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Contact Jim: jdipeso@rep.org (253) 740-2066 / 2008 Archive / 2007 Archive / 2006 Archive / 2005 Archive
Arctic Refuge Oil Drilling: Same Old, Same Old
June 4, 2008
The decibel volume of proposals to open the Arctic National Wildlife Refuge to oil drilling is in direct proportion to the price of gasoline.
When the price crossed the $3-per-gallon mark, the volume was loud. When it hit $4 recently, it became deafening.
Just in time for the U.S. Department of Energy to release yet another analysis of the oil production potential on the Arctic refuge’s coastal plain.
What is DOE saying this time? Pretty much what it has said before. Surrendering an important part of America’s largest wildlife sanctuary to oil production wouldn’t do much to lower prices or oil imports.
Here are the facts, as laid out by the DOE’s Energy Information Administration in last month’s report. While no one knows for sure how much oil may lie beneath the coastal plain, let’s assume that there are great big gobs of oil waiting for the taking. In the prosaic terms used in DOE reports, let’s assume that the “high oil resource case” is closest to the truth. We’ll call that the Don Young scenario.
If Congress authorized drilling in the refuge today, production would begin in 2018. It would take that long to muster crews and obtain drilling rigs, which are in high demand, drill exploratory wells, and do all the other preparatory work.
In the high resource case, oil production peaks at 1.45 million barrels per day in 2027. Each barrel produced from the refuge would replace an imported barrel.
In the high resource case, imports’ share of U.S. oil consumption would fall to 46 percent between 2022 and 2026. Under business as usual, with the refuge remaining off limits, imports would total 51 percent of consumption. Essentially, then, under the Don Young scenario, opening the Arctic refuge to oil production would reduce imports by 10 percent. By 2030, as the Arctic field starts to decline, imports would creep back up to 48 percent.
I.e., the House of Saud would still have us over a barrel.
But, the boosters sometimes claim, think how much lower gasoline price would be. Let’s look again at the DOE report. It estimates that under the generous Don Young scenario, opening the refuge would cut the price of low-sulfur, light crude oil by $1.44 per barrel – about 1 percent of today’s price of $122.95 per barrel quoted on the New York Mercantile Exchange.
Each 42-gallon barrel of oil yields about 20 gallons of gasoline at the refinery. Let’s arbitrarily allocate all of the $1.44-per-barrel savings (in 2006 dollars) to only the 20 gallons of gasoline, ignoring the other products that come out of the barrel, such as aviation fuel and chemical feedstocks. You get a whopping savings of slightly more than 7 cents per gallon – about 1.8 percent of today’s national average price of $3.99 per gallon.
Whoopee.
How can this be? Crude oil is traded in a global market. Even if every drop of Arctic refuge oil were consumed in the United States, the price would be set in the global market, which is influenced by factors over which we have limited or no control, such as rising demand in other countries and supply disruptions in the world’s trouble spots. As the report points out, the quantity of oil that an Arctic refuge oilfield would add to the market, even under the Don Young scenario, would be too small to appreciably alter the market’s dynamics.
“Additional oil production resulting from the opening of ANWR would be only a small portion of total world production, and would likely be offset in part by somewhat lower production outside the United States.”
I.e., if it suits the House of Saud’s interests to offset increased Arctic production by making production cuts, it would do so.
In the meantime, global demand for oil is sure to rise over the next 10 to 20 years, keeping upward price pressure on oil and further offsetting whatever price reduction an Arctic refuge oilfield would yield.
Nothing in the DOE report changes our central oil predicament: we cannot reduce our exposure to the dangers of oil dependence by opening conservation lands to oil drilling. We still face two choices: run harder on an accelerating oil dependence treadmill or look for practical ways to get off and secure our energy future.
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