arctic national wildlife refuge: economics of potential oil … · 2019. 7. 8. · arctic national...

ArcticNationalWildlifeRefuge:

EconomicsofPotentialOilDevelopment

November1,2017

Preparedfor:

TheWildernessSociety

AnnaPerry

CarolynAlkire,PhD

Researchandstrategyforthelandcommunity.

keylogeconomics.com

ArcticNationalWildlifeRefuge:EconomicsofPotentialOilDevelopment November1,2017

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TableofContents

ExecutiveSummary 4Background 4EstimatesofUndiscoveredOilontheCoastalPlain 4ArcticRefugeProductionImpactonU.S.andGlobalOilSupply 4NationalandGlobalPriceImpact 4PotentialJobsAssociatedwithRefugeDevelopment 5HypotheticalTimelineforOilDevelopmentontheCoastalPlain 5OpeningtheRefuge:CosttotheAmericanTaxpayer 5ChallengesofFrontierExploration 5

EconomicallyRecoverableOilPotentialintheArcticRefuge 6GovernmentEstimatesofRecoverableOilintheCoastalPlainAreaoftheArcticRefuge 7

LimitationsofGovernmentAgencyAnalyses 7PriceProjections 8

EconomicallyRecoverableOilvs.Break-evenPrices 9OtherFactorsInfluencingtheCostofCoastalPlainOilProduction 9

ImpactofArcticCoastalPlainOilProductiononU.S.andGlobalSupply 10MisconceptionsonU.S.OilImportDisplacement 11

GlobalSupply 11TheFutureofTightOilandU.S.EnergyProduction 13

ArcticRefugeDrillingImpactonNationalandGlobalOilPrices 15WorldPriceProjections 15AmericaasaPrice-Taker 16EmptyPromiseofLowerPricesatthePump 17

PotentialJobsAssociatedwithRefugeDevelopment 18RefugeJobProjections 18CurrentAlaskaOilandGasIndustryEmployment 20

JobForecastthrough2024 20

HypotheticalTimelineforRefugeOilDevelopment 22Oil&GasDevelopmentProhibitedintheRefuge 22

SampleNorthSlopeAlaskaTimeframe 23

OpeningtheRefuge:CosttotheAmericanTaxpayer 26EstimatedFederalCostsandSavingsofOpeningtheArcticRefuge 27StateSubsidies 27NorthSlopeLeaseBidsandProjectedRevenue 27


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Below-MarketRoyaltyRatesandEstimatedRevenue 28SubsidizedEnvironmentalRisk 29

ChallengesofFrontierExploration 30TheNorthSlopeFrontier 31

ArcticDevelopmentisCostlier,RiskierandLengthier 31FutureProspects 33

Conclusion 34

WorksCited 35

AppendixA:2010-2017LeaseBidsontheNorthSlope 42


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ExecutiveSummary

BackgroundTosome,drillingforoilandgasintheCoastalPlainoftheArcticNationalWildlifeRefuge(CoastalPlain)promisesabundant,cheapenergythatwoulddisplaceoilimports,lowerdomesticgasprices,boostemployment,andraiserevenuetobringdownthedeficit.Thesepromises,however,arebasedonoutdatedinformationandrosyassumptionsabouthowmuchoiltheCoastalPlainmayhold,thepricetheoilmayfetch,andthespeedwithwhichoilandgascouldbefound,extracted,andbroughttomarket.Giventheenormousrisktoecosystemsandhumanwelfarethatsuchoilexplorationanddevelopmentwouldimpose,itisessentialthatpromisedbenefitsbeclosely,carefully,andcriticallyexamined.

EstimatesofUndiscoveredOilontheCoastalPlainPotentialoildepositsundertheCoastalPlainareunprovenreserves,meaningthereisnoguaranteethatoilisthereandcouldonedaybeproducedandsold.Ultimately,theonlyoilthatmattersiseconomicallyrecoverableoil––thatportionoftechnicallyrecoverableoilwhichcanbeproducedforlessthanthepriceofoilinthemarket––contingentonitsdiscovery(EnergyInformationAdministration,2014).TheU.S.GeologicalSurvey(USGS)in1998estimatedthatthereisa50%chancethattheCoastalPlainholds10.4billionbarrels(BBO)oftechnicallyrecoverableoil,a95%chancethatitholdsupto5.9BBO,anda5%chancethatasmuchas15.2BBOarepresent(Attanasi&Freeman,2009).Economicallyrecoverableoilwouldbefractionofthesevolumes.Giventhewiderangeoftheseestimates(nottomentionthefactthattheyhavenotbeenupdatedin20years),CongressshouldbecautiousaboutrelyingonoilfromtheCoastalplaintosolveAmerica’senergy,budgetary,orbroadereconomicproblems.

ArcticRefugeProductionImpactonU.S.andGlobalOilSupplyPreviousassessmentssuggestthatduringitspeakyearofproduction,theCoastalPlaincouldbring700,000barrelsofoiladaytomarket(EnergyInformationAdministration,2008).Globally,anyaddedsupplyfromtheArcticRefugecouldbeoffsetbyasmallreductionfromOPEC(Behar&Ritz,2016).Domestically,theargumentthatArcticRefugeoilwoulddisplaceoilimportsisnotwellsubstantiated:additionaloilshippedfromPortofValdezwouldgoprimarilytowestcoastforeignmarkets.ThiswouldinitiallyreducetheflowoftightoilfromtheNorthernMidwest—butonlytoalimitedextent(DeRosa&Flanagan,2017).Afterthat,additionalArcticRefugeoilwouldgointostorageratherthanfurtherdisplacingimports.EvenifeachbarrelpumpedfromtheCoastalPlainmeantonelessbarrelimported,imports,asaportionofallU.S.oilconsumptionwouldfallbyonly4%from52%to48%,andthatimpactisduringtheprojectedpeakofCoastalPlainproduction(Fineberg,2011).Meanwhile,unconventionaloilproductionandadvancesinenergyefficiencyarethebigreasonsforreductionsinU.S.oilimportsinthepastdecade.Energyconservationdisplaces25timesmorecrudeoilimportsthanoiltakenfromtheArcticNationalWildlifeRefugeevercould(Fineberg,2011).

NationalandGlobalPriceImpactTheeffectonnationaloilpriceswouldbebriefandminimalatbest,largelybecausepricesaredeterminedintheglobalmarketinwhichnon-OPECproducersactasprice-takersratherthanprice-makers.AccordingtoboththeEIA(2008)andUSGS(2009),theearliestcommercialproductioncouldbeginis7to10yearsafterCongressionalapproval.Onceproductionbegins,anyimpactonpricesatthepumpwouldlikelyonlybefeltduringasinglepeakproductionyear


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approximately10yearslater(EnergyInformationAdministration,2008).Atbest,consumerscouldsave1%ongas15yearsafterCongressionalapproval(EnergyInformationAdministration,2008;Hahn&Passell,2008).

PotentialJobsAssociatedwithRefugeDevelopmentChangesinemploymentassociatedwithpotentialoilproductionintheArcticNationalWildlifeRefugedependonfactorsincludingthephaseofdevelopment,thenumberofwellsandrigs,specificgeographiclocation,andthetypeofproject(WoodMackenzie,2011).Previousemploymentestimatesofthesechangesvarywidelyandsitatopahouseofcards,thefoundationofwhichisout-of-dateassessmentsofoilvolumeandoilpricesnearlytwicewhattheyaretoday.WhileitiscertainthatextractingoilfromtheCoastalPlainwouldsupportsomeemployment,thegainswouldbetemporaryandmaysimplyrepresentashiftofjobsfromotherregions.Newerdataandbettermodelsofnetchangesineconomicwell-being—thatis,thosethatconsiderpotentiallossoftraditionalandcurrenteconomicuseoftheArcticRefuge—areneeded.

HypotheticalTimelineforOilDevelopmentontheCoastalPlainVariousU.S.government,industry,andotherentitieshaveestimatedthetimelagbetweenCongressionalapprovalofoilandgasdevelopmentintheArcticRefugeandactualproduction;estimatesrangefrom7to20years(Thomaset.al,2009;ArcticPower,2001;AttanasiandFreeman,2009).Ifapprovalweretobegrantedin2018,developmentandproductioncouldoccurbetween2025and2030basedonU.S.DepartmentofEnergyphasing(Thomaset.al,2009).Inthisscenario,thefirstpaymentstotheU.S.Treasurywouldbeginin2022forleases,andin2030forroyaltiesfromproduction,assumingnodelays.Underotherplausiblegovernmentandindustryscenarios,productionmightnotcommenceuntil10yearslater,orby2040.

OpeningtheRefuge:CosttotheAmericanTaxpayerHowmuchrevenuethefederalgovernmentreceiveswilldependonthenumberofacresleased,thepriceperacreleased,andthedistributionofrevenuebetweentheU.S.TreasuryandthestateofAlaska(AlaskaOilandGasCompetitiveReviewBoard,2015).Currently,theTrumpAdministrationclaims$1-1.8billioncouldberaisedbyleasesalesaloneinthenexttenyears(OfficeofManagementandBudget,2017).TheCenterforAmericanProgress,meanwhile,findsnomorethan$37.5millioninfederalrevenuecouldberaisedfromleasesoverthesameperiod,orjust2%oftheAdministration’sestimate(Lee-Ashley&Rowland,2017).BecausetheWhiteHouseandCongressarecountingonhighestimatedrevenuestofundexpenditures,includingproposedtaxcuts,anyshortfallrelativetothoseexpectationswillincreasethedeficit.

ChallengesofFrontierExplorationTheclimate,geography,andisolationoftheArcticpresentchallengestooilandgasexplorationanddevelopment.TheNorthSlopeofAlaskaisremoteandsparselypopulatedwithonlyoneroadconnectingitwiththerestofthestate.ThesefactorscontributetoArcticdevelopmentbeingmoreexpensive,riskier,andlengthierthancomparabledepositsfoundelsewhereintheworld(Budzik,2009).Inadditiontorequiringlargerinvestmentsthancomparableprojectselsewhere,thelonglead-timesrequiredforArcticprojectsaddriskbecauseeconomicconditionscanchangesignificantlybetweenthetimeexplorationleasesaresecuredandwhenproductionbegins.


