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Study predicts billions from Arctic OCS Shell-commissioned analysis forecasts local, state and federal revenues from Beaufort and Chukchi Sea oil and gas development Alan Bailey Petroleum News
In March 2009 a Shell-commissioned study pointed to the possibility of $15.3 billion in Alaska state and local government income from oil and gas development in the Beaufort and Chukchi seas over a 50-year period. Now Northern Economics and the Institute for Social and Economic Research at the University of Alaska — the two organizations that conducted the 2009 study — have completed another study for Shell, extending the analysis to encompass potential benefits for the whole of the United States.
$193 billion Alaska Arctic outer continental shelf oil and gas development could, nationwide, result in $193 billion in local, state and federal government revenues between now and 2057, with $167 billion of those revenues going to the federal government, the new study has found. In that same time span the OCS development could generate $145 billion in payroll, including $63 billion for jobs in Alaska and $82 billion elsewhere in the U.S.
Oil and gas development in the Beaufort and Chukchi seas could create an annual average of more than 26,000 jobs in Alaska and more than 28,000 jobs elsewhere, the study found.
The study considers possible offshore development scenarios involving multiple companies, not just Shell. But, unlike the original study, the new study discounts any possibility of oil and gas development in the North Aleutian basin, given the Obama administration’s withdrawal of that region from future oil and gas leasing.
Several assumptions The results of the study are based on several key assumptions, one of which is that exploration and development will proceed without major regulatory delay.
In the Beaufort Sea, the study assumes exploration drilling with one to three drilling rigs per season over 15 years. That would lead to the construction of seven offshore platforms, together with an associated pipeline infrastructure, including an oil pipeline connecting with the trans-Alaska pipeline and potentially a pipeline to a North Slope gas line. Oil production would start in 2019, with gas production following in 2029, and with about 5 billion barrels of oil and 7 trillion barrels of natural gas eventually coming from seven offshore fields over the 45-year time span of the study.
In the Chukchi Sea, exploration drilling would occur over a 24-year period and involve one to two drilling rigs per drilling season. Four offshore production platforms would connect by oil and gas pipeline across the National Petroleum Reserve-Alaska to the trans-Alaska pipeline and a future North Slope gas line; a new Chukchi Sea shore base would support offshore activities; oil production would start in 2022 and gas production would start in 2036; and four offshore fields would eventually produce 4.8 billion barrels of oil and 7.8 trillion cubic feet of natural gas, the study assumed.
Using projections through to 2030 from the Energy Information Administration’s 2008 Annual Energy Outlook, the study assumed oil prices in the range of $56 to $83 per barrel in 2006 dollars, and natural gas prices in the range $5.8 to $7.4 per million British thermal units. Beyond 2030, the study assumed prices rising at 0.5 percent per annum in real dollars. The study also conducted a sensitivity analysis for higher price assumptions.
Benefits Alaska and elsewhere The study separately considered economic benefits in Alaska and benefits at the U.S. federal level, with the Alaska and federal benefits being added together to calculate total U.S. national benefits.
In Alaska, with the state not able to collect royalties and production taxes from federal outer continental shelf leases, increased revenues from OCS oil and gas development would come from property taxes levied on onshore facilities associated with offshore operations, and from increased state corporate income tax liabilities as a consequence of company profits from Alaska OCS oil and gas fields. The bulk of the property taxes would go to local governments, especially the North Slope Borough, while the other revenues would go to the state. Increased economic activity flowing from OCS developments would fuel increases in other types of state tax, such as motor fuel, alcohol and tobacco taxes. And the analysts conducting the study assumed that falling state revenues from declining onshore oil production would force the state to introduce a personal income tax or a statewide sales tax at some point in the future.
The study also found that OCS oil and gas development would trigger a series of indirect state benefits. These indirect benefits would particularly accrue from an increased oil throughput in the trans-Alaska oil pipeline, with this increased throughput having the effect of reducing the pipeline tariff, thus increasing the wellhead value of onshore-produced oil and pushing up state royalty and production tax revenues. Increased trans-Alaska pipeline throughput would also defer the point at which oil flow through the line becomes impractical or uneconomic, thus extending the life of the pipeline and prolonging the era during which the state collects revenues from the northern Alaska oil industry.
And OCS natural gas production could potentially improve the economics of a future gas line, used to export gas from Arctic Alaska.
$15.3 billion in Alaska Taking all of the various state and local government benefits in aggregate over the 2008 to 2057 time span, assuming that oil and gas development proceeds in both the Beaufort and Chukchi seas, direct oil and gas revenues in Alaska could amount to $1.1 billion; revenues from increased economic activity could be $3.6 billion; and indirect revenues from factors such as increased trans-Alaska pipeline throughput could be $10.6 billion; leading to overall revenues in Alaska of $15.3 billion.
The federal government would obtain revenues from bonus bids on OCS leases; rental payments on those leases; royalties from oil and gas production; and corporate income tax from companies’ OCS profits. Employment from OCS activities would create revenue from personal income tax. Indirect federal revenues would include additional corporate income tax and personal income tax resulting from incremental onshore oil and gas activity as a result of the extended life of the trans-Alaska oil pipeline. And incremental oil production from federal lands in the National Petroleum Reserve-Alaska could generate additional federal oil royalties, if the pipeline life were to be extended.
Direct federal oil and gas revenues could amount to $148 billion; non-petroleum revenues such as personal income tax could be $13 billion; and indirect revenues from factors such as extended onshore oil and gas development could be $6 billion; leading to overall federal revenues of $167 billion.
If oil and gas prices turn out to be higher than the baseline prices assumed in the study, government revenue streams would increase, with the bulk of the increase coming from higher OCS lease revenues and increases in corporate income tax revenues.
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