Need for More Tar Sands Imports Called Into Question With Latest U.S. Energy Data

In 2040, domestic crude oil output will still be higher than it is today. Will the country's shifting energy picture affect Keystone XL's prospects?

The nation's changing energy landscape could relieve some of the pressure on President Obama to approve the controversial Keystone XL pipeline, designed to carry Canadian oil to the Texas Gulf Coast. Credit: Chris Dilts

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WASHINGTON—The U.S. Energy Department has sharply cut its forecast for crude oil imports in the next several years, saying that domestic oil will replace imports at a much faster rate than it expected just a few months ago.

Imports in 2016 will be one million barrels a day lower than it projected in April, the department’s Energy Information Administration (EIA) said Monday in its preliminary annual energy outlook for 2014 and beyond.

“With growth in both oil and natural gas production, we see the U.S. moving closer toward self-sufficiency, and there are some very interesting economic and geopolitical implications to all that,” said Adam Sieminski, the EIA’s administrator, at a briefing.

The rapidly changing energy picture could relieve some of the pressure on President Obama to approve one major new conduit for crude oil imports, the Keystone XL pipeline. If built, the project would carry 860,000 barrels a day of crude oil, mostly from Canada’s tar sands, to U.S. refineries on the Texas coast, starting as early as 2016.

Obama’s decision is expected some time next year, after more than five years of review. Forecasts like the one issued Monday have been used by the administration to think through its decision, and pipeline opponents say the latest data undercuts the rationale for the project.

Anthony Swift, an attorney in the international program of the Natural Resources Defense Council, said the new data shows that “we simply don’t need this tar sands pipeline.”

Shawn Howard, a spokesman for TransCanada, the Keystone’s builder, said the new forecast “does not erode the case” for the pipeline. Even under the lower forecast, he said, “Americans will continue to import anywhere between five to eight million barrels a day out to 2040.”

“Our customers have signed long-term commercial contracts because they understand the need for the oil that Keystone XL will bring to U.S. refineries,” he said. “We have a waiting list of customers interested in securing capacity on Keystone XL if it becomes available.”

CHART: Crude oil imports from Canada are seen increasing significantly in 2014 and 2015, before the Keystone XL could possibly be built. They then remain flat for the next 20 years at less than 3.5 million barrels a day before rising again.

The Numbers

For years, backers of the Keystone pipeline have said the project would help ensure a reliable, Canadian supply of oil to the United States, which had become heavily dependent on imports—often from unstable nations. The new report highlights that the era of dependency is coming to a close.

With domestic crude oil production rising rapidly to 9.5 million barrels a day in 2016 from about 8 million barrels a day currently, imports will fall in the years ahead to 25 percent of the U.S. market, from about 60 percent just a few years ago, it said.

When all sources of energy are included, the nation’s newfound energy independence is even more evident.

Under the new forecast, the net use of imported energy sources of all kinds falls from 16 percent of total consumption in 2012 to 4 percent in 2040. That figure was 30 percent in 2005. The U.S. imports many kinds of energy, including hydroelectric power from Canada, biofuels from Brazil, crude oil and coal.

The bulk of the shift is due to the ongoing increase in natural gas production, as well as growing use of biofuels. The oil boom, while significant, is eventually forecast to taper off, although not as early as previously expected. In 2040, domestic crude oil output will still be higher than it is today, the report said.

The EIA said it expects the growth in natural gas production, especially from fracking in the Marcellus shale around Pennsylvania, to persist for years to come, significantly reshaping the overall energy landscape. Natural gas can displace oil as a transportation fuel, coal as a fuel for power plants, and nuclear or renewable sources of energy.

Not a Climate Solution

But the agency said that unless there are policy changes on how fossil fuels are used, greenhouse gas emissions in the United States would decline to only 9 percent below the 2005 levels by the year 2020—not even close to the 17 percent that the U.S. has pledged at international climate talks.

So what looks like good news from the standpoint of U.S. energy independence is cold comfort to those environmental advocates and scientists who say that the U.S. and the rest of the world must act swiftly to reduce emissions of carbon dioxide in order to avoid the worst effects of global warming in the coming century. For them, higher production of fossil fuels is progress in the wrong direction.

In the new forecast, natural gas eventually surpasses coal as the main source of fuel for generating electricity. But even though natural gas dominates in newly built plants, coal holds its own among existing suppliers and the total use of coal remains constant for the next few decades.

The EIA forecast is based on business as usual—it does not take into account any possible changes in U.S. law or regulatory policies, such as restrictions on coal-fired power plants or the pending decision on whether to grant the Keystone pipeline a presidential permit. Later, the agency will present alternative outlooks based on various assumptions about new policies and technologies.

The pipeline decision is supposed to be based on whether the Keystone serves the national interest. In the past, that calculation might have hinged on energy security—on the need for reliable sources of oil imports. Now, with import concerns lessened, more attention will fall on the risks posed by climate change and oil spills.

Sieminski said that across the complex energy landscape, U.S. policymakers are still struggling with how things have been “turned upside down” since about 1980, when “the general thinking was that U.S. demand for petroleum would only go up and the U.S. supply of petroleum would only go down.”

Today, the opposite is the case.

In making energy decisions, “[policymakers] have to look at what the economic impacts are, they have to look at what the national security impacts are, and they have to look at what the environmental impacts are,” he said. “That’s a lot of issues to keep up in the air and to handle effectively.”

His agency’s role, he emphasized, was to present the data, not any recommendations.

The plummeting levels of crude oil imports in the coming decade are especially notable because they departed so significantly from the most recent comprehensive outlook, released just eight months ago. It was already clear back then that domestic production was surging while demand for oil had softened. But the scale of the shift has repeatedly taken forecasters by surprise.

The new report expects crude oil imports to plunge from about 7.5 million barrels a day this year to 6.5 million barrels a day next year, and to flatten out at about 6 million barrels a day for close to a decade. That whole time, imports are expected to be a million barrels a day less than was previously foreseen.

A year ago, when it was not so clear how quickly crude oil imports were dropping, the State Department relied on EIA’s preliminary 2013 forecast as it prepared its draft environmental impact statement on the Keystone pipeline, issued in March.

“Growth in Canadian oil sands remains a key factor in maintaining robust non-OPEC oil supply over the course of the next several decades,” the EIA advised the State Department at the time.