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EconomicallyRecoverableOilPotentialintheArcticRefugeEstimatesoftechnicallyrecoverableoilonAlaska’sNorthernSlopecontinuetofuelthedecades-longdebateonoildrillingintheCoastalPlain(1002Area)oftheArcticNationalWildlifeRefuge.1Themoreimportantconsideration—andoneoftenoverlookedbythoseadvocatingfordrilling—ishowmuchofthatoilwillbeeconomicallyrecoverable,andtowhatextentshouldundiscoveredeconomicallyrecoverableoilinformmarketandpolicydecisions?Whiletechnicallyrecoverableoilreferstooilthatcanbeproducedusingcurrenttechnologyandgeologicknowledge,economicallyrecoverableoilistheportionoftechnicallyrecoverableoilthatcanbeproducedforlessthanthepricetheoilwouldbringinthemarket—contingentonitsdiscovery(Figure1)(EnergyInformationAdministration,2014).

Figure1.Visualrepresentationofoilresourcecategorization(nottoscale)Source:U.S.EnergyInformationAdministration,2014

Inthelongerrun,changesintechnology(whichpresumablywouldbeadoptedonlyiftheymakerecoverycheaper)wouldincreaseeconomicallyrecoverablereserves.However,ifcost-savingtechnologyaffectsonlyotherreserveselsewhere,therelativecostofNorthSlopeoilwillincreaseanditseconomicallyrecoverablereserveswillfall.Hydraulicfracturing,whichhasmadeproductionfromshaleandtightsandsinthelower48statesrelativelylessexpensive,isagoodexampleofthisdynamicatwork.Thefrackingboomhasboostedenergysupplyanddrivendownprices,whichfurthernarrowsthegapbetweenthepriceofnon-frackedoilandthecostofproducingit(Nicks,2014).

1Theabsolutelimittotechnicallyrecoverableoilisnotthetotalamountofoilavailable(asshowninFigure1).Rather,itistheamountthatcanbeextractedatalowercostinenergythantheenergycontentoftheextractedoil.Theratioofenergyouttoenergyinisthe“energyreturnoninvestment”(EROI)andwhenthatratiofallsbelowone,furtherefforttoproducethatenergybecomethermodynamicallynonsensical(Daly&Farley,2011;Hall,Lambert,&Balogh,2014).Onewouldnot,forexample,use6millionBTUsofenergytopumpabarrelofoilthatmayyieldonly5.8millionBTUs(EROI=0.97).Evenso,anddueeithertopoorpolicyoradesiretohaveenergyofaparticulartypeorinaparticularform(e.g.,liquidfuel),itispossibletoproducesuchoilatanenergyloss,solongasotherenergyisavailabletomakeupthatgapbetweenenergyoutandenergyin.Moreover,technicallyrecoverableoilcanincreaseovertimeasenergy-savingtechnology,whichincreasesEROIup,isdevelopedandadoptedintheenergyindustry.


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Clearly,estimatesoftheportionofoilreservesthatiseconomicallyrecoverablearefluid,andtheyarenotnearlyaseasytoknowatanymomentasthevolumeofoilinsitu,oreventhevolumethatistechnicallyrecoverable.Economicallyrecoverablereserves,however,isthemoreappropriatemeasuretousewhenassessingpotentialundiscoveredresourcesintheArctic.Otherwise,taxpayerdollarsmaybespenttofacilitateproduction,incurenvironmentalandsocialcosts,andotherwisesubsidizetheproductionofoilthatisnotworthrecovering.

GovernmentEstimatesofRecoverableOilintheCoastalPlainAreaoftheArcticRefugeGovernmentreportspublishedinthelasttenyearsprovideestimatesofthetotalundiscoveredtechnicallyandeconomicallyrecoverableoilintheArcticRefuge.ThelatestU.S.GeologicalSurvey(USGS)assessment,publishedin1998andupdatedin2009,providesanaverageestimate,or50%chance,that10.4billionbarrels(BBO)oftechnicallyrecoverableoilexistontheCoastalPlain(1002Area)oftheArcticRefuge.Theirestimatesgivea5%probabilitythatasmuchas15.2BBOexistontheCoastalPlain,anda95%probabilitythatatleast5.9BBOarepresent(Attanasi&Freeman,2009).BoththeNationalEnergyTechnologyLaboratoryandUSGSreportedthat,ofthetechnicallyrecoverableamountontheCoastalPlain,ameanestimateof7.7BBO,or75%ofthetotalestimate,islocatedonfederallands,while25%liesunderstateandnativelandswithintheRefuge.Consideringthattheeconomicallyrecoverablevolumeisalmostalwaysafractionofthetechnicallyrecoverablevolume,the7.7BBOrepresentsanupperthresholdmeanestimateforhowmuchoilcouldbeproducedfromtheCoastalPlain’sfederallands(Thomas,etal.,2009).

TheU.S.EnergyInformationAdministration(EIA)(2008)baseditsestimatesofoilproductionpotentialintheRefugeontheUSGSestimateofabout7.7billionbarrelsofoiltechnicallyrecoverableinthefederallandportionoftheCoastalPlain.TheEIAcreatedthreescenariosthatreflectedthelow,mean,andhighestimateoftechnicallyrecoverableoilprovidedbytheUSGS1998assessment.Theycomparethesethreescenariostothe2008AnnualEnergyOutlook“reference”case,whichisabusiness-as-usualprojectionofresourcesuppliesandpricescontextualizedbyeconomicconditions.

Inthereferencecase,withnoadditionaloilfromtheArcticRefuge,U.S.productionincreasesfrom5.1MBD(millionbarrelsperday)in2006toapeakof6.3MBDin2018,thenfallstoanaverageof5.6MBDby2030(EnergyInformationAdministration,2008).Inthiscase,Alaskanproductionincreasespost-2014fromthediscoveryanddevelopmentofnewoffshoreoilfieldsexpectedtobefoundofftheNorthSlope(EnergyInformationAdministration,2008).

InallthreeArcticRefugeoilresourcecases,productionstartsin2018(now2028,because,theanalysiswaspublished10yearsago),andpeaksat510,000,780,000,and1,450,000barrelsperdayaround2028(now2038)inthelow,mean,andhigh-resource-casescenariosrespectively.EIAestimatesthatCumulativeoilproductioninthetwelveyearsfollowinginitialproductionwouldbe1.9BBO,2.6BBO,and4.3BBOinthelow,mean,andhigh-resource-caserespectively(EnergyInformationAdministration,2008).

LimitationsofGovernmentAgencyAnalysesThereareanumberofreasonstobecautiousinusingthe2008EIAand2009USGSupdatedeconomicanalysesasaresourceforpolicy-making.Thefirstandforemostconcernwiththesegovernmentanalysesisthattheyarebasedonoutdatedinformation.Thelastgeologicalassessmentwasperformedtwodecadesagousingfinancialdataandtechnologicalassumptionsfromthattime,makingitnearlyirrelevantasaguidetocurrentenergy,budget,oreconomic


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policy.InMayof2017,SecretaryofInteriorRyanZinkeorderedaplanforupdatingassessmentsofundiscovered,technicallyrecoverableoilintheCoastalPlain,whichwouldincludeconsiderationofnewdataaswellasareprocessingofexistingdata(U.S.DepartmentoftheInterior,2017).Second,andwhileoftennotedattheendofthesereports,thereisagreatdealofuncertaintysurroundingresourceestimatesintheArcticRefuge.

AnotherconcernarisesfromthecomparisonofthethreeEIAtechnicalestimateswithareferencecaseembeddedinthe2008(thencurrent)economyratherthaneconomicestimatestiedtolong-termoilpriceprojections.ThesefactorssuggestthattheEIA’s2008report,whileoneofthemostrecentanalysesofoilproductionintheArcticRefuge,isoutdatedinsignificantaspectstenyearslater,andshouldnotbereliedonasasourceforeconomicallyrecoverableestimatesintheArcticRefuge.

PriceProjectionsPriceprojectionsforcrudeoilareessentialfordeterminingthevolumeofundiscoveredeconomicallyrecoverableoil.BoththeUSGS1998assessmentand2009economicupdateestimatesarebasedondatafromperiodsinwhichcrudeoilpriceswerefluctuatingsignificantly.Since2009,however,theglobalfinancialcrisisaswellasincreasesinsupplyerasedmuchofthegaininprices(inreal,orinflation-adjustedterms)since2000,andpricesarenowmoreinlinewithhistoricalnorms(Figure2).

Figure2.CrudeOilPrices1989-2016Source:Macrotrends,L.L.C.,2017

AmorerelevantestimateofeconomicallyrecoverablereservesavailableintheCoastalPlainisobtainedbyre-examiningthe2009USGSscenarioinlightoftoday’spricesandthelonger-termtrends.First,weadjustthecurrentpriceofcrudeoil,whichwas$50/BBLinSeptember2017,forinflationtogetits2007equivalentof$42/BBL.Assumingallotherparametersareunchanged,therewouldhavebeen14.9BBOofeconomicallyrecoverableoilatthat$42/BBLpricepointintheentireNorthSlopestudyareain2008.Ofthattotal,9.1BBOwouldhavebeeninthe1002AreaoftheArcticRefuge.Finally,since75%ofthetechnicallyrecoverableoilintheCoastalPlainoftheArcticRefugeisestimatedtooccuronfederallands,some6.8BBOcouldbeeconomicallyrecoverableatcurrent(September2017)prices(AttanasiandFreeman,2009).Thepurposeofthiscalculationisnottoprovideanewestimateforhowmuchoilproductiontoexpect


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fromtheCoastalPlain,butrathertoshowhowpricechangesalonecanaffecttheimplicationsofassessmentsfrom10to20yearsago.

EconomicallyRecoverableOilvs.Break-evenPricesThemostrelevantoilpricesarethosethatmayprevailduringthetimeatwhichArcticRefugeresourceswouldbeextracted.Ifdevelopmentwerepermittedtoday,itisunlikelythatanyoilwouldflowbefore2028(EnergyInformationAdministration,2008).Therefore,therelevantpricestousetodaytoestimateeconomicallyrecoverableoilwouldbethepricesexpectedin2028andthroughaproductionperiodofupto30years.Naturally,predictingfuturepricetrendsisdifficult,andanyresultingestimatesofeconomicallyrecoverableoilshouldbeunderstoodtocomewithawidemarginoferror,andtobeameasureofundiscoveredoil(Behar&Ritz,2017).

