A new report just out from the U.S. Geological Survey is adding fuel to the debate over opening the Arctic National Wildlife Refuge’s coastal plain by suggesting that improved technology and higher oil prices make drilling in the refuge a better bet than ever.
Meanwhile, the chances of Congress approving ANWR drilling this year either jumped exponentially or eroded drastically with the energy supply disruptions caused by Hurricane Katrina, depending on whom you ask.
This uncertainty is sure to generate considerable speculation in the coming weeks as Capitol Hill wends its way through more pressing issues and returns to putting together a budget reconciliation package.
The USGS report is an update of economic analysis of the 1.5-million-acre 1002 Area of ANWR that the USGS published in 1999 as part of a comprehensive 1998 study that has been instrumental in the ANWR debate in Congress.
The update includes newer field development practices based on horizontal development wells and alternative area development schemes as well as base costs to a new base year of 2003.
No new geology in ANWR report
However, no changes were made to the underlying geologic assessment the USGS published in 1998.
USGS also offered the caveat to the latest analysis that until a systematic subsurface evaluation of the coastal plain is done, much remains uncertain about the size and nature of the area’s petroleum resource. Moreover, variations in factors such as world oil prices over time are beyond the scope of its work, USGS said.
Technically recoverable petroleum on the coastal plain ranges from 4.25 billion to 11.8 billion barrels of oil, with a mean of 7.68 billion barrels of oil, according to USGS estimates. Also, undiscovered size-frequency distributions showed crude accumulations in the 1002 Area to be big enough to generate economic interest, with pools at least 260 million barrels in size accounting for anywhere from 2.21 billion barrels to 8.52 billion barrels of the oil, with a mean of 4.97 billion barrels.
Because most of the resources assigned to USGS’ mean and high reserves estimates were in large accumulations, the agency’s economists concluded that incremental costs showed substantial additions to reserves as market prices increase above threshold prices — $16-18 a barrel — which trigger commercial exploration. For its low reserves estimate at market prices of $30 a barrel, USGS said about 3 billion barrels, or 70 percent of the oil assessed in the 1002 Area is economic. At the mean, the economically recoverable reserves rose to 79 percent of the assessed oil and to 82 percent under the high reserves scenario, the report said.
“The important thing about this analysis is that USGS added no new geologic information, whatsoever,” said Ken Boyd, a geophysicist and former director of Alaska’s Division of Oil and Gas. “They updated the prices a little, but kept all of the old assumptions. It doesn’t prove anything new. It’s a bit of an exercise in futility, like looking through a crystal ball that’s flawed.”
ANWR economics improving
Boyd, who reviewed the report the week of Sept. 5 for pro-ANWR advocacy group Arctic Power and has argued USGS reserve estimates in the federal part of the coastal plain are too low, said the report may also be confusing for those familiar with the earlier version. “It may appear that the reserves estimates are smaller, but we need to keep in mind that USGS did not address the Native in-holdings in ANWR nor the State of Alaska’s share of the estimated reserves,” he said.
Boyd said the report is based on data available in 2003. The average price of crude in 2003 was $27 a barrel. The report used a ceiling (high) price of twice the base so the highest price considered was $54 a barrel. Prices now exceed $60 a barrel. But the report recognized this higher price trend.
“If such prices are sustained over the long-term, new technologies would emerge that would vitiate the geologic estimate of technically recoverable resources by increasing the play recovery factors assumed by the geologists and also permitting commercial development of smaller accumulations that occur but that were not assessed by the geologists,” USGS said in the report.
When comparing the results of its latest study to the earlier analysis and converting the results to 2003 dollars from 1996 dollars used in the earlier work, USGS said its estimates of economically recoverable oil are generally within 10 percent of its 1999 estimates, “suggesting that improvements in productivity have to a large extent offset increased costs that occurred between 1996 and 2003.”
USGS also offered two different development scenarios — one that involves processing oil produced in ANWR on the coastal plain and another that calls for piping it to processing facilities outside the refuge.
USGS report a “net positive”
Boyd told Petroleum News Sept. 13 that he views the updated report as a net positive for ANWR because the USGS cites improvements in technology that have offset rising costs and reduced the footprint of oil development, both positives for ANWR.
“I have no idea how it will play out in the debate in Congress,” Boyd said. “ANWR is in the budget bill, and I don’t see how this report can harm (the case for oil drilling) in ANWR.”
