Is there really such a thing as "foreign oil"?

July 31, 2008 7:27 AM

Why is there so much talk about dependence on "foreign oil"? (Meaning, as opposed to "domestic oil," not alternative energy sources.) Is there really any meaningful distinction between foreign and US oil, given that the oil market is mostly global?

How can it be true that drilling in ANWR or offshore or whatever would reduce imports? After all, unless we're also talking about nationalizing the oil industry, that oil belongs to private enterprises that will sell it to the highest bidder, whether inside or outside the U.S., right?

And if ANWR drilling proponents are in fact are advocating by implication nationalization of oil, isn't that actually hugely destabilizing, leading to states using oil as a tool of diplomacy, and eventually to situations like 1930s Japan, where limited access to oil was a major contributor to nationalistic militarism and aggression?

I guess I'm wondering first, whether my assumptions are correct, and then if so, why no one in the public conversation seems to be calling out Republicans on this? It just seems like an argument you could deflate in about three seconds.

posted by stupidsexyFlanders to law & government (17 comments total)

A lot of it comes from the fact that many of the countries from whom we buy our oil (exceptions are Canada and Mexico, two of our biggest suppliers) tend to have unsavory governments. We directly fund Hugo Chavez's anti-American government in Venezuela, send money to autocratic regimes in the Middle East that have ties to various anti-US and anti-Israel organizations, and have (indirectly) funded civil wars in Angola, Nigeria, and elsewhere. Not to mention that Iran is sitting on a huge pile of oil, and is probably our chief foreign policy problem right now.

Tom Friedman used to write about this a lot. Here's one example, but you can find dozens more (he tends to repeat himself).
posted by j1950 at 7:36 AM on July 31, 2008

In the ideal free-trade scenario, you'd be right. Oil is fungible. However, there are political concerns that make domestic and foreign oil different. Specifically, foreign interests such as OPEC have the power to cripple our economy and potentially our military capability by lowering production, raising prices, or withholding oil. We're largely powerless to stop this, and this makes people nervous. Sure, private companies would be the recipients of ANWR oil, but our government has much more influence with private companies within the U.S.

That said, my impression is that ANWR doesn't really contain enough oil to have much of an impact; it's mostly a political issue: the advocates of opening ANWR to drilling are doing so because it makes it look like they're doing something about soaring oil prices, and it also lines the pockets of their buddies in the energy industry. (but that's obviously just my opinion)
posted by qxntpqbbbqxl at 7:43 AM on July 31, 2008

Oil pumped in the US may belong to private enterprise, but they're not going to be allowed to stop pumping to rig the global price, as OPEC have done. Basically, having oil (and gas and coal) produced at home gives some level of energy security should there be any kind of crisis. While the dirtiness of nationalisation as a word means that might not happen exactly, if things came to it, then the US government would probably 'work with' US based oil companies to ensure some flow of domestic oil.
posted by biffa at 7:44 AM on July 31, 2008

Specifically, foreign interests such as OPEC have the power to cripple our economy and potentially our military capability by lowering production, raising prices, or withholding oil.

For a concrete example of how OPEC has used their power over the world's oil supply as a foreign policy weapon, see the oil crisis of the 1970s.
posted by burnmp3s at 7:48 AM on July 31, 2008

Oil pumped in the US may belong to private enterprise, but they're not going to be allowed to stop pumping to rig the global price

Wouldn't they just keep shutting down refineries instead?
posted by JaredSeth at 8:02 AM on July 31, 2008

Norway's still a net exporter, with a tax and welfare system that's based upon the idea that the North Sea will eventually cease to provide -- it's already past peak -- and that its profits ought to be squirreled away. This is something the US might have considered in the 1960s. Instead, the thinking is based around shaving cents off the spot price and making the market marginally less susceptible to spikes.

It's politically infeasible to bust this myth, not least because the gusher as a source of wealth and freedom is so deeply embedded in US culture, from The Beverly Hillbillies to Dallas to There Will Be Blood.
posted by holgate at 8:02 AM on July 31, 2008

Well, not quite. Oil used to mean OPEC. Foreign oil is a phrase that implies the balkanization of oil production. Oil production from non-OPEC nations has far outpaced OPEC production for some time. It used to be that Saudi Arabia had so much oil in regards to demand, that supply was never really a problem. They could double daily output without even drilling more wells, and at a cost that is ridiculously low. No more, so prices went up (I'm talking long-term since the 1990s) and it became economically viable for all these non-OPEC countries to start exploiting their resources.