Thepriceestimatesforundiscoveredoilcannotbecontextualizedwithregionalbreak-evenpricesoftenreportedbymarketanalysts;theeconomicallyrecoverablepriceisusedtoinformindustryofpotentialinaregionunderparticulareconomicconditions,whereasthebreak-evenpricesofteninformcompaniesonspecificproducingregionsorprojectsforwhichcostsaremorecertain.

OtherFactorsInfluencingtheCostofCoastalPlainOilProductionThemostimportantstipulationtoprojectionsofeconomicallyrecoverableoilisthatalloftheprojectionsdescribedabovearebasedontheestimatedprivateorinternal(totheoilcompanies)costsofbringingundiscoveredoiltomarket.Theydonotconsidertheexternalcostsofdevelopment,extraction,transportation,andultimateconsumptionofenergyderivedfromtheArcticRefugecrudeoil.Thesecostsincludeclimatechange,lossofhabitat,humanhealtheffectsofthereleaseoftoxins,disaster(spill)preparednessandresponseandahostofothercoststhatarelargelyshoulderedbytaxpayers.Thesecostsareonlyimperfectly(atbest)reflectedinthemarketpriceofabarrelofoil,andcallintoquestionthenotionthatoilandgasdevelopmentintheArcticRefugewouldactuallygeneraterevenuestobalancethefederaltreasury.Becausethesecostscouldtotal100%ormoreofthemarketvalue,thenetpriceofoilcouldbezeroorevennegative.Inthatcase,obviously,theamountofoileconomicallyrecoverablefromtheArcticRefugewouldbezero(Hall,2004).


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ImpactofArcticCoastalPlainOilProductiononU.S.andGlobalSupplySincethedebateondrillingintheArcticNationalWildlifeRefugebegan,proponentshaveinsistedthattheaddeddomesticproductionwillreduceU.S.dependenceonforeignoilwhileloweringconsumerpricesandaddingindustryjobsinAlaska.Historically,AlaskahasbeenoneofthehighestproducingoilstatesintheU.S.withmorethan738millionbarrelsofoilproducedinitspeakyearin1988(EnergyInformationAdministration,2016a).Inthe1980sand1990s,Alaskaaccountedfor20%to25%oftotalU.S.productionannually,butasof2016,Alaskancrudeoilproductionmadeuponly5.5%oftotalU.S.supply(Figure3).Inthepasttenyears,mostlyincreasesintightoilproductionintheNorthernMidwestandGulfRegionhavecontributedtodecreasedimportsandgreaterU.S.reserves(EnergyInformationAdministration,2017b).

Figure3.AlaskaCrudeOilProductionasaPortionofTotalAnnualU.S.ProductionSource:AdaptedfromEnergyInformationAdministration,2016a

ThesmallerpotentialincreasesinU.S.supply—fromeventhemostoptimisticestimatesofRefugeproduction—areprojectedtohavelittleeffectonU.S.importsoroilprices.Alaskanoilproductionwillconsistentlybedwarfedbytightoilproductioninthelower48statesincomingdecadesascompaniescontinuetomakeoildiscoveriesaroundthePermianBasininTexasandtheBakkenPlayinthenorthernMidwest.AccordingtoanewanalysisbyIHSMarkitLtd.thePermianBasinholdsanother60to70billionbarrelsofyet-to-be-pumpedoil,whichcouldsupply,“everyrefineryintheU.S.for12yearsandhaveamarketvalueofabout$3.3trillionatcurrentprices”(Carroll,2017).EveninAlaska’sPrudhoeBay,


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companiescontinuetodiscovereconomicallyrecoverableoilwithinexistingplays2.Forexample,ArmstrongandRepsolannounceda1.2billionbarreldiscoveryontheNorthSlopeofAlaskainSpring2017,notingthepotentialtobring120,000barrelsofoiladaytothemarketbeginningin2022(Harball,2017).Notlongafter,thesamecompaniesannouncedpromisingresultsfromanexplorationdrillintheHorseshoeplay,meaninggeologicallyconnecteddiscoveriesbyCaleusEnergy,ConocoPhillips,andArmstrong-Repsolinthepastyearcouldbringover400,000barrelsperdayofnewoilpotentialfromtheNorthSlope(Brehmer,2017).EachdiscoverywithinplaysthatarealreadyproducingcommercialoilweakensthecommercialappealofpursuingwhatoilmayexistintheArcticRefuge,wherethelackoftransportationinfrastructure(roads,pipelines)meanshighercosts.

MisconceptionsonU.S.OilImportDisplacementArcticdrillingadvocates,reinforcedbytheEIA’s2008reportontheRefuge,suggestthateachbarrelofoilproducedintheArcticRefugewouldreduceU.S.importsbyonebarrel(Hahn&Passell,2008).Thisassumptionofa1:1ratioofAlaskanproductiontoimportreductionneglectsexistinginfrastructurecapacityandtheflowofoilfromAlaska’sNorthSlopetoitsend-consumersontheWestCoast.ArecentanalysisbyDeRosaandFlanagan(2017)usestheNationalTransportationFuelsModeltosimulateincreasedoilproductionfromtheNorthSlopeintotheTrans-AlaskaPipeline,whichprovidessomeinsightintopotentialimpactsofCoastalPlainoildevelopmentonpipelineinfrastructure.ThetwoprimarymarketsthatNorthSlopeoil,includingproductionintheArcticRefuge,wouldreachfromthePortofValdezare:1)deliverytoexportmarkets,and2)shipmenttoportsontheWestCoastoftheU.S.(DeRosa&Flanagan,2017).ShouldalleconomicallyrecoverableoilbedevelopedontheCoastalPlain,anonlineardeclineinimportswouldoccurontheWestCoastinportsconnectedtoValdez,withamodestimpactontheflowoftightoilfromBakkentoWashingtonandCalifornia.Afteracertainvolumethreshold,additionalproductionfromAlaskawouldgointostorageratherthansubstituteforimportedoil(Fineberg,2011).Evenifoilimportsweredisplaced1:1,U.S.productionwouldincreasedomesticallybyamatterofonetotwopercentwhileimportswouldremainasignificantportionoftotaloilconsumption,droppingby,atmost,4percentagepointsfrom52%to48%(Fineberg,2011).

Afterafortyyearbanonexportingoil,theUnitedStatesbeganexportingAmericanoilin2016,andisexpectedtobecomeoneofthetoptenexportersgloballyby2020(Slav,2017).ForArcticRefugedrillingadvocatestosuggestthattheU.S.wouldbenefitfromArcticRefugedrillingbecauseitwouldreduceAmerica’sdependenceonforeignoilimportsisdisingenuous,runscountertoCongress’sdecisiontobreaktheU.S.bantoallowexportsandissimplynotcompelling.

GlobalSupplyIn2016worldcrudeoilproductionaveraged97.23MBD,whileAlaskanproductionaveraged0.49MBD,makingupapproximately0.5%oftotalproduction(Figure4)(EnergyInformationAdministration,2016b).Additionalproductionofavailable,technicallyrecoverable,resourcesintheArcticRefugewouldtotalabout0.6%ofcurrentannualglobalsupply.Howeveritisimportanttokeepinmindthatonly1.8BBO,atmost,couldbeproducedbefore2035,indicatingitsoverallpercentcontributiontoglobalsupplycouldvaryandultimatelybenegligibledependingontherateofglobaloil

2 Asetofknownorpostulatedoilandgasaccumulationssharingsimilargeologic,geographic,andtemporalproperties,suchassourcerock,migrationpathway,timing,trappingmechanism,andhydrocarbontype(Klett,etal.,2000).


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consumption,newdiscoveriesinexistingwellsacrosstheworld,andthestrategicdecisionsofOPEC3(EnergyInformationAdministration,2008).Asof2015,OPECmembersheldamarketshareofjustover40%ofglobaloilproduction,allowingadegreeofmarketpowerovernon-OPECproducerswhoactasaprice-taking4competitivefringe(Behar&Ritz,2016).Withthismarketpower,OPECcanchooseoneoftwostrategiestomaintainconsiderablecontroloverprices,bothofwhichcanbeoptimalfortheorganizationundercertainconditions:1)Accommodatenon-OPECproducerstomaximizeprofitsviaa“high”oilpricewhichallowshigh-costnon-OPECcountriestoremainprofitable,or2)squeezeoutnon-OPECproducersbydrivingupproduction/refusingtocutcurrentsupply,therebydrivingdownpriceandinducinghigh-costproducerstoexitthemarket(Behar&Ritz,2016).

Figure4.PercentofGlobalAnnualProductionofCrudeOilbyRegion5Source:AdaptedfromEnergyInformationAdministration,2016b

WiththerapidincreaseofU.S.shaleproductioninthepastdecade,manyanalystsagreethatOPEC’sdecisionnottocutproductioninNovember2014,leadingtoacrudeoilpricecrash,wasastrategicmovetosqueezeoutU.S.unconventionaloilproducers(Behar&Ritz,2016).UnderstandingOPEC’spastdecisionstocutorfloodsupplyprovidescontextforhowOPECmayactinthefuture.ThesecharacteristicsandtrendsintheglobaloilmarketsuggestthatanyincreasedproductiononAlaska’sNorthSlopeisonlyadropinthebarrelinthefirstinstance,and,ifiteverweretobeanimportantsourceofsupplyitcouldbesubjecttoOPEC’sstrategicbehavior.High-costproducers/plays,whichwouldincludetheArctic,wouldlikelybethefirst“squeezed”outofthemarketifOPECsupplyexpandsintheglobalmarket,resultingindecreasedoilprices.

3OPEC(OrganizationofthePetroleumExportingCountries)isanintergovernmentalorganizationcreatedin1960withthepurposeofcoordinatingandunifyingpetroleumpricesamongmembercountriesinordertoattainfairandstablepricesforproducers,regularsupplyforconsumers,andafairreturnoncapitalforinvestors.ThefoundingmembersincludeIran,Iraq,Kuwait,SaudiArabia,andVenezuela,andhassincebeenjoinedbytenothercountries(OPEC,2017).4Ineconomics,price-takersareagentsthatmustacceptprevailingmarketpricesbecausetheirtransactionsarenotagreatenoughshareofthetotalmarkettoinfluenceprices.5Annualproductionfiguresdrawnfrom2016EIAreports,CoastalPlainestimateforpeakannualproductionretrievedfroma2008EIAreportonhypotheticalproductionfromtheArcticRefuge.


