Foreign Direct Investment in U.S. Energy 2005

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 investors minus the gross outflow of FDI from the

United States

that was returned to foreign investors.

The net flow of FDI capital into the U.S. petroleum and natural gas sector of the

U.S.

energy industry increased to $9.1 billion in 2005, from a minimal amount the year before, allowing the petroleum and natural gas sector to regain its leading FDI capital flows position in the energy industry (See figure below). The net flow into the electric power sector decreased to $1.4 billion, while the net flow into the coal mining sector was not reported.[3] One of the largest contributors to the increase in FDI inflow to petroleum and natural gas was Norsk Hydro’s (Norway) acquisition of Spinaker Exploration, an independent oil and gas exploration and production company focusing on the Gulf of Mexico, for $2.5 billion. One of the largest contributions to the increased inflow to electric power was TransCanada’s purchase of hydroelectric generation facilities in New England for $503 million.[4] Petroleum and natural gas had the largest net FDI capital inflows in seven of the eight years from 1998 through 2005, electric power had the largest in one of the years, and the inflows coal mining were either withheld or less than zero for all of the years. [5]

The share of total FDI capital flows into the United States accounted for by the petroleum and natural gas sector increased to 9.0 percent in 2005, from 0.2 percent in 2004, while the share of inflows to the electric power sector decreased to 1.4 percent (See figure below). The petroleum and natural gas sector has accounted for 9 percent or more of the total foreign direct investment capital inflow to the United States for six of the eight years during the period 1998 through 2005. The only relatively large share of inflows to the electric power sector was 8.7 percent in 2002, while the coal mining sector’s shares of inflows were negligible during the period.

[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 are limited to annual net international capital flows. They do not include the FDI affiliate’s operating expenditures, allowance for depreciation, or changes in the value of capital owned.

[3] Net FDI capital flows are not reported when doing so might jeopardize the confidentially of the data for individual reporting companies. In these instances for the analysis presented here, these flows are assumed to be zero.

[4] “Acquisitions and Divestitures by Foreign Direct Investors in U.S. Energy 2005,” Energy Information Administration, (Washington, DC, May 23, 2007).

[5] Data for the electric power sector are only available beginning in 1998, when the published aggregation categories of FDI flows were revised, while data for the petroleum and natural gas and coal mining sectors are available for earlier years.

Net FDI Capital Flows