The Imperative of the U.S. Energy Trade [R]evolution

Dean Foreman
Posted January 30, 2018

For the first installment of my API Chart of the Month series, let’s look at a pair of charts that show the strengthening of U.S. trade positions for petroleum – crude oil and refined products – and natural gas – supported by trade pacts such as the North American Free Trade Agreement (NAFTA). This is especially timely given the possibility trade will come up during tonight’s State of the Union address.

Let me set these charts up by saying that the United States’ energy trade position in 2017 was vastly superior to what it was one decade ago. This has enhanced U.S. energy security and also elevated the importance of free trade with Canada and Mexico, which, as we’ve said, policymakers must consider when revisiting NAFTA. The United States’ emergence as an energy net exporter with Asia Pacific and Europe also holds the potential to help balance broader trade relations as the U.S. energy renaissance continues.

The first chart below compares U.S. net trade positions – imports in red, exports in green – in 2007 and 2017, expressed in million barrels per day. The U.S. balance of petroleum trade has shifted significantly – in a positive way.

Crude oil and petroleum products are traded globally. As highlighted in the lower left box, the U.S. was a net importer of 12 million barrels per day crude oil and refined products from the rest of the world in 2007. A decade later, the U.S. still is a net importer, but of only a little more than 4 million barrels per day. These figures imply that the U.S. has shifted to reliance on imports for just 21 percent of its petroleum consumption, down from 58 percent in 2007.

Notably, the U.S. import reliance on OPEC countries has basically been halved over this period, and petroleum trade with non-OPEC countries has nearly become balanced.

The U.S. has a long history of exporting certain petroleum products and importing others to balance refinery outputs and global demand. For example, U.S. refiners have tended to export diesel to Europe (where diesel demand is stronger), while European refiners have tended to export gasoline to the U.S. (where gasoline demand is stronger).

Despite these long-standing relationships, the U.S. has seen directional shifts to a net exporter in its petroleum trade with Mexico, Latin America & Caribbean, Europe and Asia Pacific. In fact, the only country where there was a meaningful increase in net imports is Canada, which highlights the intertwined nature of the North American refining industry as well as the strong relationship the U.S. has as the main export market for Canadian crude oil.

Now let’s turn to U.S. trade of natural gas. The next chart shows U.S. natural gas trade in the same format as the petroleum trade chart –  comparative U.S. net trade positions with imports in red, exports in green – in 2007 and 2017, but expressed in billion cubic feet per day (bcf/d).

In 2007, the U.S. was a net importer of 10.6 bcf/d, 85 percent of which came from Canada via pipelines. The U.S. also took in relatively small amounts of pipeline gas from Mexico and liquefied natural gas (LNG) from Latin America & Caribbean (Trinidad/Tobago) and Africa (Nigeria and Equatorial Guinea). Altogether, the U.S. imported nearly 17 percent of its natural gas needs in 2007.

By contrast, natural gas trade in 2017 was nearly balanced. In fact, monthly EIA data already show that the U.S. was a net exporter of natural gas through six of the first 10 months of the 2017. The U.S. Energy Information Administration’s Short Term Energy Outlook (STEO) further projects the U.S. will become a net exporter of natural gas annually for the first time in 2018. The 2017 direction of gas trade already flipped to becoming a net exporter with Africa, Latin America & Caribbean, Europe and Mexico. Importantly, Mexico has become the U.S.’s largest outlet for natural gas from the energy renaissance – more than 4 bcf/d of exports in 2017 – and currently dwarfs all other U.S. gas trading partners besides Canada.

U.S. natural gas trade with Mexico also is substantive in relation to total U.S. production. According to EIA estimates, total U.S. dry gas production was 73.6 bcf/d in 2017, so exports to Mexico represent 5.7 percent of the total. As further context, consider that in 2017 Mexico bought about as much U.S. natural gas as the state of Texas consumes.

Again, the U.S. was unquestionably in a stronger energy trade position in 2017 than it was 10 years ago. Energy trade with our NAFTA partners Canada and Mexico has made our country more energy secure while helping to reduce imports from other parts of the world. Free trade agreements like NAFTA play an important role in delivering these benefits and others.