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TheFutureofTightOilandU.S.EnergyProductionTheoutcomeofthemostrecentoilproductionglutintheworldmarketisstillunclear;theU.S.tightoilboomdrasticallyalteredthestructureofU.S.oilproductioninthepastfewyears,andwhileOPEC’srefusaltocutproductionleftoilpricesbelow$30/BBLatthestartof2016,thefallingcostofproducingtightoilhaskeptunconventionalU.S.productioncompetingintheworldmarketatloweroilprices(Murphy,2017).By2037,whichistheapproximatetimeframetheArcticRefugewouldreachpeakproductionifdrillingweretobeauthorizedin2017-2018,tightoilispredictedtomakeup57%ofU.S.oilproduction(Figure5)(Murphy,2017).Evenso,inthenextfewdecadesU.S.tightoilwillnotbecomeamajorsourceofoilintheworld.TheU.S.onlycontains3%oftheworld’sreserves,andeveniftechnicaladvancesallowmoreU.S.oiltobecomeeconomicallyrecoverable,U.S.supplywillnotbecomeasignificantportionofworldproduction(Murphy,2017).

Figure5.U.S.OilProduction(2010-2040)(millionbarrelsaday)Source:EnergyInformationAdministration,2017b

Projectionsinthedemandforoilshowatapering,slowedgrowthastechnologicaladvancesandeconomiesofscalemakeelectricalternativesandconservationmeasuresincreasinglyviable(EnergyInformationAdministration,2017d).Gainsinenergyefficiencyhaveproventohaveamuchmoresignificantimpactonoilimportsthandomesticproduction;U.S.importsincreasedannuallysincethe1980s,butfrom2005to2011,netpetroleumimportsdecreasedbyalmost30%,goingfrom12.5MBDtolessthan9MBD(Fineberg,2011).Additionaldomesticcrudeoilproductionisacontributingfactorinthetrendreversal,butreduceddependencecanbelargelyattributedtolowerconsumption.Figure6quantifiesthe25:1ratioofconservationtoproductioninreducingU.S.oilimportsthroughadiscretetimeline,whichcouldbepushedbackto2017-2035consideringatmost1.8billionbarrelsofoilcouldbeproducedintheCoastalPlainby2035ifCongressapproveddrillingtoday(Fineberg,2011).


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Figure6.ReducedOilImportsvs.PotentialCoastalPlainProduction2012-2030Source:Fineberg,2011

Whatmaynothavebeenforeseeneven5yearsagoistheincreasingaffordabilityofelectricvehicles;from2014to2016,thenumberofelectricvehiclesontheroadworldwidetripled,reaching1.2millionvehicleslastyear(InternationalEnergyAgency,2017).Thegrowingnicheintheautomobilemarketcoulddisplaceoildemandof2MBDby2023,enoughtocreateanoilglutequivalenttowhattriggeredthe2014oilpricecrash(Randall,2016).Electricvehicleswillsooncompetewiththeirgasolinecounterpartswithoutthehelpofsubsidies,butpolicymaycontinuetoshapetheautomobilemarket,leadingtoamorerapidtransitionawayfromtraditionalcars.Ahandfulofnations,includingNorway,India,andGermany,havesetgoalstoreach100%zero-emissioncarsinthenexttwentytothirtyyears(Pressman,2017).


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ArcticRefugeDrillingImpactonNationalandGlobalOilPricesWhileoilpriceswouldinfluenceenergycorporations’decisionsregardingwhetherandwhentoinvestinexplorationanddevelopmentofoilintheArcticNationalWildlifeRefuge,thereisverylittlechancethatoilproductionfromtherefugewouldhaveanyeffectonoilpricesordownstreamgaspricesforconsumers.Theeffectonnationaloilpriceswouldbebriefandminimalatbest,largelybecausepricesaredeterminedintheglobalmarketandnon-OPECproducersactasprice-takersratherthanprice-makers.Increasedproductionwithinasingleregionwouldnotlowerpricesnoticeablyforconsumers,andevenifthatwasthecase,AlaskanoilreachesmarketsontheWestCoastandmarketsforexportexclusively(DeRosa&Flanagan,2017).HahnandPassell(2008),assertthatdecreasesincrudeoilpricesassociatedwithproductionareascurrentlyclosedtodevelopment,“arelikelytobeontheorderofonepercent,andwouldthusnothaveasignificantimpactonpricesthatconsumerspayatthegasolinepumpnoworinthefuture.”

ThemostrecentgovernmentestimatesfortheoilpriceimpactfrompotentialArcticRefugeproductionareapproximatelytenyearsold,whenoilpricesweresignificantlyhigherandunconventionaloilinthecontinentalUnitedStateshadnotreachedthehighlevelsofproductionachievedinthelastfiveyears.Intheir2008analysisonArcticdrilling,theEIAasserted,“Additionaloilproduction…wouldonlybeasmallportionoftotalworldproduction,andwouldlikelybeoffsetinpartbysomewhatlowerproductionoutsidetheUnitedStates.”IntheEIAreferenceoilresourcecase,thepeakimpactofArcticdrillingwouldresultina$0.75decreaseinoilperbarrelin2025(whatwouldnowbeprojectedin2035,adjustedto2017dollars),alessthanonepercentimpactonpricesforconsumersatitspeakinfluence(Murse,2016).This$0.75pricedropperbarrelwasprojectedatatimewhenpriceshoveredaround$131perbarrel,whichsuggeststheabsolutepricedropmaybeevensmalleraspricescurrentlysitcloserto$50perbarrel(UnitedPressInternational,2008).TheUSGS2009resourceassessmentdoesnotprovideanestimateforoilpriceimpactinitseconomicanalysis,andtheArcticNationalWildlifeRefugePrimerprovidedtoCongressbytheCongressionalResearchService(2011)reinforcedtheperspectiveofAlaskaandtheUnitedStatesasaprice-taker:“Whetheroilisproduceddomesticallyorimported,itistradedinaglobalmarket,andanyonepartofthemarketcanaffectotherparts.Theresultisthatoilpricesaresetinworldmarkets.”

WorldPriceProjectionsWorldpriceprojectionsforthenextfiveyears,whichprecedeanypointwhenArcticoilcouldreasonablybecommerciallyproduced,continuetobereviseddownwardsamidtheU.S.shaleboomofrecentyears.GoldmanSachs,JPMorgan,andCreditSuisseallciteincreasedtightoilproductionasareasonforshorttermoilpriceprojectionsstayingrelativelylow,withCreditSuissenowpredictingthepricetostaybelow$60/BBLthrough2020(DiCristopher,2017).Theseprojectionsfortightoilproductionmakeconventionaloilprospects,particularlyArcticdrilling,lessattractiveforoilcompaniesconsideringprofitableexplorationintheArcticmayrequiremuchhigherprices.ArecentDeloittereportconcludesthattheaveragecostofextractingoilfromtheArcticis$75/BBL,whichisalmostthreetimesthecostofextractionintheMiddleEast,whereasignificanthistoricalmarketshareofoiloriginates(Hoag,2016).


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Figure7.WeeklyU.S.andInternationalCrudeOilPricesSource:EnergyInformationAdministration,2017a

AmericaasaPrice-TakerOilpricesarenotoriouslydifficulttopredict,assmallshockstooilsupplyanddemandcanleadto,“largemovementsinthepriceofoil”overtime(Arezki,etal.,2017).Thedifferencebetweenchangesinnationalpricesversusinternationalpricescanbeimpossibletodisentangle.Andwhilenaturalgaspricesfluctuateregionally,theyarealsotiedtocrudeoilprices,whichoperateintheworldmarket,meaninganyonemajorproducerofoilcanimpactoutputandsubsequentlyprice(Behar&Ritz,2016).OPEC’smostrecentattempttocutoutputwasoffsetpartlybyanincreaseinsupplyfromNigeriaandLibya,whichwereexemptfromtheagreementreachedamongotherOPECmembers(DiCristopher,2017).Thisdevelopmentreinforcesthatanyactionfromamajorproducercaninfluencethepriceofoil,whichinturncouldimpacttheprofitabilityofoilproductionintheArctic.Regardless,evenifOPECmembersdidnotalteroutputinresponsetotheopeningoftheArctic,theincreaseinsupplywouldhaveessentiallynoeffectoninternationalpricesforoil,makingupatmost1%ofglobalproductioninanygivenyear(EnergyInformationAdministration,2016b).

The2014oilpricecrash(Figure7)didnotjusthurttheprospectofArcticoilexplorationforAmericancompaniesonAlaska’sNorthSlope;afterShellabandoneditsoffshoreoperations,Statoil,Norway’slargestenergycompany,announceditwoulddrop16activeleasesintheChukchiSeathatwere“nolongercompetitiveinStatoil’sglobalportfolio”(Hoag,2016).Russia,whichreceivesapproximatelyhalfitsstateincomefromoilandgasrevenue,onlyfollowedthroughwith2ofthe14offshorewellsitplannedtodrillin2017(Hoag,2016).ThesecasesaugmenttherelationshipbetweenoilpricesandArcticoilproduction.WithanoverwhelmingamountoftheoilsupplybeingproducedatamuchcheapercostthanArcticproductionbothinAlaskaandoutsidetheU.S.,oilpricesareasignificantfactorinpotentialArcticproduction,nottheotherwayaround.


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EmptyPromiseofLowerPricesatthePumpConstituentsareofteninclinedtosupportlegislationthatwouldyieldshort-termifnotimmediatereliefratherthanlong-termbenefits.ProponentsofArcticdrillingclaimeconomicbenefitsfortheAmericanconsumer,butfailtoprovideanydetailsonthetimeline,extent,ormagnitudeofpricereductions.AccordingtoboththeEIA(2008)andUSGS(2009),thetwogovernmentagenciespublishinginformationonpotentialresourcesintheArcticRefuge,commercialproductioncouldbegin7to10yearsafterCongressionalapproval.Onceproductionbegins,anyimpactonpricesatthepumpwouldlikelyonlybefeltduringasinglepeakproductionyearthathappensanother10yearsdowntheroad(EnergyInformationAdministration,2008).Atbest,consumerswouldsave1%ongas15yearsfromthepointinwhichCongressapprovesdrillingintheRefuge(EnergyInformationAdministration,2008).Evenmorelikely,whichtheEIAnotesinitsmostrecentanalyses,CoastalPlainproductionwouldamountto0.4percentto1.2percentoftotalworldoilconsumptionin2030,whichislowenoughthat,“OPECcouldneutralizeanypriceimpactbydecreasingsuppliestomatchtheadditionalproductionfromAlaska”(Lavelle,2008).LowergaspricesatthepumparesimplynotastrongargumentfordrillingintheArctic,andU.S.governmentagencieshaveavoidedmakinganyassertionthatArcticdrillingwouldyieldanylowerpricesforconsumersperhapsbecausetheeconomicevidenceisabsent.


