ANWR Oil Drilling Facts

To drill or not to drill the Arctic National Wildlife Refuge (ANWR)? In the United States that question has long been a political hot potato. Last year, as oil prices raced to a record high of $147 a barrel politicians often jumped on the oil drilling bandwagon. Drill , baby, drill, was a hot political slogan chanted by Alaska’s governor and Vice Presidential candidate, Sara Palin and many others.

Now that oil prices have declined to the $50 to $60 a barrel range the drill, baby drill chant has subsided and the anti drilling environmental forces seem to be in control. For now. The next spike in crude oil prices will without a doubt bring forth the public’s misguided view that drilling ANWR will save the US in its addiction to oil no matter the cost to the environment.

Let’s review the purposes of the Arctic National Wildlife Refuge:

The Arctic Refuge is managed for all Americans by the U.S. Fish and Wildlife Service, a federal agency within the Department of the Interior.

The original ‘Arctic National Wildlife Range’ was created in 1960 by Public Land Order 2214 “For the purpose of preserving unique wildlife, wilderness and recreational values…”

In 1980 the Alaska National Interest Lands Conservation Act (ANILCA) enlarged the area, designated much of the original Range as Wilderness under the 1964 Wilderness Act, renamed the whole area the Arctic National Wildlife Refuge, and added four purposes.

The ANILCA purposes are:

(i) to conserve fish and wildlife populations and habitats in their natural diversity including, but not limited to, the Porcupine caribou herd (including participation in coordinated ecological studies and management of this herd and the Western Arctic caribou herd), polar bears, grizzly bears, muskox, Dall sheep, wolves, wolverines, snow geese, peregrine falcons and other migratory birds and Arctic char [note that those residing in Alaska's North Slope rivers and lagoons are now classified as Dolly Varden] and grayling;

(ii) to fulfill the international fish and wildlife treaty obligations of the United States;

(iii) to provide the opportunity for continued subsistence uses by local residents; and

(iv) to ensure water quality and necessary water quantity within the refuge.

Section 1002 of ANILCA required that studies be performed to provide information to Congress. These mandated studies included a comprehensive inventory and assessment of fish and wildlife resources, an analysis of potential impacts of oil and gas exploration and development on those resources, and a delineation of the extent and amount of potential petroleum resources. Because this Congressionally designated part of the Refuge coastal plain was addressed in Section 1002 of ANILCA, it is now referred to as the “1002 Area.”

Also referring to this area of the coastal plain, Congress declared in Section 1003 of ANILCA that the “production of oil and gas from the Arctic National Wildlife Refuge is prohibited and no leasing or other development leading to production of oil and gas from the [Refuge] shall be undertaken until authorized by an act of Congress.”

So you see it will take an act of congress to authorize oil drilling in ANWR. In spite of much political hot air to the contrary the US government’s Energy Information Agency sees little long term benefit from drilling oil in ANWR.

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The Energy Information Agency (EIA), released in 2008 a report about drilling for oil in ANWR. According to the report with ANWR drilling U.S. conventional crude oil production grows from 5.1 million barrels per day in 2006 to a peak of 6.3 million barrels per day in 2018, and then declines to 5.6 million barrels per day in 2030. The shape of the U.S. production profile is largely driven by lower-48 offshore oil production, which rises from 1.4 million barrels per day in 2006 to 2.4 million barrels per day in 2015, and then falls to 1.9 million barrels per day in 2030. Lower-48 onshore oil production grows slightly through 2030 because high crude oil prices stimulate the growth in carbon dioxide enhanced oil recovery (EOR) production, which offsets the decline in the other lower-48 onshore oil production.

In the AEO2008 reference case, Alaska crude oil production (without ANWR) declines from 741,000 barrels per day in 2006 to about 520,000 barrels per day in 2014. After 2014, Alaska oil production increases due to the discovery and development of new offshore oil fields that are expected to be found off the Alaska North Slope. These new fields raise Alaska oil production to about 700,000 barrels per day in 2020. After 2020, Alaska oil production declines to about 300,000 barrels per day in 2030.

In all three ANWR resource cases, ANWR crude oil production begins in 2018 and grows during most of the projection period before production begins to decline. In the mean oil resource case, ANWR oil production peaks at 780,000 barrels per day in 2027. The low- resource-case production peaks at 510,000 barrels per day in 2028, while the high- resource-case production peaks at 1,450,000 barrels per day in 2028. Cumulative oil production resulting from the opening of ANWR from 2018 through 2030 amounts to 2.6 billion barrels in the mean resource case, 1.9 billion barrels in the low resource case, and 4.3 billion barrels in the high resource case.

The opening of ANWR to oil and gas development includes the following impacts:

* reducing world oil prices,
* reducing the U.S. dependence on imported foreign oil,
* improving the U.S. balance of trade,
* extending the life of TAPS for oil, and
* increasing U.S. jobs.

The remainder of this section will focus primarily on the first four impacts, because the employment impacts are difficult to determine for oil fields being developed on the Alaska North Slope.

With respect to the world oil price impact, projected ANWR oil production constitutes between 0.4 and 1.2 percent of total world oil consumption in 2030, based on the low and high resource cases, respectively.17 Consequently, ANWR oil production is not projected to have a large impact on world oil prices. Relative to the AEO2008 reference case, ANWR oil production is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light (LSL) crude oil18 prices of $0.41 per barrel (2006 dollars) in 2026 in the low oil resource case, $0.75 per barrel in 2025 in the mean oil resource case, and $1.44 per barrel in 2027 in the high oil resource case. Assuming that world oil markets continue to work as they do today, the Organization of Petroleum Exporting Countries (OPEC) could neutralize any potential price impact of ANWR oil production by reducing its oil exports by an equal amount.

