U.S. Oil Imports to Seen Hitting 20-Year Low 42% of Use

A boom in oil production from the shale formations of North Dakota and Texas has the U.S. on a course to cut its reliance on imported crude oil to about 42 percent this year, the lowest level in two decades.

Dependence on crude purchased from foreign countries is on a pace to decline from last year, Adam Sieminski, the head of the U.S. Energy Information Administration, said during a Bloomberg Government lunch yesterday in Washington.

Higher oil prices and increased use of a drilling technique known as hydraulic fracturing has producers including Continental Resources Inc. (CLR), Marathon Oil Corp. (MRO) and Hess Corp. (HES) boosting production from oil-rich geologic formations. Hydraulic fracturing, or fracking, involves pumping millions of gallons of water into the ground to free oil and natural gas and has been widely used in shale-rock formations such as the Bakken of North Dakota and Eagle Ford in Texas.

“What’s happening in North Dakota, and in Texas, with Eagle Ford, Bakken formation in North Dakota, is a tremendous development for U.S. oil production and economic growth,” Sieminski said.

In 2011, the U.S. relied on imports for 44.8 percent of its petroleum consumption, down from 60.3 percent in 2005, according to EIA data. This year, the nation should end up at about 42 percent, Sieminski said in a telephone interview after the lunch.

Gasoline Prices

Even with domestic production gains, gasoline prices in the U.S. will probably rise 5 cents to 10 cents a gallon by the Sept. 3 Labor Day holiday before falling in the fourth quarter, he said.

The increase at the pump is partly a function of a rise in global crude oil prices, triggered by a drop in exports from Iran and countries that aren’t members of the Organization of Petroleum Exporting Countries, he said.

The nationwide average price of regular gasoline at the pump gained 0.2 cent to $3.718 a gallon yesterday, AAA data showed. Gasoline has climbed 39.2 cents since July 1, according to the AAA, the nation’s largest motoring organization.

“Gasoline prices should come back down again” in the fourth quarter, Sieminski said. “We think crude will come down a bit as well.”

North Dakota’s oil output rose to 639,000 barrels a day in May, the highest since at least 1981. Texas is at its highest level in more than 20 years, pumping 1.8 million barrels a day in April and May, according to the agency, a unit of the Energy Department that gathers data on energy production and use.

Gulf Production

Oil extraction from federal waters in the Gulf of Mexico declined in May, the latest month the EIA lists on its website, and remains below the 2010 levels, as the moratorium imposed after the BP Plc (BP/) oil spill more than two years ago slowed the development of the deep-water fields.

“A lot of the growth that we’re going to be seeing in the domestic oil production is going to be coming from onshore rather than offshore,” Sieminski said.

The EIA doesn’t make policy decisions, Sieminski said, declining to express an opinion on whether oil should be released from the U.S. strategic petroleum reserve to lower prices, or if requirements for biofuel use should be waived. He said that the drought depressing the nation’s corn crop might impact future ethanol production.

“We’re actually making ethanol out of last year’s corn harvest, so the ability to manufacture ethanol right now is probably not being impacted as much by the drought,” he said. “But that could be an issue.”

Net Exporter

Sieminski said the U.S. is already a net exporter of petroleum products -- such as gasoline -- and should be open to the possibility of selling some of its crude to neighboring countries.

“Cost-benefit analysis would make a lot of sense,” he said, citing an example of the U.S. potentially exporting light sweet crude from Texas and North Dakota to Mexico in return for that country’s heavy, high-sulfur crude that U.S. refineries are better suited to process.

“Mexico benefits because their refineries can’t handle heavier crudes” Sieminski said. “It works out economically for both countries, and we have a net positive economic impact from that.”

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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