The United States has a chronic energy shortage. What used to take 40 days to import oil has now become a matter of hours. What used to take a year to produce ethanol has now become a matter of weeks. How did this happen? We don’t know for certain. But it’s clear that U.S. energy imports from Latin America have surged ahead of Russia’s wind-down of its oil and gas industry.
How did we get here?
The U.S. Energy Information Administration (EIA) has been tracking the amount of oil imported from Latin America since 2004. The latest data show that U.S. oil imports from Latin America hit a record $81 billion in 2016, up 12% from the year before — driven mostly by a 51% increase in Venezuelan oil.
That’s a lot of oil, and it’s drawn a lot of attention. In February, The Wall Street Journal reported that oil prices have “soared more than 40% over the past 12 months, putting a huge dent in the nation’s fuel supply.”
How cheap is oil?
Oil is cheap in part because of disruption in key parts of the world. After all, oil is a fossil fuel that’s extracted from the ground. If you can’t produce it, you can’t buy it.
But even with all that disruption and uncertainty, the question is, can we sustain this? Oil price volatility can be a problem, but there are ways around it.
One way is to find ways to source your oil from other, less volatile countries. Companies like Encana and Suncor have already begun to do this, and it’s likely that more will follow.
Surging U.S. imports from Latin America
In the past few years, U.S. oil imports from Latin America have increased by 50% to 60%. In the same period, oil imports from Russia have plummeted by 90%.
Why the discrepancy? Part of the explanation can be found in the fact that the U.S. and Russia no longer use the same oil.
What’s more, the U.S. has been importing a lot more oil from Latin America in the past year because of the decline in Russian oil production.
Last year, the United States became the top oil importer from Latin America. U.S. oil imports from the region reached a record $95 billion, up 15% from the previous year.
The waning of Russia’s oil industry
The decline in Russia’s oil industry is a major reason for the difference in U.S. and Russian oil imports. In 2016, Russia produced less oil than it had done in each of the previous three years. In fact, it’s the first time in history that the Russian government has ordered an estate to shut down.
Why? Because of a decline in the oil industry.
Decreasing production is a big reason why oil prices are lower today than they were last year.
For a country to decide to shut down an entire industry — one of the most important economic sectors in the country — is a big deal. And it shows how seriously Russia takes its oil production goal.
The future of U.S. energy imports
The big question is: Will this trend continue? Given how quickly oil prices have risen, you might expect that to be the case. But there is a reason to think that it will not.
First, there are strong signs that the U.S. energy market will become more balanced over time. In fact, the EIA projects that U.S. oil production will increase by 80,000 barrels per day (bpd) between now and 2040, with the bulk of that increase coming from non-OPEC countries.
That’s a big shift from the past, when U.S. oil production was much less diverse, and the country had to rely more heavily on imports.
Given the shifting composition of North America’s energy supply, it’s possible that one day U.S. oil imports will decrease. The next chance will come in 2040, when the country’s new energy reality will make it difficult to sustain its current energy imports. In that case, the need to switch to renewable sources of energy could pressure countries to downsize their oil and gas industries.
That said, given the volatility of oil prices, it’s hard to say for certain what that future will bring. The one thing that’s for certain is that the United States will need to become more energy efficient if it’s going to remain a leading oil producer.