Supply disruptions tied to the Strait of Hormuz have renewed questions about U.S. energy security and why events halfway around the world still affect energy markets at home.
While the U.S. is the world’s largest crude oil producer and produces more than enough gasoline, diesel and jet fuel to meet domestic demand, it still imports and exports both crude oil and refined products.
If the U.S. produces so much energy, why do imports remain necessary and why not simply keep what is produced at home? The answer lies in refinery demand, barrels crude oil quality and transportation economics.
U.S. refineries process more crude oil than the U.S. currently produces. Domestic crude oil production stands at just under 14 mb/d while U.S. refineries process more than 16 mb/d. Imports help bridge that gap while providing the types of crude oil many refineries need to operate most efficiently.
There are more than 150 different crude oil grades produced around the world. Crude can be light or heavy, low in sulfur or high in sulfur and produce different amounts of gasoline, diesel and jet fuel. Most crude oil produced in the U.S. is lighter than the ideal range for many domestic refineries. Because many U.S. refineries are complex facilities optimized to process heavier crude slates, imports provide the right mix to maximize fuel production and improve refinery efficiency.
Economics also play a role. Even when domestic crude is available, it is not always the most economical option for every refinery because of transportation costs and infrastructure. Imports help meet refinery needs when domestic crude is unavailable, is not the right fit or cannot be delivered at the lowest cost.
Exports are equally important. While many U.S. refineries are designed for heavier crude, much of the crude produced domestically is lighter. Many refineries in Europe, Asia and other global markets are designed to process lighter crude, making U.S. production a valuable export. The U.S. can import crude that best fits its refining system while exporting crude that is in strong demand overseas.
The same principles apply to refined products. The U.S. imports gasoline, diesel and jet fuel because not every region has enough refining capacity to meet local demand and not every market can be supplied economically from refining centers along the Gulf Coast. Pipelines do not reach every region, and fuel shipped by water can be significantly more expensive. Domestic marine transportation is often constrained by the Jones Act, making imported fuel the lowest-cost supply option for parts of the East and West coasts.
At the same time, the U.S. is one of the world’s leading exporters of refined products because its refining system is among the most sophisticated and cost competitive globally. Diesel is the nation’s largest refined product export. While gasoline is the primary transportation fuel in the U.S., much of the world relies more heavily on diesel. U.S. refineries cannot efficiently produce gasoline without also producing diesel, leaving a surplus beyond domestic demand. Exporting that diesel strengthens global fuel supplies, maximizes the value of the U.S. refining system and supports refinery operations.
Without export markets, refiners would eventually have to reduce overall production, limiting supplies of gasoline, diesel and other fuels while reducing the value of the nation’s refining system. The ability to import and export crude oil and refined products strengthens U.S. energy security by allowing the market to balance refinery needs, product demand and transportation costs. Rather than signaling dependence, imports and exports help ensure Americans have reliable and affordable access to the fuels they depend on every day, even during periods of global uncertainty.
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