A polar bear pauses near its cubs along the Beaufort Sea coast in the Arctic National Wildlife Refuge, Alaska, in a file photo dated March 6, 2007.
Susanne Miller | Reuters
The Trump administration announced On Thursday, drilling rights will be auctioned at the Arctic National Wildlife Refuge in just over a month for a final showdown with opponents in front of the elected president Joe Biden takes over the office.
The sale, now slated for Jan. 6, could end a fierce decade-long battle to drill the Coastal Plain, a 19 million acre area home to indigenous tribes as well as caribou, polar bears and other wildlife. The Trump administration has set itself the task of opening up the country to development.
“Congress has directed us to hold leases in the ANWR coastal plain and we have taken a significant step to announce the first sale before the statutory deadline in December 2021,” said a statement from Chad Padgett, the director of the state of Alaska, Thursday for the Bureau of Land Management.
A Republican-led Congress passed laws opening the coastal plain to oil exploration in 2017. Two lease sales were required within seven years, the first by the end of 2021 at the latest.
Although it has been reported that the Alaska Oil and Gas Association Thursday’s announcement was good news. The Trump administration’s plan for the sale could pose legal challenges for the drilling opponents, which could target the aggressive timeline in court. Conservation and tribal groups as well as a coalition of 15 states have already filed lawsuits against the Trump administration’s environmental reviews.
The Trump administration has advanced other oil and gas projects in the state, including approving development plans within the National Petroleum Reserve-Alaska Interior Minister David Bernhardt said would “make a significant contribution” to keeping oil flowing through the Trans-Alaska Pipeline for years.
Energy industry experts are now investigating the profitability of oil drilling in Alaska’s Arctic Wildlife Refuge. The problem: According to Chris Lafakis, energy economist with Moody’s Analytics, extracting oil from this part of Alaska would cost an average of $ 100 a barrel, and the current price of crude oil is under $ 50. This suggests that even if Trump manages to find bidders for the leases – and that Biden isn’t blocking the permits bidders need to win – it could take years for the oil to start flowing – if it ever does should be. “And it is unlikely to reverse the long-term decline in Alaskan oil production that has been hampered by competition from cheaper Texas and North Dakota oil since the development of hydraulic fracking technology in the early 2000s.”
“Selling new leases is more of a public relations ploy than anything,” said Stewart Glickman, energy strategist at investment research firm CFRA Research. “When you pull fresh capital into Alaska, someone is very optimistic about long-term energy prices. The combination of a hostile federal government, an energetic environmental opposition, [social and corporate-governance focused] Investing as a worldly force, neither of these signs is a good sign. ‘”
It’s not clear who will be bidding on the leases, but it’s unlikely they’ll pay much – certainly not enough to put a strain on the federal government’s finances. The two biggest drills in other areas of Alaska were Exxon Mobil and ConocoPhillipswho each refused to comment on this article as to whether they would bid on ANWR leases. The American Petroleum Institute, which represents the interests of the industry in Washington, referred an interview request to the companies.
Arctic National Wildlife Refuge, Alaska
Universal Images Group | Getty Images
According to Kevin Book, executive director of ClearView Energy, a Washington research firm, drills have recently paid relatively little for leases in other high-cost drilling areas, most of which were offshore drilling auctions in the lower 48 states. All of the offshore drilling leases the Home Office’s Bureau of Land Management has provided over the past few years have raised less than $ 1 billion, he said.
“Companies will be careful if they’re too interested,” said Book. “It’s practically a call option. At a sufficiently low price it becomes clear.”
In Alaska, drilling has declined by more than half in the past 20 years, and even more from a peak in the late 1980s, when cheaper sources of supply in the continental U.S. were tapped by technical innovations like hydraulic fracking, according to department data. Today around 500,000 barrels of crude oil are produced per day, well below the peak of 2 million bpd in the late 1980s.
Indeed, BP Peter McNally, global energy sector at New York-based investment research firm Third Bridge, said he ceased drilling and trans-Alaska pipeline operations in Prudhoe Bay and sold it to Hilcorp Energy for $ 5.6 billion in 2020 Sold privately. He doesn’t expect Hilcorp to bid on ANWR leases.
ConocoPhillips sources about 5% of its oil production from Alaska and Exxon Mobil about 2%, said Stewart Glickman, CFRA Research’s energy strategist.
Anyone who buys rental contracts from the outgoing administration has to deal with a difficult environment for regulation and financing.
Before drilling, a winner of a lease auction would have to get eight or nine different federal permits from the Biden administration that the new team probably won’t be quick to issue, and maybe not at all, said Glenn Schwartz, director of energy policy at Rapidan Energy Group, a Bethesda, Maryland, based consulting firm.
“The bottom line is that it will take as long as the in-depth administration wants,” said Schwartz.
The winners will also have to grapple with the increasing strides environmentalists have made to convince banks not to fund more oil wells, especially in sensitive areas like the ANWR, the only place in America where polar bears, black bears and brown bears are found live Athan Manuel, director of land protection at the Sierra Club.
Already the six major Wall Street banks, including JPMorgan Chase and Goldman Sachshave stated they will not fund drilling in the area, much of which is considered sacred by the Gwich’in Native American tribe, Manuel said. Environmentalists have been reaching out to banks since the 2017 tax bill authorizing Trump to eventually open the ANWR to drilling.
“You don’t want to invest in projects that make climate change worse,” said Manuel. “We have always reached for financing levers that we can pull – banks, insurance companies are the next.”
It could work if the oil companies are patient, said Allyson Cutright, director of Rapidan’s Global Oil Service.
The plan would be to wait for oil prices to climb back to $ 80 levels after the coronavirus-inspired recession ends Brent crude oil didn’t hit the $ 120 peak until 2018, or even 2012, Cutright said. After periods of disinvestment in oil drills, prices often rise sharply as supplies become scarce when economic activity recovers. At the same time, once the initial costs of building roads, pipelines and other infrastructure into the wild are amortized, the average cost of production would decrease, she said. A big advantage of the Alaskan oil fields is that they last much longer than wells drilled for fracking, allowing producers to spread the infrastructure costs over years.
“The appeal of this area is that it is so pristine that you may find another large field like Prudhoe Bay that has been in production since 1968,” said Cutright.
The longer-term problem with this is the emergence of electric vehicles, which are secularly pressuring demand for gasoline and diesel fuel, the final destination for more than 80% of US crude, according to the Department of Energy. Electric vehicles don’t consume gasoline, and experts at Bloomberg NEF and elsewhere expect electric vehicles to be cheaper than internal combustion engine competitors for passengers by around the middle of this decade, although Cutright predicts a gradual transition to electric vehicles will be important for 20 years or more Oil will play more.
The ANWR’s inability to make a difference in the budget or in American energy supplies in the medium term leaves the question open of why Trump is bothering at all, Manuel said. And the answer might be that he wants to “own” Liberals one last time, even though the prospect of reviving Alaska’s oil drilling is no greater than that of resuming coal production that will be brought about by the rapid shift from coal utilities Cheaper natural gas and more has recently been devastated to renewable electricity as the cost of wind and solar power have fallen.
“Part of it is despite [and] None of this makes economic sense, “said Manuel.” It’s like telling West Virginia miners that Jobs will return because Trump is waving a wand. ”