Why ANWR?


    

     The question has been asked over at Berry Street Beacon “Why ANWR?”.  This is such a common question that I felt compelled to do some research and provide an answer.

      ANWR is the Arctic National Wildlife Refuge and constitutes about 19 million acres of Federally protected land in the Northern part of Alaska.  There has been considerable interest by the government and the oil industry in developing oil resources in a parcel called “Area 1002”.  This area is approximately 1.5 million acres and was designated in 1980 by Congress and Jimmy Cater for potential energy production.  Due to Federal regulations imposed on the development of oil in this particular area, the total footprint of any oil development cannot exceed 2,000 acres (There are a lot of references to this limitation, but I have not been able to find any Act or legislation supporting it).  In total, the expected footprint of any development in ANWR is expected to be .01% of the total acreage of ANWR.  In fairness, it is somewhat important to point out that “total footprint” means that drilling activities (including roads, airstrips, storage facilities, etc.) could be spread out over a large area so long as the total acreage does not exceed 2,000.

      Economically, the interest in developing Area 1002 is easily justified.  Alaska produces about 740,000 barrels of oil per day and is expected to decline to 540,000 by 2014.  The mean expected peak daily production of Area 1002 is right around 780,000 barrels of oil per day.  Estimated production could be as little as 510,000 or as high as 1.45 million barrels of oil daily.  Since all estimates have Area 1002 productive beginning in 2018, Alaska’s revenue from oil will as little as double or as much as quadruple in that time period through ANWR production.  Alaska’s current annual oil revenue is $5.2 billion.  Since Area 1002 is expected to generate $590 billion over it’s productive life (with mean production assessments) and we assume that to be 30 years, Alaska will generate $16.6 billon per year in oil royalties after a total cut of $59 billion to the Federal government.  There’s potentially plenty of money to be had by everyone which is reason enough for all the hand wringing over when to start drilling.

      The impact of ANWR production on global oil prices will be paltry- somewhere around 1% decrease in oil prices.  However, domestically ANWR could represent 20% of total US oil production.  With all the fuss attempting to counter Sarah Palin’s fiscal policies as Alaska’s governor during the 2008 presidential campaign by pointing out that Alaska is the #1 state in federal dollars spent per capita, it would seem logical that Alaska should be given the opportunity to step up and earn part of its keep through ANWR oil production, despite justifications for Alaska’s need for those dollars.  Since Alaska currently receives about $9.2 billion annually from the federal government and the federal government should expect to receive about $2 billion per year from ANWR oil royalties, this would put Alaska significantly lower on the naughty list (I must point out that the #1 rating for Alaska is related to “per capita” spending and not actual dollars spent.  Many other states that are far more established in far less demanding climates/geography receive billions more in total spending, but their populations are much, much higher.  Ahem, California, New York, Texas, Florida, and Pennsylvania).

     Charlotte at the Beacon points out that government assessments of ANWR include statements pointing out that nothing is guaranteed- well, duh!  Any oil company will tell you that searching for oil is not a guaranteed science and that oil isn’t “there” until you actually pop a well (which is a very expensive endeavor, by the way).  Such statements in the EIA summary are obligatory CYA “disclaimers” in the unlikely event that Area 1002 proves to be unmarketable.

      Environmentally, there are arguments abound about how horrible the impact of drilling in Area 1002 will be on the “fragile” environment.  All I can say is read the arguments (pro and con) yourself and come up with your own conclusions.  The irony in all the environmental fuss is that it is based on more conjecture than the oil assessments.  There is no absolute evidence that Area 1002 has as much oil as it is estimated to have and there is even less evidence of the environmental impact of ANWR oil wells because guess what…THEY AREN’T THERE.  The oil estimates are partially based on the yields of surrounding wells in addition to proven scientific analysis of the area while the projected environmental impacts are entirely based on those same wells which have outdated technology and are about 6x as intrusive as current methods of drilling.

     In my opinion, the benefits of developing Area 1002 far outweigh the risks.  The environmental requirements that will be imposed on the oil developers will ensure that as much risk as possible is eliminated and that the land is restored once the wells are no longer useful.  Area 1002 would not have been Federally established unless there was already evidence of great potential resources.  The costs incurred both by government and private organizations necessitates that we move forward with the sensible plan that has already been outlined to exploit those resources and start making some moolah!

Why ANWR?  For the capitalists out there I’ve already given my answer.  For the liberals and progressives: Because the government said so, damn it!

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2 Responses to Why ANWR?

  1. Stephanie Younger says:

    Great points, Roger! The other arguments I would make in favor of drilling in ANWR are:

    1.) We purchased Alaska for it’s natural resources, so let’s use them!

    2.) Everytime I’ve heard of an accident in which oil was spilled, it was during the shipping of oil from other countries. If we cut out the shipping, we would cut out most of the environmental risk.

    3.) If environmentalists are truly concerned about the environment, who would be more careful about drilling than the US? The oil is going to be drilled somewhere, why not here?

    4.) In the event of another war in the Middle East (Iran/Israel), oil prices will sky rocket. It’s best to have more of our own oil supplies where we would have more control over the pricing. Decreasing our dependency on foreign oil has never been more important.

    • foundersten says:

      Thanks for stopping by, Steph!

      Cost of a barrel of oil: $75
      Cost of a state larger than many countries and rich in resources: $7.2m
      Drilling in ANWR: Priceless!

      There are plenty of incidents occuring on a regular basis of oil spills on land. In fact, possibly the second largest spill ever in Alaska (second only to the Valdez) was on land. My own HAZMAT training dictated that any spill larger than a gallon requires a report and any spill larger than 5 gallons requires special handling. Considering the volume of oil pumped daily and inherent irregularities in human technology there are bound to be numerous such reports. What’s lacking in environmentalists is perspective not only in relative impact, but in the considerable effort by oil corporations to respond to those incidents. Once oil is spilled not only is the liquid oil cleaned up, but also every inch of contaminated dirt and hefty costs are incurred for every event, but it’s far cheaper than getting caught trying to hide such events.

      The Northern Passage has to play a major role in the interest in ANWR. Canada does not want to invest in ports servicing the passage despite assertions that it falls within Canadian territory. With Alaska’s abundant resources and access to the passage it has the potential to become even more economically powerful than California. I say carpe diem!

      Our 58% foreign dependence on oil consists of only about 16% Middle East and 10% Venezuela. While I’d like to give the finger to both I am unfamiliar with the political consequences of taking an isolationist stance with our oil resources. My guess is that we would at least lose the roughly $20-25b generated from our own 10% contribution to the global market and then lose any political gain with the additional 48% oil we would have to produce to cover the balance of our foreign dependence. The unfortunate reality is that our resources are political leverage. I would rather see us do what we have done best foe decades and take the lead in developing sensible alternative energy resources. This would require a level of fortitude and creativity not yet demonstrated in Washington. We would have to stop wasting so much time on inefficient and unreliable technologies such as solar and wind and focus more on geothermal and nuclear. Look at what the US has done with fusion research and you can see the self destructive path we are headed due to weak minded politicians as we allow other countries to take the lead where we could easily excel and reestablish our technological dominance.

      Fusion research will be another topic in the future.

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