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PotentialJobsAssociatedwithRefugeDevelopmentChangesinemploymentassociatedwithpotentialoilproductionintheArcticNationalWildlifeRefugedependsonfactorsincludingthephaseofdevelopment(e.g.,explorationorproduction),thenumberofwellsandrigs,specificgeographiclocation,andthetypeofproject(onshoreoroffshoredrilling)(WoodMackenzie,2011).Inturn,someofthesefactorsdependoneconomicallyrecoverablediscoveredoil,globaldemandandthemarketpriceofoil.

Inadditionto“direct”oilindustryjobsinAlaska–jobswithoilproducersoroilfieldservicecompanies–therearejobsinrelatedindustriessuchassecurity,catering,accommodations,transportation,engineeringservices,andpipelinetransportation(Fried,2017).These“indirect”jobsaswellas“induced”jobs6arecommonlyestimatedusinga“multiplier”representingthenumberofindirectandinducedjobs“created”foreachdirectjob.Thesemultipliersareobtainedfromempiricalstudiesorinput-outputmodels(suchasRIMSIIorIMPLAN7).

Becauseoilisanon-renewablefiniteresource,evendirectoilindustryjobsintheRefugewouldnotbelong-term.Afterpeakproduction,productionlevelswoulddiminishandemploymentwoulddeclineaswell.Oncetheoilisdepleted,companieswouldabandontheregionandrelatedemploymentwouldcease.

RefugeJobProjectionsEmploymentestimatesforallowingoilandgasleasinginthe1002AreaoftheAlaskaNationalWildlifeRefugevarywidelyandallarebasedonhigheroilpricesthancurrentlyprevail.Themostrecentestimates,preparedfortheInstituteforEnergyResearch(anindustrytradeassociation),assessedtheeconomiceffectsofopeningrestrictedFederallandsandwaters(AtlanticandPacificOuterContinentalShelf,Gulfcoast,andAlaskaNationalWildlifeRefuge)tooilandgasleasing(Mason,2013).Resultssuggestanincreaseof61,314job-yearsnationwideduringthepre-productionphase,or8,759jobsannuallyforeachof7years8(Mason,2013).Duringproduction,199,044job-yearswereforecastfortheU.S.,or6,635overeachof30years(Mason,2013).Theseestimatesrepresentlessthan0.01%totalUSemploymentof137millioninDecember2013(BureauofLaborStatistics,2017).Theseemploymentprojectionsarebasedoneconomicactivityresultingfromoilsalesatanassumedoilpriceof$101.34perbarrel(in2012dollars),oilreservesof8billionbarrels,andamultiplierof5.1indirectandinducedjobsperdirectjob(Mason,2013).Becauseoilpricesareabouthalfthattodayandtheoilreserveassumptionisbasedontwenty-year-oldmodelresults,thesejobestimatesareoverestimatesandoutdated.

Mason(2013)alsoforecastexpectedemploymentbyindustryassociatedwithopeningrestrictedFederallandsandwaterstoleasing.Jobsintrade,transportationandutilities;professionalandbusinessservices;educationalandhealth

6“Induced”employmentresultswhenthosedirectlyemployedintheenergyindustryandthoseemployedindirectly(atcompaniesdoingbusinesswiththeenergyindustry)spendtheirpaychecksatgrocerystores,serviceproviders,andotherbusinessesinthecommunity.7RIMSII,theRegionalInput-OutputModelingSystem,isavailablefromtheU.S.BureauofEconomicAnalysis;IMPLANisamodelavailablefromMIG,Inc.,asoftwarefirminNorthCarolina.Aswithanypredictivemodel,therelativeaccuracyofresultsdependsontheassumptions,data,andmethodused.8Theauthorstates,“Itmayhelpthereadertointerprettheresultingjobsnumbersas“job-years”ordividethenumberofjobsbythenumberofyearstoestablishthenumberofjobscreatedforthelifeoftheproject.Iusethejob-yearsconcept….inreportingmyresults—thestandardmethodforreportingresultsofRIMSIIanalysis—andleaveittothereadertointerpretthenumbersappropriately”(Mason,2013,footnote61).


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serviceswereprojectedtorepresentnearlyhalf(44%)ofallnewpositions(Figure8)(Mason,2013).Becausethesameemploymentmultiplierwouldapplytoallareasconsidered,basedonMason’sassumptionsasimilarproportionofjobsbyindustrywouldapplytopotentialRefugeoilandgasproduction.

Figure8.JobsForecastbyIndustryduringOilandGasProductionSource:Mason,2013

TheStateofAlaska’sANILCASection1002(e)ExplorationPlanandSpecialUsePermitApplicationsubmittedbyAlaska’sGovernorParnelltotheU.S.DepartmentoftheInteriorinJuly,2013claimedthatoilintheAlaskaNationalWildlifeRefugewouldgenerate,“fromabout20,000toover170,000jobs…accordingtoanalysesbasedondatafromtheBureauofLaborStatistics”(Ribbink,2015).AsthisdocumentisnolongeraccessiblefromtheAlaskaDepartmentofEnvironmentalResources9furtherdetailsontheseestimates—suchaswhetherjobswereestimatedforAlaskaortheU.S.—arenotreadilyavailable.

9ThisdocumentisnolongeravailableontheAlaskaDepartmentofEnvironmentalResourceswebsite:http://dnr.alaska.gov/commis/priorities/ANWR/ANWR_Exploration_Plan_7_9_13.pdf


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AstudybyWoodMackenzie(2011)fortheAmericanPetroleumInstituteexaminingtheimplicationsofenactingpoliciestoencouragethedevelopmentofNorthAmericanhydrocarbonresourcesforecastatotalof60,000newjobsintheU.S.annuallyforproductionintheRefuge,withincreaseseachyearthereafter.TheseestimatesassumeRefugeoilresourcesof10.8BBL;oilpricedat$80perbarrel(in2012dollars),inflatedat2.5%annually;andamultiplierof2.5indirectandinducedjobsforeverydirectjob(WoodMackenzie,2011).

AmuchearlierstudybyWhartonEconometricForecastingAssociates(1990)projecteddevelopmentofoilreserveswouldcreate736,000newjobsnationwideover10years,ofwhich84,000wouldbeintheminingsector(ArcticPower,2001).Theseareestimatesoftotaljobs–jobsdirectlyassociatedwiththeoiloperation,aswellasindirectandinducedjobs:“ThesejobswouldbenefitworkersineveryU.S.state,insupplyingequipmentandservicesneededtodeveloptheexpectedoildiscoveries”ontheRefuge’scoastalplain(ArcticPower,2001).Theresultsofthisnearly30-yearoldstudyhavebeencritiquedbymany,includingtheCongressionalResearchService;EconomicPolicyInstitute;andChemicalandAtomicWorkersUnion(NaturalResourcesDefenseCouncil,2001).Theyfoundjobestimatestobeoverstatedandbasedonimprobableassumptions.

CurrentAlaskaOilandGasIndustryEmploymentOilandgasindustryemployment10–jobsinoilandgasexplorationandoilfieldservices–averaged10,156forthefirstthreemonthsof2017,about3%ofstateemploymenttotaling315,773(AlaskaDepartmentofLaborandWorkforceDevelopment,2017).Thedeclineinoilpricessince2014ledtojoblossesfortheoilandgasindustryin2016,a20%reductioncomparedto2015(Fried,2017;AlaskaDepartmentofLaborandWorkforceDevelopment,2017).In2016severalfirms(BP,ExxonMobile,andConocoPhillips)reducedthenumberactiverigsandotheroperationsintheregion(DeMarban,2016).ShellandApacheCorporationannouncedtheywereendingtheireffortstofindoilintheAlaskaregion,andENI,RepsolandBrooksRangePetroleumplannedprojectdelays(DeMarban,2016).

TheAlaskaDepartmentofLaborandWorkforceDevelopmentreportsthattheNorthSlopeofAlaskaaccountsfortwo-thirds(66%)ofallindustryjobs,andAnchorage—whichistheheadquartersorservicecenterformanyfirms–foraboutaquarter(26%)(Fried,2017).TheyaddthatotherrelatedjobsareinValdez,theendoftheTrans-AlaskaOilPipeline(countedastransportationjobs)andinFairbanks,amajorlogisticandsupplycenterfortheNorthSlope.Overone-third(36%)ofallindustryemployeesareresidentsofstatesotherthanAlaska(Fried,2017),somajorportionsoftheirwagesarelikelyspentout-of-stateanddonotbenefitthestate’seconomy.

JobForecastthrough2024TheAlaskaDepartmentofLaborandWorkforceDevelopmentforecaststherewillbe19,652newjobsinthestateby2024,anincreaseof5.8%overthedecade(Martz,2016).Athirdofthenewjobsareprojectedtobeinhealthcareandsocialassistance(7,176jobs)withothersubstantialadditionstoaccommodationandfoodservice(3,205jobs)andretailtrade(2,744jobs)(Martz,2016).BecauseAlaska’sunemploymentrateis7.2%(inSeptember,seasonallyadjusted;AlaskaDepartmentofLaborandWorkforceDevelopment,2017),greaterthanthe3%to5%rategenerallyassociatedwithfullemployment,someofthesejobswouldbefilledbypeoplepreviouslyunemployedandthereforecountas

10TheAlaskaDepartmentofLaborandWorkforceDevelopmentdefinesthisasNorthAmericanIndustryClassificationSystemcodes211,213111and213112.


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“new.”OtheropeningscouldbefilledbyworkersalreadyemployedinAlaska,orinotherstates,resultinginnonetincreaseinjobcreationordecreaseintheunemploymentrate.

