Energy Independence

The ethanol industry is powering energy dominance.

Energy security remains an enduring concern, a reminder of which was provided by the September 2019  attacks on two key Saudi Arabian oil installations.  While the expansion of U.S. petroleum production in recent years has been widely touted, we still import more than 200 million barrels of oil every month, highlighting the continuing linkage between the world oil market and the U.S. market.

In 2019, the U.S. still sent an estimated $35 billion to  OPEC countries for oil—$275 per American household— including $12 billion to Saudi Arabia alone. In fact,  California, the largest gasoline-consuming state, has been importing increasing quantities of crude oil, more than  two-thirds of which come from OPEC.

On the other hand, homegrown ethanol is a secure source of transportation fuel that has helped the nation limit its oil imports and thus its susceptibility to developments in the world market. According to a recent study by energy economist Dr. Philip K. Verleger, Jr. that looked at oil market shocks starting with the 1973 Arab Oil Embargo, even “a modest amount of renewable fuels can significantly moderate the price impact of market disruptions.”

In 2019, U.S. dependence on imported crude oil and petroleum products fell to just 4 percent on a net basis (i.e., imports minus exports), due to the increase in domestic production of both crude oil and biofuels. Yet, without the inclusion of ethanol in the domestic fuel supply, the U.S. would have been dependent on imports for 10 percent of its needs.

The use of ethanol specifically reduced the need for crude oil imports by 514 million barrels. More broadly, the 15.8 billion gallons of ethanol produced for the domestic and export markets displaced 559 million barrels of crude oil.

Energy Independence

Transferring American Wealth to OPEC

Even though U.S. oil production has increased in recent years, our nation’s economy still
transfers tens of billions of dollars every year to the OPEC cartel. In 2019 alone, the U.S. sent some $35 billion – or $275 per American household – to OPEC nations to pay for crude oil imports.

The Hidden Cost of Oil

An “oil import premium” exists, although it is not reflected in gasoline prices paid by consumers at the pump.

These hidden costs are comprised of:

An “oil import premium” exists, although it is not reflected in gasoline prices paid by consumers at the pump. These hidden costs are comprised of: 

• Oil-related defense expenditures, including the cost of maintaining the Strategic Petroleum Reserve. The U.S. Department of Transportation and U.S. Environmental Protection Agency estimate the additional cost of protecting the supply and transit of foreign crude oil is in the range of $5-$22/barrel.1

• Macroeconomic effects of oil supply disruptions and price shocks. Geopolitical tensions, conflict in the Middle East, strategic production shifts on the part of OPEC, and natural disasters can cause oil supply shocks that affect GDP. Higher oil prices push up nominal consumption expenditures by increasing the price of fuel and general inflation; require a higher investment in domestic oil exploration and development; and negatively affect international trade.2

• Higher U.S. petroleum product prices due to upward pressure on world oil prices driven by the U.S. market power (“monopsony”) in world petroleum consumption. 

• Subsidies and Tax Incentives. The U.S. Energy Information Agency reports that subsidies and support for the U.S. crude oil industry in FY2016 totaled $18.8 billion, a massive 63 percent increase from FY2010.3 

Supporting Documents/Articles