Arctic Drilling Wouldn't Cool High Oil Prices

Energy analysts say it would take 10 years for production to begin, and its impact could be very modest


The Arctic National Wildlife Refuge in Alaska

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Drilling for oil beneath the pristine tundra of the Arctic National Wildlife Refuge would do little to ease world oil prices, the federal government's energy forecasters said in a new report issued in a week that saw oil surpass $130 per barrel for the first time.

Congress has fought bitterly for years over whether to allow oil companies access to the Alaska refuge's 1.5 million-acre coastal plain, a habitat for seabirds, caribou, and polar bears. Oil company executives, called to Capitol Hill for a grilling over high oil prices, pointed to the untapped resources of ANWR and off the U.S. coastlines as evidence that Congress was as much to blame for the tight global supplies of crude as the petroleum industry.

But the U.S. Energy Information Administration, an independent statistical agency within the Department of Energy, concluded that new oil from ANWR would lower the world price of oil by no more than $1.44 per barrel—and possibly have as little effect as 41 cents per barrel—and would have its largest impact nearly 20 years from now if Congress voted to open the refuge today. EIA produced the analysis in response to a request by Republican Sen. Ted Stevens of Alaska, who noted that the last time the agency had taken a look at the economics of ANWR production was in 2000, when oil was $22.04 a barrel.

Higher world oil prices don't necessarily mean that oil companies could pull more crude out of ANWR, the EIA said. Some advanced methods of extraction may be limited by the features of the Alaska North Slope; for example, steam injection could endanger some of the permafrost, the EIA noted.

The agency pointed out, however, that higher prices would make it more attractive to go after small fields that are near the larger fields that would be the first targets for development, and some advanced, expensive techniques of extraction could become more attractive in the later years if oil prices stay high.

However, EIA predicted these high-tech methods wouldn't have an impact until after 2030, beyond the horizon of the agency's forecast of the global energy situation.

So EIA assumed little change—and in fact, a slight decline—in ANWR's productive capacity since 2000, when it projected that the production in the refuge could reach 650,000 to 1.9 million barrels per day. In the new analysis, EIA says that production could range from 510,000 barrels to 1.45 million barrels per day.

If Congress approved development in 2008, it would take 10 years for oil production to commence, EIA said. With production starting, then, in 2018, EIA said the most likely scenario is that oil would peak at 780,000 barrels per day in 2027 and decline to 710,000 barrels per day in 2030. Currently, the United States consumes about 20 million barrels of oil per day.

EIA said its projection is that ANWR oil production would amount to 0.4 percent to 1.2 percent of total world oil consumption in 2030. The figure is low enough that OPEC could neutralize any price impact by decreasing supplies to match the additional production from Alaska, EIA noted.

New oil from Alaska would, however, reduce foreign oil dependence slightly, EIA said. With the United States currently on track to get 54 percent of its oil from overseas by 2030, EIA said, if ANWR were opened, the share of oil from foreign countries would drop to 48 percent in the best-case scenario or 52 percent if ANWR turns out to produce at the lower end of the range of projections. That would mean that U.S. spending on foreign oil between 2018 and 2030 would be reduced by $135 billion to $327 billion.

EIA noted the uncertainty in its predictions, which are based on the oil productivity of the geological formations elsewhere in Alaska, including neighboring Prudhoe Bay, the largest oil field ever discovered in the United States. "There is little direct knowledge regarding the petroleum geology of the ANWR region," said the report, titled "Analysis of Crude Oil Production in the Arctic National Wildlife Refuge."

The agency stuck with the U.S. Geological Survey's 1998 estimate that the amount of oil in the portion of ANWR being considered for development is 10.4 billion barrels.