WithoutcredibleestimatesofthenumberofjobsthatcouldbeassociatedwithpotentialArcticRefugeoilandgasdevelopmentbasedoncurrentgeologicconditions,technology,andforecastsofpriceanddemand,itisdifficulttohypothesizetheextenttowhichsuchopportunitiesmightbenefitAlaskainthefuture.Previousemploymentestimatesofthesechangesvarywidelyandrelyonout-of-dateassessmentsofoilvolumeandoilpricesnearlytwicewhattheyaretoday.WhileitiscertainthatextractingoilfromtheCoastalPlainwouldsupportsomeemployment,thegainswouldbetemporaryandmaysimplyrepresentashiftofjobsfromotherregions.Newerdataandbettermodelsofnetchangesineconomicwell-being—thatis,thosethatconsiderpotentiallossoftraditionalandcurrenteconomicuseoftheArcticRefuge—areneeded.


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HypotheticalTimelineforRefugeOilDevelopmentTheArcticNationalWildlifeRefugeencompasses19.6millionacresinnortheasternAlaska(U.S.FishandWildlifeService,2017).MostoftheoriginalArcticNationalWildlifeRangeestablishedin1960wasdesignatedasWildernessin1980bytheAlaskaNationalInterestLandsConservationAct(ANILCA)(P.L.96-487,Dec2,1980).Theexceptionhasbeen1.5millionacresonthecoastalplain(Figure9).ManagementofthatareawasaddressedinSection1002ofANILCA,andisnowoftenreferredtoasthe"1002Area."The1002Areaand10.1millionacresaddedtotheRefugebyANILCAare“minimalmanagement”areas—managedto,“maintainexistingnaturalconditionsandresourcevalues”andopentorecreational(includingmotorizedaccess)andsubsistenceuses(U.S.FishandWildlifeService,2017).

ANILCAstipulatesthatthe,"productionofoilandgasfromtheArcticNationalWildlifeRefugeisprohibitedandnoleasingorotherdevelopmentleadingtoproductionofoilandgasfromthe[Refuge]shallbeunder-taken[sic]untilauthorizedbyanActofCongress"(Section1003).Thus,withoutCongressionalapproval,oilandgasdevelopmentmaynotoccurinthe1002Area.

Figure9.ManagementAreasintheArcticNationalWildlifeRefugeSource:U.S.FishandWildlifeService,2017

Oil&GasDevelopmentProhibitedintheRefugeOilandgasdevelopmentofthecoastalplainoftheAlaskaNationalWildlifeRefugehasperiodicallybeendebatedinCongress—ashasdesignationoftheareaasWilderness—intheyearssinceANILCAexpandedtheRefugeandprohibitedoilandgasproductionwithintheRefuge.ThecurrentAdministrationhasstatedthatopeningtheRefugetodrillingisamongitstoppriorities,andinJanuary2017billswereintroducedinboththeHouse(H.R.49)andtheSenate(S.49)toallowoilleasingintheCoastalPlainofAlaska(Young,2017;Murkowski,2017).InJuly2017theHouseSubcommitteeonEnergyandMineralResourcesheldanoversighthearingonoilandgasdevelopmentinAlaskaandpotentialbenefitstotheU.S.iftheArcticRefugewereopenedtoexplorationanddevelopmentandifdevelopmentoftheNationalPetroleumReserve-Alaskawereexpanded(HouseCommitteeonNaturalResources,2017).Thesepresumedbenefitsincludeanabundanceofoil,reducedoilimports,additionalfederalandstaterevenuesfromleasingandroyalties,andjobcreation.TheTrumpAdministration’sbudgetrequestforfiscalyear2018includes$1.8billionin


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revenuefromfederaloilandgasleasingintheAlaskaNationalWildlifeRefugebetweenfiscalyears2022and2027(asoneofmanyproposeddeficitreductionmeasures)(OfficeofManagementandBudget,2017).

TimelineofTypicalDevelopmentVariousU.S.government,industry,andotherentitieshaveestimatedhowlongitwouldtaketogetfromCongressionalapprovalofoilandgasdevelopmenttoactualproduction.Theirestimatesrangefrom7to20years:

● TheEnergyInformationAdministration(2002and2004)usedthe1998USGSassessmenttoestablishatimelinefromapprovaldatetoexplorationanddevelopmentof7to12years(Thomas,etal.,2009).

● ThemanagingdirectorofHillhouseResources,anindependentoilandgascompanyinHouston,asserts,“It’sgoingtotakeseventofifteenyearstofinishtheseismicreview,thegeologicalreview,andthenbegintodevelopthetechnologicalaspectsofbuildingtheplay”(Granitz,2013).

● Theprogressionfromexplorationtodevelopmentisexpectedtotakeabout15yearsormore.Theselongleadtimesresultfromtheremotenessoftheregion,concernsforprotectionoftheenvironment,andtheregulatoryrequirements(ArcticPower,2013).

● TheBrooksRangePetroleumCompany(2011)“BrooksRangePetroleumTimeline”projecteda15-yearprocessforexplorationtoproductionfortheirNorthSlopeoperation:2001exploratorystudies,2014development,andfirstoilproduction2016.

● The2009USGS“EconomicsofUndiscoveredOilandGasintheNorthSlopeofAlaska”(Attanasi&Freeman,2009)consideredtwoscenariostoinvestigatetheeffectoftimingontheeconomicsofnewoilandgasdevelopments:(1)10yearsbetweendiscoveryandproduction,and(2)a20-yeardelaybetweendiscoveryandproduction.

SampleNorthSlopeAlaskaTimeframeTheMineralLeasingAct(1920,asamended)andFederalOnshoreOilandGasLeasingReformAct(1987,asamended)governtheleasingofpublicdomainlandsforoilandgas(Hatch,2017).

Ifoneassumesthatapprovalisgrantedin2018,developmentandproductioncouldoccurbetween2025and2030basedonU.S.DepartmentofEnergyestimates(Thomas,etal.,2009).Thestepsintheirtimelineassumeaminimumof10yearstocompletedevelopmentandalsothattherewouldbenoinordinatedelaysduetolitigation.Thetimingisenvisionedasfollows(Table1)(Hatch,2017;Thomas,etal.2009),withthefirstreceiptsfromproductiontotheU.S.Treasuryin2030:


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Table1.PotentialNorthSlopeExplorationandProductionTimeline

Year(s)

Milestone

2018 Explorationanddevelopmentinthe1002AreaoftheArcticRefugeapproved

2018-2020 Updateresourceassessmentsofundiscoveredtechnicallyrecoverableoil

2018to2019 2-Dseismicdatafrom1984-1985reprocessed(1calendaryear)(Werkheiser,etal.,2017;Thomas,etal.,2009)

or

2018to2020 new3-Dseismicsurveyconducted(2calendaryears)(Werkheiser,etal.,2017;Thomas,etal.,2009)

2020 Nominationofleaseparcelsbyindustryand/orBLM,BLMselectsparcels,noticeofleasesales

2022 Firstleasesalesheld,leasesissued(foraprimarytermof10years),drillingpermitsissued

Leasetermsincluderentalsof$1.50peracreforthefirstfiveyears,then$2peracrethereafter(Hatch,2017).Ifatractdoesnotreceiveanybidsortheminimumacceptablebid,thetractbecomesavailabletobeleasednon-competitivelyforaperiodoftwoyearsfollowingtheleasesaletothefirstqualifiedapplicant(Hatch,2017).

Permits.BeforedrillingawellonaFederalorIndianlease,anoperatormustfileanApplicationforPermittodrilltotheBureauofLandManagement(U.S.DepartmentoftheInterior,2014).TheprocessingtimeforApplicationssubmittedtotheAnchorageFieldOfficewasabout40days,onaverage,from2009to2013;thenationalaveragewas228days,about7.5months(U.S.DepartmentoftheInterior,2014).

2023/2024 Firstexplorationdrilling

2025/2026 First“economic”discovery

2026/2027 Evaluationoffirst“economic”discovery

2027 Fielddevelopmentbegins

2030 Firstproductionfromthe1002AreaFirstroyaltypaymentstoU.S.TreasuryLeasetermsincluderoyaltyinterestof12.5%(Hatch,2017)


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Inthishypotheticaltimeline,thefirstpaymentstotheU.S.Treasurywouldbeforleasesin2022androyaltiesfromproductionin2030,assumingtherewouldbenodelaysatanystepoftheprocess.Theseyearsareconsistentwiththetargetdatesintheadministration’sproposedbudgetforfiscalyear2018whichprojectsreceiptsin2022and2023,andlaterin2026and2027(OfficeofManagementandBudget,2017).However,asnotedabove,timeestimatesfromothergovernmentandindustrysourcessuggestthefirstproductioncouldbegin5or10yearslater,orby2040.


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OpeningtheRefuge:CosttotheAmericanTaxpayerFossilfuelsubsidiescostAmericantaxpayersbillionseveryyear,andwhilemanyintheoilindustrymaydenyreceivinggovernmenthandouts,theycomeinmanyformsthatareoftenhiddenfromthepublic(Redman,2017).Subsidiescanbeamixoftaxbreaks,taxcredits,liabilityeasements,loosenedregulations,orgovernmentservicesprovidedatbelow-marketrates(Leahy,2017).AnOilChangeInternational(“OCI”)report(Redman,2017)breaksdownthetypesoffossilfuelsubsidiesintheU.S.fromboththefederalandstategovernments,whichtotaledover$20billionfrom2015to2016.OCIdefinesafossilfuelsubsidybroadly:“anygovernmentactionthatlowersthecostofproduction,lowersthecostofconsumption,orraisesthepricereceivedbyproducers.”Fossilfuelsubsidiescanbegivenasproductionorconsumptionsupport(Figure10),andthere’sstrongreasontobelievethe

Figure10.U.S.FossilFuelSubsidiesbyStageofProduction,2015-2016Source:Redman,2017

developmentoftheCoastalPlainwouldbenoexceptionasthecurrentadministrationincentivizesexpandingfossilfuelreservesinthenameof“energydominance.”ArecentstudyfromNatureEnergydeterminedthatat$50perbarrel,andassumingprojectsneeda10%rateofreturninordertobeconsideredeconomic,approximatelyhalfofnewoilinvestmentsaresubsidy-dependentandwouldnotbeprofitablewithoutagovernmenthandout(Banarjee,2017).


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EstimatedFederalCostsandSavingsofOpeningtheArcticRefugeTheDepartmentoftheInterior(“DOI”)haslaidoutdetailedplansforexpandedoilexplorationintheArcticRefuge,particularlyupdatingcurrentresourceassessmentsinthe1002AreaontheRefuge’sCoastalPlain(Werkheiseretal.,2017).TheDOImemopresentstwoscenariosforupdatingcurrentresourceassessmentsontheArcticRefuge.Inone,USGSwouldpay$4.8millionforinterpreting,“state-of-the-artindustryreprocessingofvintagedata”tobecompletedbytheendof2018(Werkheiseretal.,2017).Intheother,“anew3-Dseismicsurveyisconducted”andpaidforbytheprivatesector,althoughUSGScostswouldstillbeapproximately$3.6million(Werkheiseretal.,2017).(NotethattheserevisedassessmentswouldbejustthefirststepintheprocessofopeningtheArctictodrilling.)

IntheCongressionalBudgetOfficeanalysisfora2012billproposedtoopentheArcticRefuge,theestimatedadministrativecostsforafederalleasingprogramwere$8millioninthefirstfiveyears,or$1.6millionperyear(LaFave,etal.,2012).Otherimplementationcostswereexpectedtototal$1to$2millionannuallyiftheRefugeweretobeopenedtoleasing.Becausethepreviousbill(andbothcurrentproposals,S.49andH.R.49)deemedthepreviousenvironmentalimpactstatement“sufficient,”thecostofcomplyingwithanyenvironmentalregulationisexpectedtobeminimal(LaFave,etal.,2012).

DrillingproponentstoutbenefitsofdrillingintheArcticRefugeincludingfederalrevenuethatcouldhelpoffsetthebudgetdeficit.TheTrumpAdministrationstandsbehindthisargument,evidencedbytheinclusionofArcticdrillingrevenueinboththeWhiteHouse2018BudgetPlanandCongress’blueprint(OfficeofManagementandBudget,2017;HouseBudgetCommittee,2017).The2018Housebudget,releasedinJuly2017,callsfor$5billioninreconciliations,orsavings,fromtheNaturalResourcesCommittee,$1.5billionofwhichisexpectedtocomefromtheArcticRefuge(Page,2017).Thissetsadangerousprecedent,asanyshortfallfromtheamountassumedbyCongresswillendupaddingtothefederalbudgetdeficit.

StateSubsidiesThecurrentsubsidiesreceivedonAlaska’sNorthSlopeareausefulindicatorforestimatinghowmuchfutureCoastalPlaindrillingmaycostAmericantaxpayers.Currently,Alaskaresidentsreceivethemostfederalgovernmentaidpercapitaandpaynoincomeorsalestaxtothestategovernment.Instead,thestateisdependentontheoilandgasindustryforapproximately85%ofitsbudget(Semeuls,2015).

Alaska’stotalsubsidiestofossilfuelproductionin2015totaledabout$1.2billion,whichincludesover$500millionfromaper-taxable-barrelcreditforNorthSlopeProduction(Redman,2017).CongressionalapprovalfordrillingintheRefugewouldhaveadisproportionateimpactonAlaskantaxpayers,whorelyontheoilandgasindustryforgovernmentrevenueandthusbenefits.Thedrawbackstotheonce-lucrativeprospectsinthenorthernpartofstatehavebecomeapparentwithloweroilprices:Alaskafindsitselfinadeepbudgetdeficit,largelybecauseoflowerinterestinArcticexploration,reducedproductionontheNorthSlope,andgenerousproductionsubsidiesforoilcompaniesontheNorthSlope(AlaskaOilandGasCompetitiveReviewBoard,2015).Tobalancethebudget,Alaska’sstatelegislatureandgovernorrecentlyapprovedoilsubsidycutsthatwillsavethestatearound$200millionannually(Redman,2017).

NorthSlopeLeaseBidsandProjectedRevenueTheCongressionalBudgetOffice’slatestestimateofpotentialfederalrevenuegeneratedfromopeningtheRefugeassumedthesaleof400,000acresfordrillingat$7,500anacre,whereasrecentbidsinAlaskahavecomeinwellbelow


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$100anacre(Page,2017).Alaska’sDepartmentofNaturalResourcespublishesasummaryofannualleasesalesinAlaskabeginningin1959(AppendixA)providingdataontotalacresleased,averagepriceperacre,thetotalbonus(orcumulativeleasebids),andthefixedtermsfromthesale.Since2010,theaveragepriceperacreontheNorthSlopehasrangedfrom$14.81to$80.59,withaweightedaverageforthecumulative2,442,868acressoldinthepastsixyearsequaling$41.59.Undoubtedly,NorthSlopebonusbidsarethebestindicatorofhowmuchfederalrevenuecouldbemadeleasingouttheCoastalPlain,andwhiletheminimumbidperacrecouldberaised,noevidenceexiststhatoilcompaniesmaybeinclinedtopaymoreforlandwithnoexistinginfrastructureorprovenreserves.

AnOctober2017analysisbytheCenterforAmericanProgress(CAP)foundthatofferingoilandgasleasesintheArcticRefugewilllikelyamounttonomorethan$37.5millioninfederalrevenueover10years,whichissubstantiallyshortofthe$1billionto$1.8billionthattheWhiteHouse,Congress,anddrillingproponentsclaimcouldberaised(Lee-AshleyandRowland,2017).(Ironically,CAPfindsthat$1billioninaddedfederalrevenuewouldnotevencoverTrump’spersonaltaxbreaksundertheproposedtaxreformplan,whichreducestaxrevenueby$1.5trillionannually.)

AnotherunaddressedissuewithprojectedfederalrevenueliesinAlaska’scurrentlawgoverningleasesales.Oilandgasrevenueissplit90%-10%betweentheAlaskaandfederalgovernmentsrespectively,whiletheprojectedfederalrevenueoutlinedintheTrumpadministrationbudgetassumesa50%-50%split,whichisthecommonpracticeinthecontinentalU.S.(AlaskaOilandGasCompetitiveReviewBoard,2015).SomeestimatesoffederalrevenuegainedfromopeningtheRefugetooilandgasleasinghaveassumedthefederalgovernment,notAlaska,willget90%ofleasebids,whileothersassumeAlaskawouldreceivehalfofrevenuegeneratedfromthebidsintheRefuge.Thissingledetail,whilenotaffectinghowmuchtotalrevenueisraisedfromopeningtheArcticRefugetooildevelopment,explainshowtherevenuewouldbedistributedandwhowouldendupgettingcompensated.If90%oftherevenuefromleasingfederallandsontheCoastalPlainweretobedistributedtoAlaskans,ratherthan50%,theaverageAmericantaxpayerwouldenduppayingmoretooffsettheresultingincreasesinthefederaldeficit.

Below-MarketRoyaltyRatesandEstimatedRevenueRoyaltypaymentsmadeonactiveleasesareanothersourceoffederalrevenueonceoilproductiononfederallandhasbegun,butthefederalroyaltyratehasnotbeenupdatedsince1920andstandsat12.5%(Gentile,2017).Whilesomestates,includingTexas,Colorado,andUtah,haveraisedtheirroyaltyratesforstatelands,Alaskastatelawoffersroyaltyratesat12.5%,wellbelowtheestimatedmarketrateof18-25%(Gentile,2017).ThisoutdatedrateisshortchangingAmericantaxpayers,whoarereceivingarate30%-50%lessthanmanyprivateandstateroyalties.

ThetotalacreageproposedforleasesalesintheArcticRefugerangeswidely,andhasadirectimpactontheamountofrevenuethefederalgovernmentcouldexpect;H.R.49,sponsoredbyDonYoung(2017),specifiesaminimumof2,000acresbeleasedoutontheCoastalPlain,whilesomeofthefederalgovernment’sestimatesforrevenuegenerationseemtoassumeall1.5millionacresintheCoastalPlainareaoftheArcticRefugewouldbeleasedforoilexplorationanddrilling(Young,2017;Lazzari,2008).Whilethefederalgovernmentisabletoclaimthatleasingproductiononall1.5millionacreswouldgenerateacertainsumfromroyaltypayments,theyaresimultaneouslyprovidingtheoilindustrywithmassivesubsidiesbyonlycharginga12.5%royaltyrateonlandsthatshouldarguablyreceiveatleastprivatemarketrates,whichcouldbetwicetheamountthefederalgovernmentcharges.

Figure11.FederalandStateRoyaltyRatesforOilandGasLeasesSource:Gentile,2015


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SubsidizedEnvironmentalRiskNotonlywouldAmericantaxpayersfundproductionofArcticoil,buttheywouldbefinanciallyliableforoilcompanies’environmentalrisksanddamage.Beingoneofthelastuntouchedregionsoftheplanet,theenvironmentoftheArcticRefugeisfarmorevulnerablethanotherregionsoftheworldknownforoildevelopment,andbywayofitsremotelocation,cleanupcostsfromaspillcouldbemuchhigherthanthosewitnessedfromotherspillselsewhereintheU.S.Alltoooften,companiespayfordirectcostsafterthedamageisdonebutarenotfundingresourcesonstandbyintheeventofadisaster,whichshouldbeaccountedforasliabilityforoperatinginenvironmentallyfragileorvulnerableregions.


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ChallengesofFrontierExplorationTheclimate,geography,andisolationoftheArcticpresentchallengestooilandgasexplorationanddevelopment.TheArcticisdefinedasthearealocatednorthoftheArcticCircle,atthenorthernmostpartofEarthat66°34ʹnorthlatitude(Figure12).ItencompassestheArcticOceanandadjacentseas,andpartsofAlaska,Canada,Finland,Greenland,Iceland,Norway,Russia,andSweden.Aboutone-thirdoftheArcticislandandtwo-thirdsiswater.ThecentralArcticOceanisice-coveredyear-round,andsnowandicearepresentonlandformostoftheyear(NationalSnowandIceDataCenter,2017).Largeareasofthelandareunderlainbypermafrost,frozenground(i.e.,soilandrock)thatremainatorbelow32°Fforatleasttwoyears(NationalResearchCouncilofCanada,1988).

