Economic Perspective: Why Do We Still Import Oil?

MARY WALDEN:

“Today’s program asks, ‘Why do we still import oil?’ Mike, U.S. oil production has been rising in the last decade. So much so that many say our country is energy independent, yet the recent attack in Saudi Arabia that curtailed their oil exports revealed that the U.S. is still importing oil. Why is this if we are producing so much oil ourselves?”

MIKE WALDEN:

“That’s a really good question, and you’re right. If we look at the amount of oil production that is occuring in the U.S., we produce more than enough oil to satisfy our needs. Yet we don’t. We don’t satisfy our needs. We still import some oil at the same time we’re exporting some of that oil that we produce. Now why is this?”

“Well there are two big reasons. Number one, where the oil in the U.S. is being produced, which is primarily in the mid section of the country, the Dakotas down to Texas, is not where it’s needed. Our big, obviously, population centers are up on both coasts, and you have to get that oil to those locations. Well it turns out that’s not an easily done proposition.”

“We don’t have the infrastructure yet to handle that, and so on our coastal areas it still makes economic sense, i.e. it’s cheaper, to use imported oil because you can get that directly from ships bringing that in. So that’s one big reason.”

“The second big reason is the type of oil. There are different grades, or types, of oil. We produce a grade for which we don’t have the refineries available to turn that oil into finished products like oil and airline fuel. The oil we import does work with our refineries, and the reason our refineries were built this way is because we primarily used to import oil. But now that we have oil coming from our country, it’s a different grade. We need different kinds of refineries, but we don’t have them yet.”

“So until we do, we fix that problem, until we fix the problem of infrastructure, even though we are producing more oil than ever before, we’re still going to be importing some foreign oil.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in
the Department of Agricultural and Resource Economics at North Carolina State University who
teaches and writes on personal finance, economic outlook and public policy.