Energy Independent?

I am witness from time-to-time of individuals who state a belief that the Former Guy made us energy independent, and now under the Current Guy we have somehow immediately lost that energy independence.

To be clear, presidents cannot and do not decree energy prices, production, dependence or independence. Global markets and supply demand forces are responsible for this. That said, I know that most of you reading this want easy answers to complex subjects. I get it. And the easy answer is to point to the Current Guy's hostility to the oil and gas industry and say: See. It’s all his fault! The actual answer is more complicated. Allow me the opportunity to explain.

First, a few words about what constitutes energy independence – something that most individuals see only through the lens of oil and natural gas. A more accurate view would be to account for all of our domestic energy production; oil, natural gas and coal and renewables. Then subtract our net energy consumption. If you only consider oil and natural gas those sources represent only 68% of our energy consumption. Thus, if you observe our net exports going positive the conclusion is energy independence. If our net exports go negative the conclusion is dependence.

The truth of the matter is because oil is a fungible global commodity we import oil from other countries each and every day in the natural order of the oil business. That reality is not going to go away. All that matters is if we import a million barrels of oil and export a million barrels of finished product our independence is basically unaffected.

It is a fact that in 2019 the net imports for both crude oil and finished products flipped from positive to negative. By that measure alone, we became energy independent insofar as oil consumption is measured. The Former Guy was president when this happened for the first time in October 2019. 

Second, if you look at the chart (above) the trend towards independence began under the Former Former Guy. Alas, the policies of the two prior presidents bear no responsibility for that trend.  Neither of them get credit.  Hydraulic fracking is responsible for this.

Nevertheless, it was under the Former Former Guy that legislation was passed into law allowing producers to sell crude oil for export. Heretofore, only refined products like gasoline and diesel could be exported. Opening-up the markets for domestic producers extended the fracking boom benefiting front line producers and not just refiners.

Lastly, it is a fact that the Current Guy has embraced policy that could negatively impact domestic oil supplies in the future. However, the surge in pricing that we are witness-to today is largely a consequence of a COVID-induced drop in production (supply) that began in the spring of 2020 long before the Former Guy left office. The 2020 drop in production was 5%. That happens to be a drop of more than three million barrels per day. It has not yet recovered. And while consumption (demand) during the pandemic recession initially declined by 3% our energy independence began to shrink.

So, the short answer is that we maintained a margin of energy independence (albeit smaller) going into 2021. And since then demand has fully recovered and we now find ourselves with this: Smaller Supply + Increased Demand = Higher Prices.

The final answer to the energy independence question won't be known until all the data is in for the full year of 2021.  Then we will know we've lost our energy independence for the year. I’m not being a smart-ass but if it hasn’t it will largely be a consequence of domestic oil and gas production continuing to lag pre-COVID levels. As the gap closes and production more closely matches the demand needs of a recovering economy our fleeting dalliance with independence will likely return and consumer prices will moderate. That is my expectation.