Oil and Gas Development in ANWR: Massive Benefits with Minimal Impact

November 15, 2017 in Blog, Featured

As the Senate prepares for a bill mark-up on legislation that would allow for oil and gas development to take place in a small section of the Arctic National Wildlife Refuge (ANWR) known as the 1002 Area, opponents of this development continue to claim that such a move wouldn’t make sense economically. Two reports released last week from anti-fossil fuel activists Alaska Wilderness League (AWL) and The Wilderness Society, argue that the revenue generated from lease sales and development, as well as the overall impact on employment from these activities, will be less than anticipated.

These reports ignore the myriad of economic data and analyses showing development in 1002 would be a boon for Alaskans and the nation, opening up the substantial amount of resources currently locked away in the region.

Employment and Economic Benefit

When ANWR was expanded in 1980 under the Alaska National Interest Lands Conservation Act (ANILCA), about 1.5 million acres of the 19.3 million total was specifically designated for potential oil and natural gas exploration. The 1002 Area represents just eight percent of the Refuge’s total acreage and has been extensively studied for its resource potential, as well as the possible impact of oil and natural gas development in the region. More importantly, the current legislation calls for no more than 2,000 acres of surface development – about 1/10,000th of ANWR’s total acreage – a truly di minimus portion.

The economic benefits from 1002 Area development will be felt both immediately, as well as over the long-term. According to the latest estimate from the Congressional Budget Office, a non-partisan agency charged with determining the economic value of congressional proposals, opening ANWR to oil and gas activities would result in over $1.1 billion in federal revenue over the next 10 years.

Further, bonus bids – the amount paid by producers for simply the right to produce in the area – would total about $2.2 billion through 2027, and would go directly to state and federal coffers.  The revenue generated from these lease sales and royalties are vital for Alaskans, with approximately 85 percent of state funding is derived from oil and natural gas production.

Despite these benefits, the advocacy reports significantly downplay the economic benefits, with one claiming:

“While it is certain that extracting oil from the Coastal Plain would support some employment, the gains would be temporary and may simply represent a shift of jobs from other regions.”

That assessment runs in direct contradiction to multiple previous analyses. For example, the U.S. House Committee on Natural Resources states that development ANWR’s resources could result in 55,000 to 130,000 new jobs on the region – hardly “some employment.”

Moreover, production activities in the region would generate massive economic benefits as well. As the Committee on Natural Resources also notes, developing the 1002 Area could create between $150 billion and $296 billion in new federal revenue. All told, it’s estimated that $440 billion in economic value – including local, state and federal government revenue, along with leasing and royalty payments – could stem from ANWR field production over the development lifetime.

Massive Resources, Minimal Impact

After three years of study, which included 40 scientists and 1,400 miles of seismic data, researchers at the United Stated Geological Survey (USGS) found that the 1002 area holds an estimated 10.4 billion barrels of technically recoverable oil – with optimistic estimates putting that number closer to 15 billion barrels. But despite the data showing a wealth of reserves, the Wilderness Society report downplays the potential, stating that “the only oil that matters is economically recoverable oil” – resource which can be produced given the market oil price – and that the “wide range of estimates” suggests Congress “should be cautious about relying” on these resources.

To understand how problematic these arguments are, it’s important to put them in context. First, claiming that current market prices would impact the “economically recoverable resources,” ignores the fact that development in Arctic requires several years of planning and preparation before production can actually begin. With lead times of roughly 7-10 years, it’s impossible to predict where commodity prices will be. Indeed given expected improvements in development technology, it may be possible to develop Arctic resources at lower prices.

Second, stating that because the USGS estimates range between 5.9 billion and 15.2 billion barrels justifies ignoring the potential is short-sighted. Even if the recoverable resources in the 1002 Area are closer to the Wilderness Society estimates – about 7.7 billion barrels –the 1002 Area would still be the second largest oil field in the United States, just behind the Prudhoe Bay field which is also located on Alaska’s North Slope.

Considering such a small area, the concentration of resource is staggering. In fact, the Congressional Budget Office states that for federal lands outside of ANWR to match the amount of resources on the 1.5 million acre 1002 Area, over 280 million acres would have to be developed.

With development estimated to provide $440 billion in economic impact, as well as up to 130,000 jobs, all from a segment of land representing just eight percent of ANWR’s total acreage, the question shouldn’t be whether development should occur, but instead how quickly can it start.