Inching Towards ANWR

The pending budget legislation in Congress includes a provision allowing drilling the Arctic National Wildlife Refuge. If the bill passes with this provision intact, it should not be seen as a victory for oil companies, but rather as the failure of an unrealistically obstinate strategy by its environmental opponents. By assuming that it was possible to prevent ANWR from ever being drilled, they will have foregone any opportunity to obtain important concessions in other areas, and thus failed in the larger sense of environmental stewardship. While there might be a parallel universe in which ANWR's oil stays in the ground forever, it is certainly not the world of $60 oil in which we live.

I also question the cited 2004 study from the Energy Information Agency, suggesting that oil from ANWR would only save a penny a gallon in 2025. Anyone with experience dealing in commodity markets would find that conclusion naive. Recall that a mere delay in BP's Thunder Horse project after hurricane Dennis passed through the Gulf of Mexico sent oil markets $1/barrel higher. And Thunder Horse will produce only a quarter of the oil that ANWR is expected to yield, in terms of both peak production rate and total reserves. ANWR could comprise as much as a quarter of total US production when it starts up, if current decline rates for mature US oil fields continue. It might produce as much oil as Texas does today (onshore.)

If the world of 2025 is anything like today, with a very slim cushion between total oil demand and maximum global production capacity, that extra million barrels per day of supply from ANWR could depress oil prices by as much as $5.00/barrel, or $0.12/gallon. That's because the price for the entire global market is set by the last several million barrels per day of supply and demand, which determine whether inventories are growing or shrinking. So even though ANWR's potential production would probably only represent 1% of total global oil supply at that point, its influence as the "marginal barrel" would be greatly disproportionate.

No matter how much one believes in protecting pristine wilderness, or in the potential of alternative energy and improved energy efficiency to moderate our oil consumption in the next 20 years, it simply doesn't make sense to think that we would permanently forego the oil equivalent of another Texas on our own soil, given the current economic and geopolitical environment. Those who imagined that scenario was realistic need to reexamine their assumptions.