Republicans are closer than ever to achieving their long-time goal of allowing oil and natural gas drilling in the Arctic National Wildlife Refuge, but energy companies might not be interested in taking up the opportunity.
While energy industry groups say they expect a rush of activity if Congress opens a 1.5 million-acre section of the Alaskan refuge, individual companies are less bullish about their plans.
Former government officials and environmental groups doubt that drilling in the refuge can meet Republicans' expectations that drilling can raise $1 billion for the government over 10 years, with oil prices hovering around $50 a barrel and competition steep from natural gas in the nation's shale regions.
“There is a lot of pressure from the shale play and Lower 48, and the price structure currently is not terribly supportive of activities in Alaska because we are a high-cost environment to produce oil,” said Tom Walsh, public affairs chairman and an oil and gas consultant with the Alaska Support Industry Alliance. “But we are an oil and gas resource state. That's what we do.”
Congressional Republicans have long pushed to allow energy exploration in a 1.5 million-acre section of the Alaskan refuge, known as the “1002 area,” where billions of barrels of oil lie beneath the coastal plain.
The 19.6-million-acre Arctic National Wildlife Refuge was created under President Dwight D. Eisenhower in 1960. In 1980, Congress provided additional protections to the refuge, but set aside the 1002 area for future drilling if lawmakers approved it.
Democrats have managed to block those efforts over fears that drilling would harm the ecosystem of what they call one of the wildest places left on earth, with polar bears, caribou, and arctic foxes.
The Republican-controlled Congress in 1995 passed a budget allowing refuge drilling, but the measure was vetoed by former President Bill Clinton.
“This is a fight-to-the-death issue for national environmental groups,” said Pat Pourchot, who served as the Interior Department’s special assistant for Alaskan affairs under Sally Jewell, former President Barack Obama's interior secretary.
This year, the path for Republicans to permit drilling is easier than ever, as the party is united toward the cause.
The Trump administration’s Interior Department in September lifted restrictions on seismic studies to probe how much oil is under the refuge.
A budget passed by the House and Senate last month includes instructions for lawmakers to create legislation to raise $1 billion over a decade by opening the 1002 section to drilling, to help pay for tax reform.
The Senate Energy and Natural Resources Committee, led by Republican Sen. Lisa Murkowski of Alaska, could vote to approve legislation achieving that as early as this week.
Murkowski on Thursday expressed confidence that drilling in the refuge could raise $1 billion over 10 years, with the potential for more earnings later on.
“The first 10 years are just the start of a 40-year period where responsible production raises billions of dollars in revenues for our country every year,” Murkowski said during a hearing on the topic. “We will see the benefits over decades, not just over the 10-year budget window.”
Committees face a mid-November deadline to complete legislation that complies with the reconciliation instructions in the budget resolution, allowing Republicans to pass bills with the support of a simple majority, rather than the 60 needed to overcome a filibuster.
Alaskan politicians are especially eager to tap the refuge because oil production in the state has fallen from more than two million barrels per day in the late 1980s to under a half-million barrels per day — a big deal in a state whose government provides residents an annual check from oil revenue.
“Everyone understands ANWR to be the biggest prospective onshore conventional oil field in North America,” said Robert Dillon, an energy consultant and former senior staffer for Murkowski. “There is substantial interest both from Alaskans and energy companies.”
Yet, energy companies that have experience operating in Alaska’s remote, capital-intensive terrain are less direct about their expectations.
ConocoPhillips already has operations in the National Petroleum Reserve, a 23.5-million acre federal land in northwest Alaska set aside for energy development.
“If the 1002 area was authorized for leasing, we would consider it against other opportunities in our portfolio, just as we do with exploration opportunities worldwide,” said Daren Beaudo, director of media relations for ConocoPhillips. “That being said, we see tremendous potential in National Petroleum Reserve Alaska and remain focused on our projects and exploration plans in the reserve.”
