Energy & Entrepreneurs #64

Energy and ANWR

by Raymond J. Keating

As energy costs skyrocket, Congress basically sits on its hands and does nothing, or, even worse, it debates and pushes policies that would actually make energy development even more costly.

What should be done? Well, most glaringly, areas currently off limits to energy exploration and development - both offshore and under federal lands - need to be opened up.

But would this really make any difference? Many politicians argue that it would matter little or not at all. Unfortunately, that is politics talking, not economics.

For example, API has reported: "We have abundant volumes of oil and natural gas resources beneath federal lands and coastal waters, but the bulk of these resources have been placed off-limits to development. For example, according to federal government estimates, there is enough oil in these areas to power more than 60 million cars for 60 years. There is enough natural gas to heat an additional 60 million homes for another 160 years. However, more than 85 percent of the coastal waters adjacent to the lower-48 states, and which extend up to 200 miles from our shores, are off-limits to oil and natural gas exploration. And, 75 percent of the most prospective, technically available U.S. onshore areas are off-limits or accessible only with significant restrictions."

For example, let's consider a few points made in a May 2008 report from the Energy Information Administration regarding crude oil production in the Arctic National Wildlife Refuge (ANWR), which is currently off limits to energy development.

• "In 1998, the USGS estimated that between 5.7 and 16.0 billion barrels of technically recoverable oil are in the coastal plain area of ANWR (also referred to as the 1002 Area), with a mean estimate of 10.4 billion barrels, of which 7.7 billion barrels falls within the Federal portion of the ANWR 1002 Area. In comparison, the estimated volume of undiscovered, technically recoverable oil in the rest of the United States is about 120 billion barrels."

Keep in mind that "technically recoverable" means "resources that can be produced using current technology." Improvements in technology mean that additional resources will be recoverable in the future. In fact, government estimates on energy resources that are recoverable tend to be proven as substantial underestimates over time.

• "Both the State officials and Native corporations have expressed a strong interest in developing their respective oil resources, which are legally and/or economically linked to a Congressional decision to allow development in ANWR..."

This is a very important point. The people of Alaska overwhelming support the opening up of ANWR to energy exploration and development. One would think that their wishes for their own state would be weighted far more heavily in Washington's decision-making process compared to, for example, members of Congress from New York City who oppose production in ANWR.

Later in the EIA report, it is noted: "While a higher rate of technological development might reduce costs and lead to more efficient development of ANWR resources, the primary impediment to the development of ANWR resources is the current legal restriction that precludes access to these oil resources."

• How much oil are we potentially talking about in ANWR? A comparison helps. According to the EIA's Annual Energy Outlook 2008 reference case, U.S. overall conventional oil production will go from 5.1 million barrels per day in 2006 to 6.3 million in 2018, and then declining to 5.6 million in 2030. In Alaska, oil production is expected to go from 741,000 barrels per day in 2006 to 520,000 in 2014, 700,000 in 2020, and down to 300,000 in 2030.

What would ANWR bring to the table? With oil production estimated to begin in 2018, ANWR production would peak in 2028 at 780,000 barrels per day in the mean case, with the range being from 510,000 to 1.45 million. That would mean, roughly, a 14 percent increase in total U.S. oil production (perhaps reaching as high as 25 percent), and a 260 percent increase in Alaska (perhaps as high as 480 percent).

That would matter to individuals, families and businesses struggling with high energy costs.

And the impact on energy prices would be far greater than many assume if U.S. policy leaders indicated to the world that they are now serious about expanding energy exploration, development and production, both onshore and offshore.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.