America energy independence

Talk of the USA becoming energy independent, even exporting oil and gas, is very much in the news. Indeed the turnaround from ever rising energy imports to declining energy imports has been spectacular (Figure 1) and on current trajectory it does indeed appear that the USA could become energy independent in a decade’s time. Everyone knows that shale gas and shale oil have liberated the USA from dependency on Saudi crude (Figure 2). Less publicised is the fact that US energy consumption succumbed to high energy prices and has been in steep decline since 2007 (Figure 3). Indeed, 45% of the fall in energy imports is down to reduced consumption.

The USA remains the Queen of energy waste to Canada’s King. US citizens consume double the energy of those in the UK. The energy system remains dominated by fossil fuels that account for 87% of all energy consumed. New renewables account for only 2% and in electricity generation solar accounts for a mere 0.7% as reported by BP [1].

But the USA is on a new energy trajectory, arguably more sustainable and perhaps heading for Maximum Power [2].

Figure 1 The USA imports a lot of oil and some natural gas from Canada. Both oil and gas imports have declined sharply in recent years. The US has been a coal exporter since 1981 and exports have recently been on the rise as domestic electricity production has switched to natural gas.


All of the energy statistics reported here are drawn from the 2013 BP statistical review of world energy [1]. The economic and population data are drawn from the United Nations National Accounts Main Aggregates Database [3] and World Bank [4]. All data sources are referenced on charts.

Figure 2 From the energy production stand point, the USA is in much better shape than Europe producing a surplus of coal and nearly self sufficient in gas. It is oil consumption that vastly exceeds domestic production. The peak in US oil production was back in 1971 standing at 11.3 mbpd compared with 8.8 mbpd in 2012 so there is still a way to go before the 197o peak is past. And with oil consumption running at 18.6 mbpd, the USA still imports 53% of oil consumed. There is a way to go before oil independence is achieved, but overall, the trend of US energy production is quite definitely up on the back of shale oil and gas production. Nuclear and hydro combined are significant but new renewables make only a negligible contribution to total energy production. 

Figure 3 USA primary energy consumption has been in decline since 2007 in part due to recession, but mainly due to the 5 fold increase in oil price since 2002 – the two factors are of course linked. This decline in energy consumption mirrors those seen in post 1974 and 1979 oil price shocks. These oil price shocks were caused by Middle East wars. This time the cause is global energy supply growth being outstripped by demand growth and energy prices are more likely to increase than decline in future. Declining energy consumption has become a hallmark of OECD economies.

Figure 4 USA low carbon energy consumption grew significantly in the 1970s, 80s and 90s with the growth of nuclear power. It is rising once again on the back of new renewables although the latter still contribute very little to the whole energy mix.

Figure 5 The breakdown of US energy consumption in 2012 shows how fossil fuels still dominate. Only 2% comes from new renewables.

Trouble in the shale patch

The recent growth in US oil and gas production (Figure 2) is down entirely to shale oil and gas. The hope in the USA and globally is that this new bounty will provide the energy independence and security that is so much prized. However, some well-informed commentators like Art Berman and Rune Likvern have been warning for some time that the shale industry may be a bubble inflated by debt. This recent report in Blomberg gives some forewarning of potential trouble brewing in the shale industry that I will return to in a future post.

Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.

No problems here that $150 / barrel can’t fix. On the other hand, interest rates at 5% may kill the goose completely.


Figure 6 After decades of steady growth US electricity generation stalled in 2007 and has been flat to trending down since then. Higher prices will be part of the story but the trend is difficult to reconcile with a growing population and economy (Figure 8). Better energy efficiency standards may also be at work but I am left wondering to what extent Green policies may interfere with the growth of the US electricity system with conventional thermal generation in retreat.

Figure 7 Electricity generation is dominated by conventional thermal – coal, gas and nuclear. Renewables make up only 7% of which 2% is hydro. The USA should perhaps follow Germany’s lead and give up on this imposed energy transition sooner rather than later.

Population and economy

Figure 8 One thing that sets the USA apart from European peers is that population has grown strongly since 1970 and continues to do so. This is largely a function of immigration policy. The fact that the continent still has a lot of space combined with the knowledge that population growth may drive GDP growth is one reason why the USA has typically enjoyed a higher growth rate than European peers. The 2008 / 09 recession is plain to see but unlike many European countries (except Germany) the US economy has recovered strongly setting new year on year highs. 

