Don’t let oil glut slow work on future energy needs

The market is awash in oil. Oil was recently below $30 per barrel for the first time in more than 12 years before rising slightly in recent days. Gasoline is now down to $1.65 per gallon in Michigan, and as low as $1.35 at some stations. After years of $100-per-barrel oil and pain at the pump, consumers are reaping the rewards of the oil crash. The average American household saved $700 last year at the pump. Similar savings are almost certain this year as well.

But cheap oil is most likely not here to stay. Now is not the time to get complacent with our energy policy.

Every day 95 million barrels of oil are consumed around the globe. Currently, there’s an extra 1.5 million barrels of capacity in the oil market and that relatively slim margin has sent the price of oil free-falling. With oil now so cheap, producers the world over have pulled back on investments in new production to the tune of hundreds of billions of dollars. Oil companies, here and abroad, have downsized or even folded. Some 100,000 oil workers have lost their jobs in the U.S.

While the oil market may be oversupplied now, the investments needed today to meet demand in the future aren’t materializing. In fact, they’re eroding. That’s worrisome news when a supply disruption from a major oil exporter could quickly reduce, if not wipe out, the oversupply.

Seemingly weekly, ISIS targets Libya’s oil infrastructure. War still rages next to Iraq’s oil fields and tensions remain high between Saudi Arabia and Iran. Venezuela isn’t exactly a model of stability either. The oil market remains remarkably fragile.

The world needs more U.S. oil, not less. Some might argue that true energy security won’t come until we diversify away from oil for transportation and make a major shift toward biofuels and electric vehicles. We should encourage more choice in the transportation marketplace, but let’s also be honest about just how irreplaceable oil remains to powering — and moving — our economy.

Oil accounts for about 92 percent of the fuel used for transportation in the U.S. While electric vehicles’ share of the marketplace is growing, they still make up less than 1 percent of the vehicles sold each year. Bringing down the cost and increasing the performance of batteries for electric vehicles remains a gargantuan task.

Biofuels, namely ethanol, have proven to be a disaster. Corn-based ethanol, which now uses 40 percent of the nation’s corn crop and immense amounts of water, is an inferior, costly and wasteful fuel that can damage millions of car engines.

Let’s invest in battery technology and continue research on advanced biofuels, but let’s not overlook the necessity of oil.

Shale producers facing new and unnecessary hydraulic fracturing and methane rules and vast tracks of public lands remain off limits to energy production. While U.S. oil and gas production has surged over the past few years, it has happened exclusively on private land.

We need energy policy that encourages greater access to our resources, both on and offshore. For those that think today’s low prices at the pump are an excuse to kick the can down the road on new offshore leases in the Gulf of Mexico or seismic surveying along the Atlantic seaboard, they’re terribly mistaken. Now, more than ever, the world needs American energy leadership.

Mark J. Perry is a professor of economics at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute.