Tempering oil dependence

WASHINGTON — When we graduated from the Naval Academy in 1968, the American economic engine was powered by a domestic oil industry in the midst of a boom: American production accounted for one-quarter of the global total. Texas, rather than Saudi Arabia, was the world’s swing producer, and the United States had handled the 1967 Arab oil embargo by increasing production, keeping markets stable.

Times were about to change. Five years after our graduation, with its oil fields producing at full capacity, America found itself utterly unprepared for another oil embargo. This one, orchestrated by the Arab members of the Organization of the Petroleum Exporting Countries cartel, delivered an economic shock that set off nearly a decade of financial turmoil, geopolitical uncertainty and damaging volatility in the global oil market.

Today, the 1973 oil embargo is often remembered as a crisis caused by America’s over-reliance on imported oil. Crude imports almost tripled between 1970 and 1973, to reach nearly 30 per cent of supplies. This did leave the country vulnerable to supply shocks — and our political leadership conveyed the idea that what America needed, above all, was “independence” from foreign producers.

This analysis was simply wrong. The key to America’s crisis in 1973 was our dangerous dependence on oil to power the economy, particularly transportation — and not on our dependence on overseas suppliers per se. At the time of the embargo, petroleum fuels accounted for 96 per cent of the energy consumed by our cars, trucks, ships and aircraft. Consumers and businesses that depended on oil to power their transportation had no choice but to pay more at the pump, or travel less. It was that vulnerability that put us at the mercy of the global oil market and actors like OPEC.

Despite advances in energy and automotive technologies, we remain as vulnerable as ever. Since 1973, our transportation sector’s reliance on oil has dropped by just 3 per cent, to 93 per cent from 96 per cent

What our leaders in 1973 failed to comprehend or communicate was that no matter how much oil the United States might produce, merely being a large producer would not confer immunity from global oil market volatility. For proof, look no farther than countries like Canada and Norway, which are net oil exporters but whose consumers face the same oil-price volatility as Americans.

Today, America’s energy landscape again appears abundant. Improved production technologies have unlocked vast sources of domestic oil. American crude production is projected to approach a historical record as soon as 2015, and net liquid fuel imports are expected to account for less than 30 per cent of American oil supplies this year, down from nearly 60 per cent in 2008. This dramatic turnaround has led many to suggest that the era of oil insecurity is over.

Don’t be fooled: Despite advances in energy and automotive technologies, we remain as vulnerable as ever. Since 1973, our transportation sector’s reliance on oil has dropped by just 3 per cent, to 93 per cent from 96 per cent. Unless we act, 90 percent of our transportation will remain oil-dependent through 2030, according to the Department of Energy. And we must expect interruptions to global oil supplies, oil-price spikes and market manipulation by OPEC.

If America is to remain prosperous and secure in the 21st century, we must make significant progress toward ending our oil dependence. Improvements in fuel economy are a valuable move in the right direction, and President Obama’s announcement of tougher rules for trucks last week should be applauded. But efficiency alone is not enough. We need fuel diversity in the transportation sector to shield our economy from swings in global oil prices.

Our objective should be to reduce the role of oil in transportation to 50 per cent within the next 25 years. We can accomplish this through more deployment of fuels like electricity and natural gas, which are domestic, plentiful and not subject to the kinds of anticompetitive forces that manipulate the global oil market. To measure progress, we should establish an interim goal of 75 per cent by 2030.

This ambitious but achievable target would provide the American economy with a crucial degree of insurance against future oil-price spikes, while supporting economic growth and a healthy balance of trade. We propose a three-pronged strategy.

Public-private partnerships designed to deploy alternative fuels must be fostered. To get cars and trucks powered by natural gas and electricity will require a coordinated rollout of infrastructure and regulatory policy involving a variety of stakeholders

First, the federal government should double research and development spending on advanced transportation fuels and automotive technologies. The increased funds would accelerate the technological developments needed to make critical components like automotive batteries and natural-gas storage tanks more economically competitive in the future.

Second, public-private partnerships designed to deploy alternative fuels must be fostered. To get cars and trucks powered by natural gas and electricity will require a coordinated rollout of infrastructure and regulatory policy involving a variety of stakeholders, from cities and utilities to automakers. A key first step would be to build a natural gas refueling network for heavy-duty trucks.

Finally, these initiatives should be funded by the revenues from increased domestic oil production in order to minimize their effect on the federal debt. Over the past year, lawmakers from both political parties have proposed the establishment of an Energy Security Trust Fund to invest in research in future technologies. The concept of using oil revenues to fund energy security deserves support.

Our decades of military and government experience have taught us that it’s best to take difficult action from a position of strength. This period of energy abundance presents an opportunity for America to achieve lasting energy security. It is an opportunity we cannot afford to miss.

Adm. Dennis C. Blair, a former director of National Intelligence and former commander in chief of the United States Pacific Command, and Gen. Michael W. Hagee, the 33rd commandant of the United States Marine Corps, serve as co-chairmen of the Commission on Energy and Geopolitics, a project of Securing America’s Future Energy. This post originally appeared in The International New York Times.

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