a third of our net oil imports and Venezuela, which supplies more than 10% of our net imports. Both of these countries produce what's known as heavy oil. Meanwhile, the oil that comes out of shale plays in Texas and North Dakota is light oil. It's a type of oil that refineries weren't expecting to be refining as the energy industry never saw the the shale oil boom coming and instead invested to build the capacity to refine the heavy oil coming from Canada and Venezuela. Now, American refineries are overwhelmed with light oil, which is why producers are pushing for an end to the export ban even as the country continues to import the oil from other nations.

Why America still imports natural gas
A few short years ago America was thought to have just a dozen years of natural gas reserves left. But thanks to the shale boom the country now sits on reserves big enough to last the country nearly a century. Because we have so much natural gas, next year America will export its first cargos of liquefied natural gas from a facility that originally was intended to import natural gas. The shale gas boom rendered import facilities like it useless, which is why nearly all of them are being converted to export natural gas. Yet, despite the fact that natural gas production has surged to the point that America has more than it can use, the country still imports natural gas as the following chart notes. 

Source: EIA 

While net natural gas imports have fallen to the lowest level since 1989, they have yet to vanish completely. One of the reasons for this is because there still isn't enough pipeline capacity from places like the Marcellus shale to deliver enough natural gas to meet the needs of places like New England in the winter. This is why most of the country's remaining natural gas imports, a whopping 97% in this case, come from Canada. 

Last winter, for example, natural gas from a Canadian offshore project from Encana (NYSE: ECA  ) helped keep Boston warm. Unfortunately, that came at an ultra-high cost as the price for natural gas in Boston was more than seven times higher than the price of natural gas in Pennsylvania. While that state was oversupplied due to the abundance of gas from the Marcellus Shale there isn't enough pipeline capacity to get it to Boston. So, until that capacity is built America will likely keep importing gas from Canada. 

Why America still imports coal
While it's no surprise that America still imports oil and it's probably even understandable why there's still some residual natural gas imports, what is likely surprising to learn is that America actually imports coal. In fact, through the first six months of this year coal imports surged 44% to 5.4 metric tons. While that's less than 1% of the expected 862 million tons of coal expected to be consumed in America this year, it's still a surprise that we import coal at all. 

Two thirds of the coal imported in America is coming from Colombia. The reason for this is that it costs just $15 per ton to get Colombian coal shipped into power plants in Florida. Meanwhile, it would cost $26 per ton to get coal from mines in Central Appalachia to those plants. There are three reasons why Colombian coal is cheaper. First, labor costs are cheaper. Second, coal can be moved on ships carrying 50,000 tons of coal as opposed to trains that carry 100 rail cars holding 100 tons of coal apiece. And finally, as the following chart notes, coal production in the country has fallen dramatically over the past few years as miners cut capacity in order to improve pricing.

Source: EIA 

So, despite having the largest coal reserves in the world, which are enough to last the country 290 years, America still imports coal simply because it's cheaper to do so.

Final thoughts
Despite our vast energy resources America still imports a lot of energy. We import specific types of oil because that's what our refineries can handle. We import natural gas because we don't yet have enough pipelines in place to meet peak demand. And we even import coal because in some instances it can be cheaper to do so. That's what happens when we live in a market-driven economy, so no matter how much energy we produce America will continue to import it when it's cheaper and more efficient to do so. 

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 20, 2014, at 9:34 AM, emailnodata wrote:

    Seems it would be smarter to preserve our own while foreign energy is relatively cheap.

    Oh, no, wait, it's only about us, today, at this moment, I keep forgetting that.

    Sorry.

  • Report this Comment On August 20, 2014, at 11:06 AM, acaryu wrote:

    Because we have a president who is more interested in wishful thinking ideology rather than fixing our energy dependence on the middle east. Solar and windpower energy only supply a small % of our energy. Our short term solution is natural gas and oil and our long term solution is nuclear energy. This is what we get when we elect a president that had no previous business experience.

  • Report this Comment On August 20, 2014, at 1:08 PM, phillipzx3 wrote:

    Acaryu,

    You need to sue your school for allowing you to graduate.

    Solar and wind may very well only supply a small percentage of our power at this time in hostory. But to suggest it can't supply much more (probably a majority if done correct) is at best so short-sighted there are no words to describe your ignorance.

    Guess what...Solar and wind IS nuclear. Just not of the type that causes land to be worthless for 100's (thousands) of years when that "We didn't that that could ever happen" accident HAPPENS!

    So far, all nuclear "accidents" have been caused because someone didn't think it could happen, they didn't think of it in the first place, some idiot messed up, or because something went wrong in the computer code.

  • Report this Comment On August 20, 2014, at 2:57 PM, Rezwar wrote:

    The answer is quite simple, why use up our own resources when we can use up other country's resources first? The middle east is waking up to the fact that once their oil fields dry up their country will be in dire straights without a steady supply of income from oil sales to prop up their economies. They are investing heavily in renewable energy. @ acaryu..the reason why solar and wind supply a small percentage of the nation's energy needs is because the oil cartel that buys influence in the U.S. government has made it very difficult for the renewable energy sector. Electric utilities are also playing hardball by setting policies that make grid parity difficult to reach by raising connection fees to counter the cost savings of going solar worth it just to name a few. Any technology is expensive to implement until it reaches critical mass and costs go down. When Henry Ford started selling the Model T, few could afford it. Mass production changed that, plus the fact that Henry Ford increased his workers pay so they could also afford to buy his cars. The same can and will happen with renewable energy. China is helping by beating the problem with their checkbook and lowering the costs of PV panels only to be countered by US Government high import tariffs. Natural Gas and nuclear power are not the answer. If a PV farm goes down, we don't have to evacuate the area or deal with fallout. Natural Gas is cheap now but once everyone starts using it there is an economic rule that takes effect called supply and demand. Increased demand lowers the supply and the price goes up.

  • Report this Comment On August 20, 2014, at 3:49 PM, peepfrog wrote:

    Why not store this oil while refitting a refinery to handle the refining process? Obviously we are still importing a huge chunk, we can do better.

  • Report this Comment On August 21, 2014, at 9:50 AM, mjmny wrote:

    This June, if I remember properly, there where a few days when Germany produced more than 50% of it's used electricity from solar panels. So this is not a small amount. The problem now is the storage.

    Oil companies do everything they can to kill the research, I just wonder for how long.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3076149, ~/Articles/ArticleHandler.aspx, 12/21/2014 5:51:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement