Justin Fox

US Energy Independence Is Small Comfort in Ukraine Crisis

In 2020, for the first time in 69 years, the US exported more energy than it imported. The numbers for 2021 aren’t all in yet, but everything is pointing to an even bigger energy surplus. The long journey that began during the 1973 oil crisis with President Richard Nixon’s “Project Independence” and its goal of “achieving self-sufficiency in energy” would seem to have ended.

Yet as Russia invades Ukraine, threatening disruption of global oil supplies, Americans aren’t exactly celebrating their energy independence. Instead, they’re fuming about high gasoline prices, with some even arguing that those prices are so high because President Joe Biden “destroyed American energy independence.” It’s mostly Republicans who say that, but some Democratic lawmakers have been pushing the White House (so far without success) to curb oil and gas exports to bring prices down at home. Meanwhile, the US and its allies are constrained by Russia’s oil and gas riches in their reactions to its assault on Ukraine.

So … maybe energy independence isn’t all it’s cracked up to be. Or maybe being a net exporter of energy doesn’t really make a country energy-independent.
Producing more energy than you consume does, to be sure, seem to be the standard definition of energy independence. For example, Eurostat, the European Union’s statistical agency, has a metric called “energy dependence” that is simply net imports as a percentage of energy use. Malta was Europe’s most energy-dependent country in 2020, at 97.6%. Germany, a big importer of Russian natural gas, came in at 63.7%. Fifteen years ago, US net energy imports amounted to 29.1% of energy consumption. Now, thanks mainly to the boom in domestic production of oil and natural gas enabled by hydraulic fracturing and horizontal drilling, they’re negative.

But President Nixon, President Jimmy Carter and other advocates of energy independence through the decades have had more than just this simple accounting in mind. Nixon said in 1973 that he was concerned about the “maintenance of our ability to play our independent role in international affairs.” Carter worried in 1977 that the world was “running out of petroleum,” and that this would wreak economic havoc without concerted efforts to conserve energy and come up with new sources. Most talk of energy independence falls into those two baskets, which I’ll define as:

• Freedom from foreign power.
• Freedom from economic harm.

Sometimes these two aims are compatible, sometimes they aren’t. Germany and other European nations would have a lot more freedom to maneuver on Ukraine if they weren’t so dependent on Russian natural gas, but without it they would have paid a lot more for energy over the past few decades. Countries with limited energy resources generally don’t strive for self-sufficiency because they can achieve better economic results with imports — being heavily dependent on fossil fuels from abroad certainly didn’t thwart the economic rise of Japan and China. Countries with lots of energy resources generally don’t strive for self-sufficiency either, because they can achieve better economic results by exporting.

It’s a balancing act, and the optimal level of dependence or independence is neither obvious nor constant over time. Then again, it does seem like Germany’s 2011 decision to shut down all its nuclear power plants was a pretty clear (and clearly mistaken) step away from energy independence, reducing both its freedom from foreign power and its freedom from economic harm.

The US is a unique case, having risen to global economic preeminence in the first half of the 20th century fueled almost entirely by domestic coal, oil and gas that was in turn virtually all consumed domestically. Monthly US crude oil statistics are available all the way back to 1920, and they tell the story nicely — including the big post-World War II plot twist when domestic production stopped keeping up with demand.

Now the US is back to producing slightly more oil than it needs (as shown in the preceding chart, crude imports are still well higher than exports, but net exports of refined petroleum products more than cancel that out), yet isn’t exactly independent of overseas oil exporters. As my fellow Bloomberg Opinion columnist Liam Denning explained recently, Gulf Coast oil refiners that are set up to handle heavy crude from Venezuela have been importing a lot of oil from Russia lately because US sanctions don’t allow them to import from Venezuela. More generally, oil prices are set on global markets that the US, as a major producer, can influence but not control. There is no observable link, for example, between movements in the US petroleum trade balance and in the gasoline prices Americans pay.

So no, gasoline prices aren’t high right now because Joe Biden “destroyed American energy dependence.” They’re high mainly because the collapse in energy demand at the beginning of the pandemic caused oil producers around the world to cut back on pumping and investment. Then again, those prices may stay high because drillers are wary of increasing investment given painful recent experience and efforts by the Biden administration and other governments around the world to shift energy use away from fossil fuels.

It is these efforts to which Biden critics are referring with their talk of destroying energy independence, so that charge is not grabbed entirely out of thin air. But discouraging fossil fuel use in favor of renewables and other non-carbon-dioxide-emitting energy sources is arguably a step toward increased energy independence over the long haul. Burning fossil fuels imposes economic harms through global warming, while domestically generated wind and solar power have helped reduce the need for energy imports. Then again, the fracking boom of the past decade has done far more to reduce the US need for energy imports, and decreased carbon-dioxide emissions as fracked natural gas supplanted coal in electricity generation — while also increasing emissions of methane, another greenhouse gas, as a by-product of all the drilling. Energy independence is complicated!

It’s on the demand side that the concept is perhaps least fraught. If you can find ways to achieve your economic goals with less energy, you are by definition less energy-dependent. Since the the oil crises of the 1970s, the US has through gains in efficiency and economic shifts found ways to generate a lot more gross domestic product per unit of energy consumed.

If that numerator and denominator feel too abstract, here’s another, closer-to-home way of looking at more or less the same phenomenon.

The share of US consumer spending going to energy plumbed its all-time depths in the first few months of the pandemic, and while it has bounced back since it’s still lower than at any point before 1998 (and yes these statistics only go back to 1959 but I don’t see how energy’s wallet share could ever have been lower, at least not if you count food for horses and time spent cutting wood as energy expenses). This is one big reason why, while a 50% nominal increase in gasoline prices in 1973 and 1974 helped spark a sharp recession, a similar rise over the past year has been accompanied by 5.5% real GDP growth. That’s a sort of energy independence, even if it doesn’t quite feel like it as events overseas again make themselves felt at the gasoline pump.