Boyd also observed that people who oppose opening ANWR’s coastal plain to oil drilling were quick to cite the benefit 1 million barrels per day of oil from the Strategic Petroleum Reserve would have in the market in the aftermath of Hurricane Katrina.
“What’s ANWR (represent) but 1 million barrels per day of oil? You can’t have it both ways. ANWR oil would affect the market positively,” he added.
“The report confirms the earlier revenue estimate and that’s another sign that ANWR should be developed as soon as possible,” Elliott Bundy, aide to Sen. Lisa Murkowski, R-Alaska, said Sept. 14.
ANWR debate delayed
The U.S. Senate Energy and Resources Committee was scheduled to meet Sept. 14 to vote on language for the federal budget that would raise an estimated $2.4 billion from leasing tracts in ANWR to energy companies for oil exploration.
That language would then have been forwarded to the Senate Budget Committee to be added to a broad federal spending package.
However, after the hurricane struck the Gulf Coast Aug. 29, U.S. Senate and House leaders decided to delay crafting the budget bill for at least two weeks. Democratic lawmakers want to suspend work on some $35 billion in spending cuts in the budget bill to the Medicaid health-care program, food stamps and other government programs that they argue would help people displaced by Hurricane Katrina.
The energy panel postponed its meeting on the ANWR drilling language, and no new date has been set to vote on the drilling language, which is expected to be approved by the panel.
Republican leaders have attached ANWR drilling to budget legislation because the giant spending bill cannot be filibustered under Senate rules and requires only a simple majority to pass both houses of Congress.
Though Congress has postponed work on ANWR and the budget bill until late October, Arctic Power lobbyist Jerry Hood said he’s not convinced that anything has changed in Washington, D.C., in recent weeks regarding ANWR’s chances for passage.
Katrina puts spotlight on ANWR
“Certainly a national natural catastrophe such as Hurricane Katrina has put a spotlight on ANWR,” he told Petroleum News Sept. 12. “It’s confirmed what we’ve been saying for a decade. We need to diversify our energy supply. We’ve got all of our eggs pretty much in one basket. Additional oil supplies serve to stabilize our domestic production, and with extreme gasoline spikes, Americans start to think about where gasoline comes from, and they begin to recognize that our nation is in an energy crisis.”
Nothing else in the way of federal energy legislation is likely to come out of the uproar in Washington in the wake of Katrina because wholesale gasoline prices dropped to pre-Katrina levels Sept. 13 and are expected to fall at the pump in early October, said Christine Tezak, an energy analyst with Stanford Washington Research Group. (See sidebar to this article.)
“I’m very pessimistic because the issues left out of the energy bill that Congress just passed are very polarizing. There is no middle ground; either someone wins or someone loses,” Tezak told Petroleum News Sept. 14.
ANWR, however, ceased to be an energy bill issue when Sen. Pete Domenici, R-N.M., put it in the budget reconciliation package, according to Tezak. “Even if the budget bill gets postponed, it’s pretty much a dance of time,” she said. “With all of the federal aid needed for Katrina victims, I can’t imagine Congress leaving the $2.5 billion that ANWR represents on the table.”
Hood, who was quoted in Forbes magazine Sept. 7, said Congress has a lot on its plate now dealing with the effects of Katrina and the death of Supreme Court Chief Justice William Rehnquist. He said people should refrain from reading doom for ANWR into every delay or postponement in Congress.
“Congress is not known for moving rapidly. Yes, the schedule has been pushed back, but in the end, Congress will take the steps it needs to take to solve the problems it faces and one of those problems is adding to the energy bill,” he said.
Tezak said she expects to see the budget package voted out of Congress after Thanksgiving.
Sen. Ted Stevens, R-Alaska, said “ANWR (drilling) will have greater support than it would have had before Katrina. I expect to win every vote we have on ANWR from now on.”
Still, pushing back debate on the budget until late in the year may increase the “danger” that it will take longer for Congress to pass a budget reconciliation package with ANWR, Bundy told Petroleum News. “But at the same time, we’ve heard strong sentiments from the Budget Committee chairman, Sen. Judd Gregg, R-N.H., that he wants to get a budget bill done this year,” Bundy said. “He’s adamant that budget reconciliation take place.”