That's at least how I interpret it. I know of no one that actually believes if we stopped importing oil we'd find vast, untapped reserves somewhere. If such a discovery would happen, it would probably change some fundamental assumptions about oil and geology.
posted by geoff. at 8:10 AM on July 31, 2008

Purchasing anything overseas affects our balance of trade. Purchasing the same thing domestically does not.
posted by Class Goat at 8:55 AM on July 31, 2008

There are various levels to this question. When we buy oil to the Texas tycoons the money tends to stay in our economy.

But in the end, IMO, it really doesn't matter who has us over the barrel, the oil billionaires in Texas or the oil billionaires in the Gulf since oil wealth tends to transmute itself into equity and REIT ownership percentanges.

Oil production from non-OPEC nations has far outpaced OPEC production for some time

OECD producers are Non-OPEC (except Russia) is now post-peak. OPEC is still at peak. Big difference going forward.
posted by yort at 9:19 AM on July 31, 2008

OECD producers and Non-OPEC . . .
posted by yort at 9:20 AM on July 31, 2008

see the oil crisis of the 1970s.

I'm guessing that the US oil producers matched the OPEC prices at that time.
posted by StickyCarpet at 9:30 AM on July 31, 2008

Is there really any meaningful distinction between foreign and US oil, given that the oil market is mostly global?

Yes. A foreign supplier means that US dollars have to be sold to buy the local currency. Domestic supply means that US dollars do not have to be converted. This has an effect on things like the US balance of trade and on how much the US needs to export and how much foreign investment is needed to keep the dollar at it's current level. The Arab countries, in particular, have an oversupply of dollars leading to "Petrodollar Recycling". This is way beyond my area of expertise, so I'll leave this to others.

How can it be true that drilling in ANWR or offshore or whatever would reduce imports? After all, unless we're also talking about nationalizing the oil industry, that oil belongs to private enterprises that will sell it to the highest bidder, whether inside or outside the U.S., right?

Oil reserves, without exception, belong to the countries in which they reside. I know of no country that outright sells reserve. Most countries do, in fact, own (or have controlling ownership in) the producer of their reserves: Norway has Statoil, Saudi Arabia has AramCo, Brazil has PetroBras. In countries where this is not true, Canada, US, the UK, for example, the government retains ownership of the fields, and leases them to the oil exploiters. Monies are paid back to the government as a combination of lease fees and royalties. In the case of a foreign supplier, US oil companies must either buy from the national provider (at higher cost) or must pay fees and royalties to foreign governments. In the case of domestic supply, these monies return to the US federal and state governments. This is why state of Alaska residents pay so little tax, for example. Foreign supply means more money leaves the US; domestic means the governments can offset taxes.

And if ANWR drilling proponents are in fact are advocating by implication nationalization of oil, isn't that actually hugely destabilizing?

The government already owns that oil. Given history, there's no reason to believe that ANWR reserves would be developed any differently than any other Alaskan field, by private companies, with lease and royalties paid back to the federal and state governments. The US federal agency that regulates this process is called the Minerals Management Service (of the Department of the Interior), by the way.

As far as I understand it, the problems with reliance on non-US supplies are: wonky monetary policy, including flight of capital from the US, and the potential unreliability of sources. Both are good reasons to unhook from the petro-habit.

Oil is fungible.

Kinda, but not really, functionally. Petroleum has a lot of regional variation and come in many grades (the most common is measured as density, called API gravity). Most foreign (to the US) oil sources are higher quality than domestic US sources. Even the Mexican Gulf oils are much heavier than they used to be. Lower quality oil means higher production cost for light fuels, like gas and diesel. The US is, in general, at a significant economic disadvantage if it uses expensive to refine domestic supplies over cheaper imports. Canadian and Venezuelan oil sand and oil shale sources are the obvious exceptions to this.
posted by bonehead at 9:36 AM on July 31, 2008

How can it be true that drilling in ANWR or offshore or whatever would reduce imports? After all, unless we're also talking about nationalizing the oil industry, that oil belongs to private enterprises that will sell it to the highest bidder, whether inside or outside the U.S., right?