High oil prices and high Corporate Average Fuel Economy (CAFE) standards are projected to restrain the growth in future U.S. liquid fuels consumption. In the AEO2008 reference case, total U.S. liquid fuels consumption grows slowly from 20.7 million barrels per day in 2006 to 22.8 million barrels per day in 2030. Lower projected U.S. liquid fuels consumption results in ANWR oil production causing a larger percentage reduction in future oil and liquid product imports than was the case in prior ANWR analyses conducted by EIA.

Every barrel of ANWR oil production reduces crude oil imports by about a barrel. In the AEO2008 reference case, the proportion of crude oil and liquid fuel imports to total supply remains relatively constant during the 2018 through 2025 time period at an average value of 51 percent. After 2025, reference case oil dependency increases to about 54 percent of U.S. liquid fuels supply in 2030. Because U.S. liquid fuels consumption grows slowly during the entire projection period, the lowest import dependency levels occur between 2022 and 2026 across the three resource cases. The mean oil resource case projects a minimum import share of 48 percent in 2024, before rising to 51 percent in 2030. The low and high resource cases project minimum import shares of 49 and 46 percent in 2022 and 2026, respectively.

The reduction in oil import volumes also reduces the level of expenditures on crude oil and liquid fuel imports. In the AEO2008 reference case, high projected oil prices cause cumulative net U.S. expenditures on imported oil and liquid fuels to cost about $2.9 trillion (2006 dollars) between 2018 and 2030. The mean oil resource case reduces this import expenditure by $202 billion dollars, or about 7 percent. In the low and high resource cases, ANWR oil production reduces cumulative net expenditures on imported crude oil and liquid fuels by about $135 to $327 billion (2006 dollars), respectively. As a result, the opening of ANWR to Federal oil and natural gas leasing improves the U.S. balance of trade by $135 to $327 billion during the 2018 through 2030 time frame, based on the world oil prices projected in the AEO2008 reference case.

The development of ANWR oil resources potentially extends the lifetime operation of TAPS. Currently, TAPS is believed to be uneconomic to operate once the oil throughput falls below 200,000 barrels per day.20 Although the reference case projects North Slope production to be above this minimum level, at about 280,000 barrels per day in 2030, the development of ANWR oil resources extends the life of this pipeline well beyond 2030. Greater TAPS throughput also reduces oil transportation rates, thereby prolonging the life of existing oil fields and encouraging the development of new, small North Slope oil fields.

ANWR Production Uncertainties

There is much uncertainty regarding the impact of opening ANWR on U.S. oil production and imports, due to several factors:

* The size of the underlying resource base. There is little direct knowledge regarding the petroleum geology of the ANWR region. The USGS oil resource estimates are based largely on the oil productivity of geologic formations that exist in the neighboring State lands and which continue into ANWR. Consequently, there is considerable uncertainty regarding both the size and quality of the oil resources that exist in ANWR. Thus, the potential ultimate oil recovery and potential yearly production are highly uncertain.
* Oil field sizes. The size of the oil fields found in ANWR is one factor that will determine the rate at which ANWR oil resources are developed and produced. If the reservoirs are larger than expected, then production would be greater in the 2018 through 2025 timeframe. Similarly, if the reservoirs are smaller than expected, then production would be less.
* The quality of the oil and the characteristics of the oil reservoirs. Oil field production rates are also determined by the quality of oil found, e.g., viscosity and paraffin content, and the field’s reservoir characteristics, i.e., its depth, permeability, faulting, and water saturation. This analysis assumes oil quality and reservoir characteristics similar to those associated with the Prudhoe Bay field. If, for example, the oil discovered in ANWR has a considerably higher viscosity than the Prudhoe Bay field oil, e.g., over 10,000 centipoise, then oil production rates would be lower than projected in this analysis.
* Environmental considerations. Environmental restrictions could affect access for exploration and development. Also, legal challenges to the BLM’s leasing program and to its approval of seismic data collection and of specific oil field projects could significantly delay ANWR oil development and production.

Although there is considerable uncertainty regarding future ANWR oil production, the current upper limit to ANWR oil production is the transportation capacity of TAPS. TAPS has maximum throughput capacity of 2.136 million barrels per day. 21 The high ANWR oil resource case comes closest to reaching this pipeline capacity, when total North Slope oil production peaks at 1.9 million barrels per day in 2026.

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The net result of drilling in ANWR would then be what one may ask? While there would be some benefit to the US in terms of oil production the benefits would be far smaller than many people think from all of the drill, baby, drill, nonsense. The US would still be heavily dependent upon imported oil. With or without drilling for oil in ANWR the dependence of the US upon imported oil to drive its economy is a huge problem for the US.

It is highly unlikely that alternative energy sources will even come close to reducing the United States oil addiction and dependence. As the US real economy was built on the back of cheap oil with increasingly scarce and expensive oil becoming a new norm a long term crisis and reduction in the standard of living for Americans is all but certain. The current thinking the prevails in Washington and Wall Street that the old US economy and way of life can be restored is an illusion.

It is not wise to waste resources trying to bring back what we once had. We had best use our reduced resources to change the ways we use energy and to downsize just about everything that we now take for granted, like big houses in the suburbs, big fuel inefficient cars, mega shopping centers, mega box stores, huge expressway systems, and the devotion of so many resources to a way of living that is no longer smart or sustainable.

Drilling for oil in ANWR will not change the facts. We will not be able to sustain the unsustainable no matter how many oil wells we drill in the United States.