Posted by: wilco278 | June 24, 2008

Is there oil in ANWR? Does it matter?

President Bush has again reiterated his desire to drill for oil in ANWR (see “Energy for America’s Future“). Ignoring the inconvenient truth that opening the 1002 area to drilling will have no short-term impact on gasoline prices and minimal long-term impact on oil prices in general, I’m still struck by the questions that aren’t being asked:

- Is there a reasonable assumption that there is enough oil in the 1002 area to justify oil field development?

- Why the 1002 area, as opposed to other areas (i.e., Chukchi Sea, the Appalachian Basin)?

- In the grand scheme, would developing the 1002 area accomplish the goals of the drilling proponents? What exactly are their goals?

Senator Ted Stevens (”Uncle Ted”, the beneficent rich pork barrel uncle of all Alaskans that voted for him) commissioned the Department of Energy (DoE) to do an analysis of ANWR. The report, “Analysis of Crude Oil Production in the Arctic National Wildlife Refuge” was published by the Office of Integrated Analysis & Forecasting within the Energy Information Administration and is available on the DoE website here.

There has been very limited seismic and exploratory drilling done in the 1002 area, so projections of technically recoverable oil have pretty wide bands. There is a non-zero probability that there is no oil there. Oil exploration has come a long way since the infamous Mukluk dry hole of 1986, but ANWR is still an unknown quantity. There’s a high probability there’s oil there, but not a certainty. Based upon two exploration wells, very limited seismic data, and an assumption that the geology underlaying the 1002 area is analogous to the area west of ANWR, the best guess is that there is a 95% chance that there is about 5.7 billion barrels of technically recoverable oil in the 1002 area. The mean estimate is about 10.4 billion barrels, and there’s about a 3% chance that there is no technically recoverable oil there.

Those numbers are all technically recoverable reserves, not economically recoverable reserves. As one reservoir engineer told me, there’s a hell of a lot more economically recoverable oil at $100/barrel than there is at $20/barrel, and for $500/barrel there’s all the oil you’d ever want.

At $130/barrel and 5.7 billion barrels the 1002 area is probably economical. At $50/barrel and 2.3 billion barrels (the reasonable low estimate of technically recoverable reserves) the area may not be economical to drill and develop.

So we’ll assume that there is probably enough oil there, and it’s not in discontinuous traps and faults so that development costs are reasonable. Why would the oil companies spend money there, and not somewhere else? For the answer to that question, look west. There are several smaller discoveries to the west, between Badami and the western edge of ANWR. Right now it isn’t economically viable to develop them because the fields aren’t big enough to support a pipeline. If the 1002 area was produced, there would be a pipeline running through those undeveloped fields.

And finally, what are the strategic goals connected with the push to open the 1002 area?  This is a murky area, akin to asking why we invaded Iraq.  Some groups in the oil industry who are already active on the North Slope are probably looking to protect their investment by bringing more oil into the existing infrastructure.  Some native groups want the money that opening up the area would bring.  And of course there’s all the politics.  ANWR is the cause celebre of the environmental NGOs (non-governmental organizations) and a lightning rod for Republican neocons.  Both groups are not beyond “marketing” (otherwise known as “lying”) ANWR and the 1002 area to serve their political interests.

Additional analysis of this topic can be found on the RFF Library Blog here.

Posted in Alaska, Oil, Politics, Prudhoe Bay | Tags: , , ,

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Responses

Stating that the unkknown quantity of oil in Anwar, or anywhere else, is sufficient cause to cease exploration is analogus to saying that the earth is flat and if you sail too far west your ship will fall off the planet. Several recent finds have been reevaluated and the estimates of the sizes of the discoveries have been significantly increased. New discoveries of huge fields on the continental sheld in the Atlantic off Brazil and the Gulf of Mexico and Louisiana suggest that we are far from exhausting our oil supply and could attain energy independence with oil, coal and nuclear energy within a reasonable period, thereby buying sufficient time for nascent renewable technologies to mature. Standing on the shore watching the waves has brought us to this crisis, It is well past the time to take action, even if some of those actions are not as productive as we would like.

By: pjryan49 on June 24, 2008
at 8:09 am

I don’t agree with your analogy… the points that I’m attempting to make are that the quantity of oil in the 1002 area is not the sure deal that the administration says that it is, and that the question of whether or not to drill in ANWR is not as simple as oil vs. caribou.
Regarding the new discoveries off of Brazil (I’m assuming you’re talking about the Tupi field) or GOM deep water, they basically prove my point about the economics. None of these deepwater fields are economic at $20/bbl. I haven’t seen much of the data, but lifting costs for GOM deepwater are reportedly on the order of $20-$60 per barrel. With structural costs like that, deepwater drilling is only economic at oil prices somewhere above $100/barrel. Like I said, at $500/barrel there’s all the oil you’d ever want. And while Tupi, along with Sugar Loaf and a few other recently discovered fields, are large enough to be considered elephant fields, these new large or elephant fields are all either extremely expensive to produce or located in politically volatile locations, like Iran or Kazakhstan.
The problem with achieving energy independence, even including natural gas, coal, and nuclear power, is that we use 25% - 50% more energy per capita than other industrialized nations, with little to show for the increase, and we are still increasing our per capita energy use. Until we stop increasing our per capita energy use, energy independence is merely a political lie.

By: wilco278 on June 24, 2008
at 8:32 pm

Lost in the oily reasoning of the administration, or rather purposefully masked in it all, is the open secret about American oil production overall: it’s been plummeting since its 1970 peak of 9.6 million barrels per day, down to 5.8 million barrels per day when our Dear Leader took office in 2001, and down to 5 million barrels per day now–almost 1 million barrels per day in the last eight years alone. Production will continue to decline. Drilling in the Arctic refuge, in the Gulf along Florida’s shore or off Atlantic shores won’t, no matter what’s found there (10 billion barrel reserves? 15? Make it 20!) even replace lost production, let alone return the United States to its glory gushing days. But it will stave off a significant drop in operating profits for Exxon, BP, Chevron and the rest of our axis of pushers.

By: Pierre Tristam on July 12, 2008
at 3:36 pm

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