Empire editorial: ANWR is not dead

Report vividly depicts ANWR's economic impact on Alaska

Posted: Sunday, September 08, 2002

If oil exploration in a small sliver of the Arctic National Wildlife Refuge (ANWR) had not been killed by the Clinton administration in 1995, Alaska would be a very different place today. If ANWR had been opened seven years ago, by now the state would have gained $1.5 billion in oil lease bonus revenues, secured another $750 million for the Alaska Permanent Fund, and amassed $750 million in unrestricted funds for government to use at its discretion. Additionally, 10,000 jobs earning an estimated annual payroll of $500 million would have been created, with many more jobs coming online in the years ahead.

Alaska would have seen the first barrels of oil entering the market as early two years from now, at which time the real money would begin flowing. At its peak, oil development could pump from $540 million to almost $1.3 billion a year into the state's coffers. Needless to say, Alaska would not be grappling with a fiscal crisis today. Alaska would, in fact, be in the midst of another era of prosperity.

Jim Calvin of the McDowell Group, a Juneau-based research firm, made these observations to business and industry leaders in Anchorage on Friday during a lunchtime presentation. Calvin's remarks were drawn from an eye-opening report produced by his company, entitled "ANWR and the Alaska economy, an economic impact assessment."

For all the jaded information swirling around ANWR over the past decade, this report is the first real study to clearly define the tangible economic potential to Alaska of ANWR oil development.

The McDowell report is remarkable for the conservative track it has taken in its projections. Instead of formulating assumptions based on data from optimistic oil industry studies, the basic premises of the report are drawn from data contained in the latest of a series of U.S. Geological Survey reports. The 1998 USGS report on the Coastal Plain provides the most comprehensive assessment of the economically recoverable oil contained in Area 1002* of ANWR.

The report provides scenarios using $20, $22 and $24 as benchmark prices and with varying production levels. Calvin pointed out that there is a direct relationship between the prevailing price of oil and the volume of oil that is economically extractable. On the conservative side, the $540 million revenue figure is based on a price of $20 per barrel with an annual production level of 3.2 billion barrels. At $22 a barrel, 4.4 billion barrels could be economically produced with $830 million going to the state. At $24 a barrel, 5.2 billion barrels could be economically produced making the state's cut almost $1.3 billion a year at the peak. As of Friday the price of West Coast oil was $28.66 per barrel.

Roger Herrera, a consultant for Arctic Power, also spoke at Friday's luncheon. Herrera believes that the benchmark price of oil likely will be much higher over the life of ANWR production. He also stated that the time frames used in the McDowell study are too long. Herrera thinks that the nine- to 12-year window to get oil flowing would in reality be closer to five to seven years. As he notes, the time frame from discovery to production already is shortening on the North Slope due to technological advances and efforts by the industry to get an economic return for its oil field investments on a faster track.

The U.S. House and Senate are working together in conference committee to hammer out a comprehensive energy bill to guide the country's energy policy far into the future. The House version of the bill includes drilling in ANWR; the Senate version does not. In light of national security interests, sentiment in Congress for developing domestic oil is strengthening. Each day the United States consumes 700,000 barrels of Iraqi oil worth $19 million, directly helping to fund Saddam's regime. If war with Iraq does come, it is unlikely that Democratic leadership would support another filibuster on ANWR.

Herrera believes there is real momentum behind an energy package that includes ANWR. The U.S. labor lobby, he stresses, is a force to be reckoned with and labor is applying increasing pressure on Congress to open ANWR. This pressure will have a great influence in the coming election.

Unquestionably, there are many uncertainties to consider in assessing exactly what we will gain from opening ANWR to oil development. No one can predict with certainty what will happen to oil prices in 10 or 20 years or what influences from the Middle East might come to bear on the United States in the future.

Nearly 70 percent of Alaskans support oil development in the small section of the coastal plain targeted for exploration. The environmental coalition has spent over $19 million to date in an effort to keep Alaska from its destiny, and more money is pouring in daily.

The United States needs a strong energy policy for the future. Energy conservation measures should be a key component of U.S. policy. But just as important is the need to reduce our dependency on foreign oil. Alaska holds the key to this strategically important mission.

For Alaska, the stakes to be gained from oil development are enormous and yet very real and attainable. Alaska's congressional delegation is working tenaciously to make ANWR a reality. If Congress is successful in finalizing an energy bill that includes ANWR by the end of October, Alaska's future will look bright indeed.

*Economics of Undiscovered Oil in the 1002 Area of the Arctic National Wildlife Refuge, Chapter EA, Emil D. Attanasi, 1999, U.S. Geological Survey, Open File Report 98-34.

Don Smith

dssmith@juneauempire.com

586-1428



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