Oil Imports are Falling Thanks to Domestic Output, Not Ethanol

Mark Green
Posted July 25, 2014

Another of Big Ethanol’s favorite lines is the claim that Renewable Fuel Standard (RFS) mandates for ever-increasing ethanol use are reducing oil imports. As we noted in this Bob Greco post from April 2013, ethanol proponents keep saying this despite the fact there’s little factual basis for it. Let’s update that post.

First, we know that net crude oil imports are falling, and that’s a very good thing for America. The U.S. Energy Information Administration (EIA) reports that in 2013 net crude imports were at their lowest level since 1988, and EIA projects that net imports’ share of overall U.S. petroleum and other liquids use could approach zero by 2040 – a good definition of U.S. energy self-sufficiency. Big Ethanol likes wrapping itself in that mantle because it boosts the flawed RFS. But it’s not deserved.

As the updated chart below shows, U.S. net imports of crude (red bar) fell more than 2.1 million barrels per day (bpd) from the beginning of 2008 through the end of 2013. Again, great news. Over the same period domestic crude production (blue bar) increased more than 2.4 million bpd. You don’t need a slide rule to understand that the increase in domestic production accounts for all of the reduction in imports.

Ethanol production (yellow) also grew between 2008 and 2013, but the increase of more than 263,000 bpd is too small for proponents to credibly claim that it is supplanting imports.

As Greco pointed out in his post last year, a timeframe beginning in 2008 is significant because the Energy Independence and Security Act of 2007 (EISA 2007), which set the required ethanol volumes for the current RFS, was signed into law Dec. 19, 2007. The goal of EISA 2007 was to move the U.S. toward greater “energy independence and security.” That’s happening – but not because of the RFS.

Rather, it’s happening because of America’s revolution in domestic energy output, harnessing vast reserves of oil found in shale and other tight-rock formations with advanced hydraulic fracturing and horizontal drilling. The U.S. is about to become the world’s leading oil producer, projected by the International Energy Agency to pass Saudi Arabia and Russia by next year. According to EIA, domestic production satisfied 84 percent of total U.S. energy demand in 2013. With pro-energy development policies, the U.S. could see 100 percent of its liquid fuel needs supplied by North American sources by 2024.

This is a revolution born of energy-resource wealth, innovation and entrepreneurship – not government mandates. The oil and natural gas industry is moving the country toward greater energy security while contributing nearly $70 billion in rents, royalties and bonuses (2008-2013) into the U.S. Treasury – not to mention more than $44 billion in income taxes from 2008–2011 in addition to billions more in still-to-be-released tax numbers for 2012 and 2013.

Another updated chart, below, showing the inverse relationship between domestic production and crude oil imports. At the bottom you can see the line tracking fuel ethanol consumption (red). While the line inches slightly north, it has no role in the big picture you see toward the top of the chart, where lines tracking domestic crude oil production (blue) and net oil imports (green) are converging.

Domestic production, not the RFS, is the story behind reduced imports of crude. With increased access to reserves, a common-sense approach to regulation and efficient policies that foster certainty in leasing and permitting, the good-news story of domestic oil output can get better and better.