Indeed, experts who are less bullish about the Arctic National Wildlife Refuge note that the Trump administration already has the authority to begin leasing land for oil and gas development in the less controversial Petroleum Reserve.
The Bureau of Land Management, an office in the Interior Department, announced that in December it plans to offer 10 million onshore acres in the Petroleum Reserve. About 1.4 million acres currently are leased for drilling.
“Given development in the Petroleum Reserve, I don't see as much incentive for companies to deal with the arctic refuge, which is why the budget projections by Republicans in Congress [for $1 billion over 10 years] are fantasy,” said David Hayes, a former deputy secretary of the Clinton administration's Interior Department.
BP and Exxon Mobil, two other major oil and gas companies with experience in Alaska, would not reveal their level of interest in the refuge and directed the Washington Examiner to industry trade groups. Those groups are optimistic about the possibilities in the refuge.
“The natural gas and oil industry’s long record of production on the Alaska North Slope demonstrates that resources at ANWR could be developed in an environmentally responsible way,” said Erik Milito, the upstream director at the American Petroleum Institute, who supervises exploration and production. “Opening it would be an important step towards increasing American competitiveness and securing our nation’s energy future.”
Kara Moriarty, the president and CEO of the Alaska Oil and Gas Association, says recent oil discoveries near the refuge’s western edge show there may be more oil there than federal officials identified three decades ago, the last time the government conducted seismic studies of its resource potential. A U.S. Geological Survey review of that data estimated in 1998 that there is between 4.3 billion and 11.8 billion barrels of oil in the 1002 area.
Moriarty, in projecting demand for those resources, pointed to an estimate from the Energy Information Administration projecting that oil and gas will account for more than half the world’s energy supply through 2050, despite the progress of renewables wind and solar.
“It's bit of red herring for folks to say, well, you have shale, no one is interested in Alaska anymore,” Moriarty said. “I don’t think that’s true.”
Moriarty says the oil industry still provides about one-third of Alaska’s jobs. The completion of the Trans-Alaska Oil Pipeline in 1977 has been a crucial vessel for moving petroleum during years of low prices. BP, Exxon and ConocoPhillips are co-owners of the 800-mile long pipeline, which provides the state with 85 percent of its budget.
But Moriarty says the pipeline is carrying about 550,000 barrels per day, roughly a quarter of its 2 billion barrel capacity.
She said the refuge is located close enough to the pipeline, 30 to 35 miles away, so that additional infrastructure development wouldn't be needed to transport the energy resources found there.
Yet, energy analysts say there are too many unknowns and risks for companies to justify development in the refuge.
“There is a great unknown about how much oil there is in the refuge, and the economics are not good,” Hayes said. “The reality is any activity will immediately go deep into litigation, be heavily scrutinized, with reputational risk to the companies. There will be very limited interest.”
To show the uncertainty and high cost of drilling in the refuge, Hayes referred to the decision last year by Shell to relinquish its leases in Alaska’s Chukchi Sea. The decision followed a record federal $2.1 billion lease sale in 2008.
“That case just emphasizes the risks and that success is not guaranteed,” Moriarty of the Alaska Oil and Gas Association acknowledged. “The results were not what we're expecting.”
Hayes and Pourchot say oil prices would have to climb to about $70 per barrel for investments in the refuge to pay off.
“At this time, not knowing what the lease sale may look like, not knowing the time frame, not knowing the conditions of the sale or the extent of acreage offered, it is hugely speculative to predict what kind of revenues might be forthcoming,” said Pourchot, who was formerly the commissioner of the Alaska Department of Natural Resources.
Moriarty and the other industry representatives argue that the long leasing and development timeframes for the refuge, with success in Congress still uncertain and litigation likely, mean there is plenty of time for oil prices to recover.
“If ANWR were made available to leasing, you wouldn't see production for 10 to 15 years,” Moriarty said.
Dillon added: “People who argue we don't need the oil now, we have plenty, this is talking about where supply comes from 30 years from now. What will replace the shale when it runs out?”