Home FinanceEnergy & Environment The ANWR Leasing Decision By Trump Is Not A Good Idea

The ANWR Leasing Decision By Trump Is Not A Good Idea

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The Administration has announced plans to offer oil leases in the Alaska National Wildlife Refuge (ANWR), one of the most remaining areas that has potential for undiscovered conventional oil and gas resources. Some in the industry, and conservatives more generally, have pushed for this for many years, arguing it will contribute to the U.S. economy, government revenues, union jobs, and/or energy independence. Environmental and conservation groups staunchly oppose it, fearing an unspoiled area will be, well, spoiled, and that caribou herds who use the area for calving will be negatively affected.

I have no expertise regarding the ecology of the area, and I suspect that it is possible the industry could operate there (with appropriate oversight) in a manner that would not create significant negative effects for the wildlife. Nor do I know how much oil might be found there (no one does), but estimates have run up to almost ten billion barrels, which is a lot (more than my Granddad found in West Virginia), rivalling in size the supergiant Prudhoe Bay field, which was about fifteen billion barrels.

Except that’s comparing apples to orchards. The resource estimate would be for every oil field, meaning the largest would be perhaps one-quarter of the total, and while those resource estimates are usually conservative (and sometimes completely wrong, as no commercial oil is subsequently found), the implication is that ANWR holds less oil than the North Slope. The possibility that the region might reach production levels of as much as 1 mb/d cannot be dismissed but is on the smaller end of the probability tail.

Opponents of the proposed leases will naturally counter that this means, at best, 5% of U.S. oil consumption might be supplied by ANWR, and probably not for very long. Hardly likely to shake the global geopolitical situation (especially compared to 8 mb/d from shale oil in the lower-48). A more pertinent question is: ‘Who cares?’ While the U.S. has been influenced by its perceived dependence on foreign oil suppliers (read Robert Vitalis’ recent book Oilcraft for criticism of that), it is hard to correlate significant policy moves over the past half century with American oil import levels.

But two other factors dominate the value of any leases sold in ANWR. First, obviously, any sale will run into a buzzsaw of lawsuits and would probably be tied up for years. (Note that I am not a lawyer and have minimal knowledge of the legalities involved). Bidding $5, $50, or $500 million for a lease that might not be accessible for a decade or more might be a less than winning business strategy.

More important, the geography and economics are not in favor of such a sale. ANWR oil will be, relatively speaking, more expensive than a lot of other oil resources because the area is undeveloped and isolated. A multi-billion barrel field there would probably be attractive, but much less so than, say, East Texas (where multi-billion barrel conventional oil fields are long gone, granted), the deepwater Gulf of Mexico, or even shallow-water offshore Mexico (where the billion barrel Zama field has been recently found). But the added expense of producing oil in ANWR certainly reduces any ultimate profits (and thus both bids and tax payments).

Couple this with the currently (sort of) depressed price of oil, and the value of the resource in ANWR could be minimal. Companies might bid as if the start of production will occur when prices are higher, which is quite possible, but historically, lease sales’ revenue have fluctuated in direct correlation with oil prices. (Maybe because lower prices means lower cash flow and more restricted exploration budgets.)

To be honest, I kind of expect that any bidders are more likely to be environmentalists who are hoping to pre-empt oil companies from bidding, but also will face little competition given the current state of play in both the oil market and U.S. politics. Still, this will be an appropriate Parthian shot (look it up) for the Trump Administration, and something which, if blocked, will serve as ammunition in 2022 and 2024.

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