Domestic producers do sell to the high bidders; those bidders also happen to be domestic. Transport is a cost, and that cost will inflate the price far away, non-domestic bidders pay. As long as cheaper sources are available to foreign purchasers, domestic sources will stay domestic.

Here's an EIA* table showing the sources of the foreign oil consumed in the United States (and here's an analysis of the data). The US' single largest supplier is .... Canada. Half of imports are from the Western Hemisphere. We get more from Africa than we do from the Persian Gulf. (20% to 16%). And where does Persian Gulf oil go? Japan, and Europe, then here and elsewhere.

Generally speaking, then, the oil is consumed close to where it's produced (unless it's going to Japan). Barring a miraculous reduction in transport costs or a catastrophic collapse of supply, one would expect this pattern to continue.

One more data point to support the regional restrictions to purely fungible oil is the example of Alaskan Pipeline crude. To overcome environmentalist resistance to the pipeline's construction, it's backers consented to a federal requirement that all of the oil it transported be sold on the US West Coast. That requirement was lifted in the late 1990s, but only a little was sold internationally (to Japan, Korea, and China, of course) before producers voluntarily agreed to once again sell only to the US West Coast.

Here's an unexpected bit of data: The US is the world's third largest producer (10% of total world output). We could accomplish a lot by dropping out of first place on the consumption side (24% of total consumption). Unfortunately, our energy industry is not likely to let us kick the habit without a fight.


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The monocle-wearing oil baron in me thinks it's positively outrageous that the Energy Information Administration compiles and shares so much reliable and accurate data with the common man, at no cost. Shameful.
posted by notyou at 9:44 AM on July 31, 2008

The communist in me demands I speak up regarding the evils of Capital - by developing domestic sources now Captial hedges against when the price of oil is too high and starts to affect American consumption. They (meaning the evil capitalists) will be able to take their domestically produced, domestically subsidized oil and sell it to India and China at the highest market rate possible. By selling their plans under the aegis of "national energy security" now, they can con us into supporting their growth for the future.

It's like selling a plan to increase local water supply and waste processing because population growth is 'expected to increase 8% in the next 10 years', all while planning on bringing in a Gatorade plant that will consume most of the increased capacity.
posted by fiercekitten at 10:21 AM on July 31, 2008

"... and maybe Adil's got a point about the machinery of capitalism being oiled with the blood of the workers."

Estimates of oil reserves for ANWR vary between between 5.7 and 16.0 billion barrels of "technically recoverable" oil. "In comparison, the estimated volume of undiscovered, technically recoverable oil in the rest of the United States is about 120 billion barrels." Opening ANWR to drilling is expected to " increase domestic crude oil production starting in 2018" and "total production from ANWR would be between 0.4 and 1.2 percent of total world oil consumption in 2030," so it wouldn't affect oil prices for a while, like 2025. We should be trying to be off of oil before then, not trying to squeeze more out of a vanishing resource.

President Bush and Senator McCain support offshore drilling (well, depending on when you ask McCain; in June he said the benefits would be "psychological"). The U.S. Energy Information Administration (EIA) recently reported that offshore drilling "would not have a significant impact on domestic crude oil and natural gas production or prices before 2030."
posted by kirkaracha at 10:27 AM on July 31, 2008

The monocle-wearing oil baron in me thinks it's positively outrageous that the Energy Information Administration compiles and shares so much reliable and accurate data with the common man, at no cost. Shameful.

All US Government information, reports, etc... are, by law, public domain. Believe me, this is a much, much easier policy to deal with than having the government retain copyright (But that's a discussion for another thread). The EIA product is amazingly useful, I agree. It's so complete because the US Oil producers are forced to report all of those numbers back as part of the lease agreements (among other things).
posted by bonehead at 10:48 AM on July 31, 2008

I think an in-depth argument of this phenomenon in terms of facts is going to miss the point. The Republicans (and some Democrats) are using this issue as code to blame our energy problems on the Arabs. Average Joe blames them already, and responds viscerally to the idea that we can just use our own oil. Which obviously we must have. It couldn't be true that oil is really and truly a finite and diminishing resource. Then, once we find this magic oil, we can quit "sending money overseas" and gas prices will go down. The Middle East will cease to be a problem because we won't have to deal with them anymore. Then they can work out their own problems.

Or so the thinking goes.

Blaming the other is a very basic human tendency. Reason doesn't enter in to it much.
posted by dosterm at 10:51 AM on July 31, 2008