Figure12.TheArcticCircleSource:NationalSnowandIceDataCenter,2017

WithintheArcticCircle,therearelongperiodsofdaylightduringthesummerandextendeddarknessduringthewinter.Thesunremainsvisibleatmidnightduringthesummermonths(“midnightsun”);inwinter,thereareperiodsofdarknesslastingformorethan24hours(“polarnights”)(NationalSnowandIceDataCenter,2017).OntheNorthSlope


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ofAlaska,temperaturesarebelowfreezingformostoftheyear,rangingfrom-20°FinFebruaryto46°FduringJuly.Theaverageannualprecipitationis4inchesorless,mostlyintheformofsnow(Budzik,2009).

TheNorthSlopeFrontierTheNorthSlopeofAlaskaisremoteandsparselypopulatedwithonlyone(mostlygravel)narrowroadconnectingitwiththerestofthestate(Figure13).The415-mileDaltonHighway,builtasahaulroadbetweentheYukonRiverandPrudhoeBayduringconstructionoftheTrans-AlaskaPipeline,begins84milesnorthofFairbanksandendsatDeadhorse(TheMilepost,2017).TherearenopavedroadstoArcticVillageorFortYukon,bothofwhichcanbereachedbyair;Kaktovikisreachablebyairandwater(NorthSlopeBorough,2017).

EnergyanalystPavelMolchanovnotesthat,“Arcticdrillingisatextbookexampleoffrontierexploration—thatistosay,drillinginremote,historicallyunderexploredregions….Frontierexploration,nomatterthespecificgeography,isinherentlyhigh-risk”(Mufson,2015).Thelackofaccessandinfrastructureareobstaclesinexploringforoilandgasresourcesinfrontierbasins,definedbytheAlaskaOilandGasCompetitivenessBoard(2015)asareasawayfrompopulationcentersandexistingoilandgasproductionfacilities.

Figure13.TheDaltonHighwayandNorthSlopeTownsa

Source:U.S.FishandWildlifeService,2017

aPopulationin2010-PrudhoeBay:2,174;Coldfoot:10;Kaktovik:239;ArcticVillage:152;FortYukon:583;Fairbanks:31,535(U.S.CensusBureau,2017).

ArcticDevelopmentisCostlier,RiskierandLengthierTheU.S.EnergyInformationAdministrationsurmisedthatArcticoilandnaturalgasresourcesaremoreexpensive,riskier,andtakelongertodevelopthancomparabledepositsfoundelsewhereintheworld(Budzik,2009).Studies


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examiningtheadditionalcostsassociatedwithoilactivitiesinAlaskacomparedtothoseinthecontinentalUnitedStatesfoundcostsare1.5to10timeslarger.Forexample,thecapitalcostsofonshoreAlaskaNorthSlopeprojectdevelopmentsarefrom1.5to2timesmorethansimilaroilandnaturalgasprojectsinTexas(Budzik,2009).ThesubzeroweatherandremotelocationsmeandrillinginAlaskatypicallycoststhreetimesasmuchasinthelower48states,accordingtoindustryresearcherIHSMarkit,Inc.(Mufson,2015).And,theAlaskaOilandGasCompetitivenessReviewBoard(2015)foundtheinvestmentneededtoexploreanddeveloptheNorthSlope’soilresourcesplustransportationtomarketstobeanorderofmagnitudehigher—thatis,tentimesasmuch—thantheinvestmentrequiredtoproduceandtransportoilinmuchofthecontinentalU.S.

IncreasingtemperaturesintheArctichaveshortenedwinteraccessacrossthetundrabymorethan50%andledtochangesinstandardsforuseoftheiceroadsthataretypicallyusedtoreachremoteareasduringexploratorydrilling11(Corn,Ratner&Alexander,2015).TheCongressionalResearchServicesuggeststhatintherollingterrainoftheNorthSlope,theuseoficeroadsandpadscouldbelimitedduetosafetyconcerns;gravelstructures(permittedforexplorationonstatelandssouthofPrudhoeBay)mayprovidebettertractionthanicestructures.Theycautionthatrelyingonicetechnologymaybeinfeasibleinthefuture,forcinggreateruseofmoreexpensivegravelstructureswithlonger-lastingenvironmentalimpacts—or,projectswouldneedtoadapttoashorteroperatingseason(Corn,Ratner&Alexander,2015).

Whereaccessisbywater,operatingcostsareincreasedbytheice-packconditionsthatextendovermuchoftheArcticOcean.Theneedforice-resistanttankersandice-breakerescortsaddstothecostoftransportingoilandnaturalgasthroughArcticwaters(Corn,Ratner&Alexander,2015;Budzik,2009).

Inadditiontorequiringlargerinvestmentsthancomparableprojectselsewhere,thelonglead-timesrequiredforArcticprojectsaddriskbecauseeconomicconditionscanchangesignificantlybetweenthetimeexplorationleasesaresecuredandwhenproductionbegins.Forexample,crudeoilpricescouldbeconsiderablylowerwhenanArcticprojectbeginsproducingthanwasanticipatedattheplanningstage.And,longerlead-timesreducethereturnoncapitalinvestment,allotherbeingequal(Budzik,2009).

11Theseroadsmaylaterbelinkedtolargeinsulatedicepadsforhousing,storageandmaintenancefacilities,airfields,andothersupport(Corn,Ratner,&Alexander,2015).


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Arcticoilandnaturalgasresourceexplorationanddevelopmentareexpensivebecause:

● Harshwinterweatherrequiresthattheequipmentbespeciallydesignedtowithstandthefrigidtemperatures;

● OnArcticlands,poorsoilconditionscanrequireadditionalsitepreparationtopreventequipmentandstructuresfromsinking;

● ThemarshyArctictundracanalsoprecludeexplorationactivitiesduringthewarmmonthsoftheyear;

● InArcticseas,theice-packcanhindertheshipmentofpersonnel,materials,equipment,andoilforlongtimeperiods;

● Longsupplylinesfromtheworld’smanufacturingcentersrequireequipmentredundancyandalargerinventoryofsparepartstoinsurereliability;

● Limitedtransportationaccessandlongsupplylinesreducethetransportationoptionsandincreasetransportationcosts;

● HigherwagesandsalariesarerequiredtoinducepersonneltoworkintheisolatedandinhospitableArctic;and

● ProtectingtheArcticenvironmentiscostly.Source:Budzik,2009

FutureProspectsUltimately,energycompaniesmakethedecisiononwhetherandhowmuchthecostsandrisksoffrontierexplorationinfluencetheirinvestmentdecisions.ThepresidentandCEOoftheAlaskaOilandGasAssociation,KaraMoriarty,hassaidthatlowoilpriceswon’tdiminishcompanies’interestindrillinginthe1002Area;"Therealityiscompaniesdon'tplanonatwo-to-three-yearhorizon,theyplanfora50-60-yearone"(Patterson,2017).But,theEIAcautions,“Thehighcostandlonglead-timesofArcticoil…developmentdiminishtheeconomicincentivetodeveloptheseresources”(Budzik,2009).

RegardingthepotentialforoilleasingintheRefuge,thespokeswomanforConocoPhillips(Alaska’sbiggestoilproducer)saysifit,“weretobeopened,we’dconsideritwithinouropportunities”andthatthearea,“wouldhavetocompetewithotherregionsforourexplorationdollars”(Nussbaum,2017).Incontrast,aseniorresearchmanageratindustryconsultantWoodMackenzieLtd.says,“Therearealotofother,cheaperareasthatarecurrentlyopentoexplorationthatbigcompaniescanattack”(Nussbaum,2017).Atthispointintime,giventheuncertaintiesregardinghowmuchoilcouldactuallybewithinthe1002Area,theprobabilityofdevelopmentinthefrontierevenifCongressweretoauthorizeitremainsunknown.


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Conclusion DespitethefrigidclimateandisolationoftheArcticNationalWildlifeRefuge’sCoastalPlain,policymakersandenergyindustryofficialsperiodicallyraisetheprospectofallowingoilandgasdrillingintheregion.IncontrasttotheeconomicconditionsduringearliereffortstoopentheRefuge,oilpriceshavedroppedsubstantially,andtheincreaseinoildemandhasslowedasconservationandtheuseofalternativefuelsgrows.TheEIAprojectstheslowergrowthindemandtocontinueatleastthroughmid-century,beyondthetimeanyproductioncouldoccurifdevelopmentinthe1002Areawasapprovedthisyear.NewdiscoveriesfromestablisheddrillingsitesinthecontinentalU.S.aswellasAlaska’sNorthSlope/PrudhoeBayareexpectedtosustainU.S.productionfordecades,providingoilfordomesticconsumptionaswellasforexport.Eventhemostoptimisticestimatesofoilproductioninthe1002Area(bytheUSGSandEIAduringthepasttwodecades)areprojectedtohavelittleeffectonU.S.imports,globalsupply,orprices.LeasingandroyaltyrevenuesdestinedfortheU.S.andAlaskacoffers,aswellasjobs,wereprojectedbasedonundiscoveredeconomicallyrecoverablereservesestimatedusingnow-outdatedfinancialdataandtechnologicalassumptions.Theseprojectionsdidnotconsiderexternalcostssuchasclimatechange,lossofhabitat,humanhealtheffectsofthereleaseoftoxins,andspillpreparednessandresponse.Despitetheirlackofcurrency,theseprojectedbenefitsarestillbeingtouted.FederaltaxpayerswouldsubsidizeanyefforttowardsopeningtheRefuge—beginningwiththefirststepofupdatingtheassessmentsofundiscovered,technicallyrecoverableoilandgasresourcesperSecretaryZinke’sdirectiveinMay(U.S.DepartmentoftheInterior,2017).Oncecompleted,theseresourceassessmentswouldinfluencetheindustry’sinterestinexploringthe1002AreaifdevelopmentwereapprovedbyCongress.Ultimately,though,eventhehypotheticalrevenuefromRefugeoilandgasleasingintheAdministration'sfiscalyear2018federalbudgetwoulddoverylittletoalleviatethefederaldeficit.Projectedreceiptsfromleasingrepresentlessthan0.5%ofthetotalbudgetdeficitreductionsproposed(OfficeofManagementandBudget,2017)andwouldcostthenationthelossofnonrenewableresourcesandpotentiallyirreparableecologicalharm.


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AppendixA:2010-2017LeaseBidsontheNorthSlope