Opinion: Oil and natural gas remain Michigan economic drivers

Mark J. Perry
The economic benefits from the Line 5 pipeline and other infrastructure improvements argues for a much more stimulative public policy, Perry says.

The role of oil and natural gas in the nation’s economy has never been more complex – or more consequential. For Michigan, the dividends are substantial.

Changes in the energy sector are reshaping the production of oil and gas, with America having leapfrogged over Saudi Arabia and Russia as the world’s dominant producer of oil and natural gas. Remarkable increases in oil and gas production has fostered huge economic benefits for the country as a whole.

Yet for all the attention showered on the oil and gas boom, it seems implausible that we don’t have a clear national policy to spur infrastructure development. Consider the seesaw battle over the Enbridge Line 5 pipeline in the Straits of Mackinac. Enbridge has devised a safe and sensible solution that would allow construction of a new pipeline to go forward by securing it in a tunnel, bored beneath the lakebed. 

The economic benefits from the Line 5 pipeline and other infrastructure improvements argues for a much more stimulative public policy. This includes the development of pipelines to carry oil and gas from the Marcellus and Utica shales in Appalachia to markets in Michigan and elsewhere in the Midwest. And construction of new pipelines at an increased scale would accelerate the use of crude oil from the Bakken shale in North Dakota and the oil sands in Western Canada.

Fueled by economic growth, oil consumption is reaching new peaks. Those who think expanded use of electric vehicles will reduce the need for oil and infrastructure improvements forget that our economy relies heavily on oil supplies. And if history is a good signpost, the transition to EVs will take decades, not years.

The same is true of solar and wind energy, which together account for only a small fraction of electricity production in Michigan and nationally. Even with a continuing decline in the cost of wind and solar power and issues such as intermittency are solved through affordable and large-scale battery storage, the fossil-fuel system cannot be displaced quickly because of its vast scale and the huge amounts of capital deployed. 

Simply put, energy infrastructure is capital intensive and has a life span of decades. Besides, the need for natural gas is projected to increase, as cheap and abundant shale gas, along with renewables, replace coal and nuclear power in electricity generation.

All of this would bring tangible gains for millions of families given the high probability of reduced energy costs and economic growth, along with health benefits from less air pollution and lower greenhouse-gas emissions.

Since construction of a relatively large number of oil pipelines is underway or has been completed in recent years, the vast majority of new pipelines is expected to be completed during the next five to 10 years.

In the Midwest, oil and gas investment in the region will range between $4.2 billion and $5.4 billion annually, with half of the projected investment focused on pipeline projects. There also will be a significant investment in the area’s refineries.

Although Michigan is not a major oil and gas producing state like Texas or Louisiana, the report forecasts substantial benefits from infrastructure improvements. Oil and gas development could potentially provide Michigan with an average of up to 21,000 jobs annually and as much as $8 billion a year in state taxes through 2035. Roughly 400 miles of natural gas pipelines are projected to be built each year in Michigan, with a total of up to 8,400 miles of pipelines.

The oil and gas industry has a unique ability to ramp production up or down based on fluctuations in prices. And its investment in infrastructure should have positive impacts on the U.S. and Michigan economies, fostering delivery of lower cost oil and gas to households and businesses. That’s worth considering at a time when shortsighted politicians and environmental activists make fantastic claims that we can live in some imaginary world without fossil fuels.

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