Foreign Direct Investment in U.S. Energy 2006

Net FDI Capital Flows

Net FDI capital flows into the United States are the net inflows of capital to FDI affiliates in the United States from foreign direct investors.[1] FDI capital inflows include capital contributions to new and existing FDI affiliates, net earnings reinvested in FDI affiliates, and net loans to FDI affiliates.[2] The flow of capital is recorded on a net basis, specifically, the gross inflow of FDI to the United States from foreign direct investors minus the gross outflow of FDI from the United States that was returned to foreign direct investors.

The net flow of FDI capital into the U.S. petroleum and electric power industries[3] in 2006 reached $11.2 billion, its highest level since 2002 (see figure below). Net flows to petroleum were $6.2 billion and to electric power $5.0 billion, a decrease from 2005 for petroleum but an increase (from a negative value) for electric power. Net flows into petroleum have been smaller in recent years; they were never greater than $8.6 billion in the four years from 2003 through 2006, but were greater than $16.0 billion in four of the five years from 1998 through 2002.[4] In contrast, net flows into electric power were minimal in 1998 and 2001, while the amounts were withheld in 1999 and 2000 to avoid the disclosure of data of individual companies. From 2001 through 2006 flows into electric power have ranged from a high of $6.5 billion to a low of $-3.8 billion. In those same years net flows into petroleum have exceeded those into electric power by an average of $7.7 billion per year.

Net Capital Flows of Foreign Direct Investment into the United States, 1998 - 2006

The shares of the total FDI capital flow into the United States for both the petroleum and electric power industries were a modest 2.6 and 2.1 percent, respectively, in 2006 (see figure below). Petroleum’s share declined and was the third lowest in the nine-year period from 1998 through 2006. [5] The share of the inflow to electric power in 2006 returned to approximately its 2004 level, after a not meaningful share in 2005 because of a negative net inflow.

Shares of Total Net Capital Flows of Foreign Direct Investment into the United States, 1998-2006

[1] An alternative measure is the FDI position, which is the “value of [foreign] direct investors’ equity [including retained earnings] in, and net outstanding loans to, their [FDI] affiliates.” See Maria Borga and Daniel R. Yorgason, “Direct Investment Positions for 2001, Country and Industry Detail,” Survey of Current Business (July 2002), p. 26. FDI capital inflow is discussed in this report because the FDI position data that are available by industry are assessed at book values. Book value is the value of an asset when it was initially recorded in a company’s books. Since asset values may change over time, while book values do not, the book value of an asset does not necessarily represent the value of that asset at a time other than when it was booked.

[2] Net FDI capital flows do not include the FDI affiliate’s operating expenditures, allowance for depreciation, or changes in the value of capital owned. The data used here are from the data on foreign direct investment published by the U.S. Bureau of Economic Analysis. See Bureau of Economic Analysis, "Foreign Direct Investment in the United States," Survey of Current Business (Washington, DC, September 2008).

[3] Net FDI capital flows are not reported for industries when doing so might jeopardize the confidentially of the data reported by individual companies. This was true for the coal mining and natural gas distribution industries in 2006, as was often in earlier years, so the analysis presented here is limited to the petroleum and electric power industries. Data for the electric power and natural gas distribution industries are only available beginning in 1998, when the composition of industries, for which FDI flow data were collected, were revised, while data for the petroleum and coal mining industries are available for earlier years.

[4] In 1998 and 2000, net inflows to petroleum were very large probably because BP and BP Amoco each purchased a major U.S. integrated petroleum company in those years.

[5] The anomalies between the changes in FDI capital net inflows to the petroleum industry and the changes in petroleum’s share of total inflows between 1998 and 2000, and, again, between 2000 and 2002 occurred as the result of large changes in the total net inflows to the United States between those pairs of years. In 2000 the total inflow was 80 percent higher than it was in 1998, while in 2002 it was 76 percent lower than in 2000.