Why Drill in the Arctic?

water rig

March 23, 2016 in Blog

Oil and gas companies have pioneered Arctic exploration and production ventures in the global Arctic for decades now, with the first commercial Arctic well drilled in the Canadian Arctic in 1920 and with Russia currently taking the lead in Arctic offshore oil production. Even as activists continue their efforts to ban energy development in the Arctic, there is a strong case to be made for Arctic exploration: The Arctic represents an opportunity to extend global energy security for generations to come, build up Arctic infrastructure, boost the economy, help sustain the Native Alaskan way of life, and facilitate international cooperation.

Bolstering global energy security

Even though technological advances such as hydraulic fracturing and horizontal drilling have unlocked previously inaccessible shale resources and catapulted America to the coveted spot of the world’s top oil and gas producer in recent years, the Energy Information Administration (EIA) expects U.S. oil production to begin falling in the 2020s and continue declining through 2040 – while net oil imports rise. That’s where the untapped energy reserves in the Arctic become a critical energy source.

The U.S. Geological Survey estimates that there are 90 billion barrels of oil and 1,670 trillion cubic feet of natural gas that remain to be found in the Arctic. This resource potential represents 13 percent and 20 percent of the world’s undiscovered oil and natural gas, respectively. The U.S. Arctic holds 34 billion of barrels of oil equivalent (BBOE) of oil – about 15 years of U.S. net oil imports at 2015 levels – and 60 BBOE of gas.

But in order for these resources to be available to meet the growing demand for energy around the world when they are needed most, development has to begin now. Because of factors ranging from a shorter drilling season to a more rigorous permitting process, the development of offshore Arctic resources requires much longer lead times: at least 10 years, and possibly more than 30 years. Therefore, even if the U.S. Arctic saw a significant ramp-up in offshore drilling during this decade, the new supply of crude oil would not become available until the 2030s and 2040s – which is precisely when the EIA expects production from the Lower 48 states to decline, as a report by the National Petroleum Council (NPC), an advisory committee established by the Secretary of the Interior and chartered by the Secretary of Energy, concluded:

“If development starts now, the long lead times necessary to bring on new crude oil production from Alaska would coincide with a long-term expected decline of U.S. Lower 48 production. Alaskan opportunities can play an important role in extending U.S. energy security in the decades of the 2030s and 2040s.”

Meeting infrastructural needs

Even as receding sea ice affords greater access to the Arctic than ever before, the infrastructure currently in place is dangerously inadequate, leaving the U.S. Coast Guard, local law enforcement, and communities alarmingly unprepared to respond to emergencies. Coast Guard Commandant Adm. Paul Zukunft has said, “In order for us to be relevant, to sustain mission effectiveness in the Arctic, I cannot make the claim that I am semper paratus [always ready] with the fleet I have at my disposal today.” Given the state of American infrastructure in the Arctic, Adm. Zukunft warned, there is “great potential for a significant loss of life in the event of a mishap up there.”

Arctic drilling has an important role to play in bolstering Arctic infrastructure: By operating in the Arctic, oil and gas companies bring with them equipment, resources, and capabilities to the Arctic – all which benefit local communities and search-and-rescue efforts. For example, Shell’s Arctic fleet in 2015 consisted of about 30 vessels, and the company even overhauled a helicopter hangar for search-and-rescue purposes in Barrow, Alaska. The NPC report described the opportunities this way:

“There are many synergies between the types of infrastructure that would facilitate Arctic oil and gas exploration and development and the infrastructure needs of local communities, the state of Alaska, and elements of the U.S. Forces such as the Coast Guard and Navy…The Coast Guard and Navy, which play key roles in areas of safety, search and rescue, and national defense, are subject to many of the same resupply and support requirements in the Arctic as the oil and gas industry.”

These synergies are no mere hypotheticals: The U.S. Coast Guard has already relied on oil and gas vessels for at least two search-and-rescue missions in recent years.

Boosting the economy

For Alaskans: As Alaskan labor and business organizations describe it, “Alaska depends on the responsible development of its natural resources to expand and support its economy.” Similarly, Alaska Natives across the North Slope have said, “Other than oil and gas, there’s really nothing else here. There’s no agriculture, no timber, no commercial fishing.”

When oil and gas taxes provide about 90 percent of Alaska’s general revenue, production levels play a large role in determining the state’s economic health. These economic resources from offshore development alone could come in the form of an annual average of 35,000 jobs in Alaska, $72 billion in total payroll, and $4 billion in property taxes for local governments over a 50-year period (in 2007 dollars).

For Americans all over the country: Americans outside of Alaska also benefit from Arctic energy development: U.S. Arctic offshore development is estimated to generate, over a 50-year period, an annual average of 54,700 jobs nationwide, $145 billion in total payroll, $193 billion in government revenues, $97 billion in federal lease revenues, and $51 billion in federal corporate income tax revenue (in 2010 dollars). Because these numbers might seem intangible in the aggregate, here’s an example of a local economy benefiting from Arctic drilling two thousand miles away: The Puget Sound area in the Pacific Northwest, a hub of maritime and industrial activity that has supported resource development in Alaska for more than 100 years, received $313 million in direct investment from just Shell alone from 2006 to 2014.

Helping sustain the Native way of life

As you can imagine, life 300 miles north of the Arctic Circle can be challenging. But as Alaska Natives have explained before, their hardships “have been tempered by revenues generated from oil development activities both onshore and in Alaska state waters.” These revenues fund everything from running water, sewer systems, flush toilets, and local landfills, to roads, health clinics and K-12 schools. As members of the Alaskan community explain,

“The development of Arctic oil and gas resources provides our communities with the means to preserve our traditional way of life and culture while also allowing our residents to enjoy a greater quality of life. Put another way, our communities cannot survive without continued resource development in our region.”

But the ability of Alaskan communities to continue providing these basic services is threatened by lower oil and gas production levels, as well as efforts by outside activist groups to hamper production.

Improving foreign relations

Energy development in the Arctic also signifies a historic opportunity for the Arctic countries – Canada, Denmark, Finland, Iceland, Norway, Sweden, Russia, and the United States – to work together on priorities such as advancing Arctic scientific research and improving search-and-rescue capabilities in the region, as former Coast Guard icebreaker captain Lawson Brigham observed:

“Today’s Arctic is governed by eight developed states that arguably cooperate more than they have at any other period in history. International collaboration in scientific research, for instance, is at record levels in the Arctic today.”