To:  Docket ID No. EPA - HQ - OAR - 2014-0827
From:  Lester Wyborny
Subject:  Impact of Lower Product Demand on U.S. Petroleum Imports

Background
      The Phase 2 Heavy-Duty Greenhouse Gas rulemaking is expected to reduce demand for diesel fuel and gasoline.  The reduction in petroleum products demand will cause a reduction in crude oil and other feedstocks to U.S. refineries, or a reduction in imported finished petroleum products.  For assessing the impact on energy security, it is important to project what fraction of the reduced petroleum inputs caused by the reduced product demand would be from imported petroleum versus domestic petroleum.
Methodology
      To estimate the relative impact on imported versus domestic petroleum use, we used 2014 refinery modeling output from the 2014 Annual Energy Outlook (AEO) conducted by the Energy Information Administration (EIA).  We used Low Economic Growth case of the 2014 AEO and compared that case to the Reference Case of the 2014 AEO.  The Low Economic Growth case estimates lower finished product (diesel fuel and gasoline) demand compared to the Reference case.  We also considered using the Low VMT (i.e., vehicle miles traveled) Case, which modeled lower vehicle use than modeled for the Reference Case.  The Low VMT Case primarily analyzed lower gasoline demand while the Low Economic Growth Case modeled both a reduction of diesel fuel and gasoline demand.  Because of the greater reduction in diesel fuel demand of the Low Economic Growth Case, we preferred to use this Case because it is more consistent with the impact of the phase 2 heavy-duty greenhouse gas rulemaking which is expected to primarily reduce diesel fuel demand.  
      To assess what impact that the AEO estimates lower fuel demand will likely have on U.S. imports, we downloaded supply and demand information from the Low Economic Growth and Reference Case refinery modeling output files.  The volumetric projection information we downloaded includes the volume of light product demand, the volume of imported and domestic crude oil refined, the volume of imported light products and the volume of exported products.  Since we are proposing the phase 2 heavy-duty GHG standards to begin phasing in 2021, we evaluated U.S. imports versus domestic supply and demand starting in 2021 through 2040, which is the end year for the AEO 2014 projections.  When assessing the U.S. import versus domestic supply balance, it was necessary to adjust for the higher energy density of crude oil relative to the lower energy density of refined products.  Rather than estimating the relative energy difference between crude oil and the refined products, we used a factor which forced an energy balance over the years evaluated between the reduction in light product demand and supply of crude oil and imported light products.  The adjustment factor used estimates that crude oil is about 16% more energy dense than the light products.   The calculations used to estimate the portion of reduced fuel consumption from this rulemaking which is imported versus domestic is contained in the spreadsheet named "Impact on Fuel Demand and ImportsJan14.xlsx" which is in the Docket.


Results
      The results of the supply and demand analysis is that relative to the reduction of U.S. refined products, reduced U.S. imported crude oil comprised about 88% of the reduced U.S. product demand, net U.S. imported refined products comprised about 3% of the reduced product demand, and domestic crude oil comprised about 9% of the reduced product demand.  Thus, reduced U.S imports comprised about 91% of the reduced product demand.  For our energy security analysis, we rounded the U.S. imported petroleum share of reduced product demand to 90%.  
      For conducting energy security estimates for the RFS2 rulemaking, the phase 1 and 2 light-duty greenhouse gas rulemakings and phase 1 heavy-duty greenhouse gas rulemaking, we used a similar methodology to that used here using previous versions of the AEO.   The previous assessments concluded that a large (greater than 90%) portion of the reduction in domestic petroleum use would be from imported petroleum.    