Figure 9 One of the major ills of the USA that affects the whole world, is the gigantic structural trade deficit the country has run since 1975, the last year to have shown a surplus. The cumulative deficit stands at $9 trillion. In 2012, the USA imported 9.65 m barrels oil per day costing $352 billion at $100 / barrel. The trade deficit that year was $547 billion of which oil imports made up 64%. This huge deficit and reliance on Middle East oil has created military and economic tensions globally. I have never understood why the USA did not take steps to curb oil consumption and avoid these tensions that all must live with.

Figure 10 Another sign that all is not well in the USA is the fact that per capita GDP has been static since 2007. Per capita energy consumption is in decline from extreme high levels, which is a good thing, but the likely cause is high energy prices. Is per capita energy in decline because per capita GDP is static? Or is per capita GDP static because of high energy prices? I suspect the latter.

Figure 11 This chart cross plots the data shown in Figure 10. The expectation is that energy is required to produce GDP and GDP growth should require growth in energy consumption. Mature OECD economies appear to have escaped the thermodynamic reality that energy is required to do stuff or make things. Improved efficiency, selling imported goods and phantom GDP created by banks and city boys on Wall Street figure among the reasons the USA appears to be defying gravity. The context of this chart become clearer in Figure 12 where the USA is compared with other nations.

Figure 12 This chart remains a work of art in progress. All interpretations may be subject to future revision. For those readers who have not been following along, each country data series is a time series beginning in 1980 and ending in 2012. In this chart I am plotting per capita gross national income (GNI) purchasing power parity (PPP) which is an adjusted form of GDP that accounts for aberrations created by exchange rates and other national factors. In general terms it is expected that trends should rise from lower left to upper right as GNI and energy consumption rise in lock step with time (economic growth). The mature OECD economies are breaking the rules with their vertical rise.

The key observations for the USA are 1) on a per capita basis, they use far more energy than any other country I have looked at so far, 2) the recent trend is for increasing GDP with declining energy consumption and 3) the USA currently has the highest GNI per capita of any of the countries I have looked at. Is the USA in Utopia? The dashed lines are lines of equal efficiency at converting energy to GNI. The upper dashed line appears to be some form of upper limit ($11,500 per toe). Turkey is as efficient as Germany in converting energy to GNI but Germany uses more energy and is therefore significantly more wealthy.

I am speculating here that this upper boundary of converting energy to money has something to do with Maximum Power [2], a subject I know little about. But on Earth, the country that uses most energy most efficiently will ultimately rule the world. Vladamir watch out.

Energy Independence

So, is the USA heading for energy independence? I suspect not. Shale is expensive to produce and eventually the grade will decline requiring even more effort. But then again it is difficult to ignore American ingenuity and hunger for C-H bonds. Higher energy prices are required that must at some point sow seeds of inflation and if interest rates are raised it may kill shale stone dead. The world changed in 2001 and again in 2008. It is very difficult at this point to call what the future holds.


[1] BP: Statistical Review of World Energy 2013
[2] Maximum power principle
[3] UN: National Accounts Main Aggregates Database
[4] The World Bank

Other countries in this series of posts

Egypt – energy, population and economy
Russian Power
Post-peak Algeria?
Libya – energy, population and economy
Turkey – on its way to a mature economy
Ukrainian Death Spiral
Does the UK Economy Run on Energy or Hot Air?
Portugal – renewables to the rescue?
Belarus grows while Ukraine withers
Goodluck Nigeria – a failed state?
Germany: energiewende kaput?

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14 Responses to America energy independence

  1. Syndroma says:

    I always wonder how much the money/energy ratio is distorted by a country’s specialization. In modern globalized world energy can be spent on a product consumed half a globe away. Or things like the military – it consumes a lot of energy, but is required to guarantee access to resources. Does the US use so much energy to let other Western countries use less?

    • Euan Mearns says:

      Geography and economy do play a role. But in the case of the USA one of the main drivers for high energy consumption is the way their living is designed around the car and dirt cheap gasoline. And many live in huge houses. So there is a sprawling suburbia of MacMansions, long commutes in gas guzling trucks, vast arrays of highways, airways and malls. Its quite amazing if you have never seen it – to experience the beltway round Houston.

  2. Glen Mcmillian says:

    It is certain that our friends and allies are getting a free ride to a substantial extent on our military expenditures.

    • Willem Post says:


      I agree.

      If the US were to spend the same percentage on defense, military and other intelligence gathering, etc., as the EU28, its curve on Figure 12 would significantly shift to the left.

      The military is a very significant consumer of energy and other resources that do not add as much to GDP as would some other economic activities.

