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.