US refiners still too dependent on imported heavy crude

U.S. oil demand over the past decade has remained in the 19-21 million b/d range. Crude oil production, meanwhile, has soared 150 percent to ~12.3 million b/d. As such, it would seem safe to assume that U.S. oil imports have plummeted in the shale-era since 2008. Interestingly though, this has not exactly been the case. Although declining, the U.S. still imports huge amounts of oil. In 2018, for instance, the U.S. imported 9.9 million b/d of crude oil and petroleum products from nearly 90 countries, albeit down from ~13 million b/d in 2008. Imports of crude over that time have fallen from 10 million b/d to 7 million b/d so far this year. So despite domestic production continuing to break records, the U.S. still imports 10 percent of the world’s total oil consumption.

There are a variety of reasons why the U.S. still imports high volumes of petroleum. The primary reason is that the U.S. shale oil boom has yielded loads of high-quality, light, and sweet oil that has a higher API gravity. The U.S. refining system, however, is generally configured to process the lower quality, heavier, and sourer oil that the country has been importing from Canada, Venezuela, and Mexico for many decades. It would therefore be uneconomical to run refineries solely on the domestic tight oil that has been flowing from U.S. shale plays.

In addition, the U.S. needs a variety of oil types to make different products. The boom in domestic oil production is not precisely yielding all those required to make all of the products that Americans use. Further, oil production, access, refining, and demand differ geographically. There are numerous parts across the country that lack pipeline access to the booming U.S. production zones, such as the Bakken play in North Dakota and the Permian in West Texas. They are removed from most of the infrastructure to access oil, as well as refine and transport liquid fuels, located in the mid-continent and Gulf Coast regions. Distant California, for instance, which now imports 60 percent of its crude, retains Saudi Arabia, Ecuador, Colombia, and Iraq supplying nearly 75 percent of imports. Not only underscoring the need for flexibility in trading oil internationally, all of this explains why the U.S. has not just been importing high amounts of oil but also exporting increasing volumes of it.
California has made it difficult to import US domestic crude because of its opposition to the infrastructure such as pipelines.  I think the domestic refiners are also hampered by the requirements that they waste money on ethanol.  The ethanol mandate was originally sold on the basis that it would reduce import, but now it is mainly just a sop to the agribusiness interests and requires refiners to waste money on ethanol rather than spend it on switching their refining capacity to use the light crude being produced from the shale wells rather than the imported heavy crude.


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