      To a large extent it is parasitic, but a necessary tool to maintain some modus of world stability that benefits all.

      That modus gets disturbed by some nations that think they can do so to their advantage and thereby create an adjusted modus of stability more to their liking.

      A current example is the expansionist EU/US causing a melee with a resisting Russia regarding Ukraine, etc. The real issue is control over natural resources.

  3. Ralph W says:

    Declining energy consumption per capita in many Western nations is illusory if you take into account rising imports of manufactured goods, primarily from China which you fail to mention in this article. Chinese energy consumption has risen dramatically, primarily coal, but most of this is used to manufacture goods for export. Globally I suspect the world has been becoming less energy efficient as global trade has risen, and lower grade coal is used in sharply rising quantities in China and India.

    US shale oil production is not going to rise much more. They will never exceed their 1971 peak production, and the high condensate content of much shale oil means the energy content per barrel is falling. Net energy from shale is also much lower because of the high capital (read energy) cost of shale wells. The US economy declined over the cold winter, so there is no way that $150 oil price will be sustained. The US stage managed lower than global average domestic energy prices over the last five years by banning oil exports and not building gas LNG plants.

    US shale oil is so light that their own refineries won’t buy it, hundreds of millions of barrels are sitting in storage, previously at Cushing and now on the southern coast, whilst imports of heavy oil hold up.

    The US has massive coal reserves and a lot of gas, but they are so profligate, that they risk going the same way as the communist states if they don’t learn some basic energy conservation.

    • Euan Mearns says:

      Improved efficiency, selling imported goods and phantom GDP created by banks and city boys on Wall Street figure among the reasons the USA appears to be defying gravity.

      I do mention it rather indirectly, but embedded energy in imported goods is of course an important point.

  4. Roger Andrews says:

    The expansion of shale gas and oil in the US seems to be on the point of faltering because prices aren’t high enough. But as you say Euan, “No problems here that $150 / barrel can’t fix.”

    On the other hand, when fuel prices go up:

    People drive less:

    And buy less fuel:

    And demand more fuel-efficient vehicles:

    If this trend continues, and assuming shale oil/gas resources don’t run out in the meantime, the US will eventually achieve a balance between higher-priced fuel and reduced demand that would allow it to declare “energy independence”. When this might happen, however, is another question.

    • Glen Mcmillian says:

      ”If this trend continues, and assuming shale oil/gas resources don’t run out in the meantime”

      Our conventional sources are already in steady decline and I doubt tight oil and gas will grow fast enough long enough to put an end to our current uptrend in production for more than a few years.

      But you are dead on about consumers switching to more fuel efficient vehicles.Today’s hot rods are as fuel efficient as yesterdays economy cars.An Impala with a police package gets better mileage than my sixty four Chevy Bel AIr with a six and three on the column.

      I personally believe that battery electric and plug in hybrid cars are going to sell like beer at happy hour in another decade or so. People who can afford two cars are going to buy one for the sake of around town economy and people short of money are going to buy one and live with range limitations because they are not going to be able to afford a conventional car once peak oil really begins to bite.

      This scenario of course depends on peak oil not biting so hard that lots of people will still be able to afford a new car.

      Scooters and electric bicycles are going to be a growth industry for sure.

      If I were a young man looking for a business opportunity buying and holding rental property close in to jobs that are going to last would be one of the first things I would investigate. There are still houses that can be had cheap to fix up in places that are sure to gentrify just because of peak oil.

      A house located close to any public school not in danger of closure will be very attractive to young teachers for instance.

      An up and coming politician who would like to earn a reputation for helping out the working classes might find it profitable to get out front on making car sharing and ride sharing practical and safe from an economic and insurance standpoint.

  5. Hi Euan,

    Thanks for a great summary

    “Or is per capita GDP static because of high energy prices? I suspect the latter.”

    Another possible factor. Most hostility toward business by an administration since Franklin Roosevelt, with the same poor economic performance.


  6. Mathew S. says:

    It would be interesting to see Figure 12 inflation adjusted. Can the source data of this graph be made public?

    • Euan Mearns says:

      Here’s what it looks like in inflation adjusted $2005. I think the GNI PPP chart looks more realistic. Measuring the output of an economy is clearly an important thing to do, but is far from straightforward.

  7. Hi Euan,

    Another thought. As you probably know, economists invariably put $ on the x-axis in their equivalents to your Figure 12. I think that you have it right, with energy more important in determining $ than the other way round.


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