Editorial: ANWR arithmetic

April 11, 2005
As debate heats up again in the US Congress over comprehensive energy legislation, so will discussion about producer access to the Arctic National Wildlife Refuge in Alaska.

As debate heats up again in the US Congress over comprehensive energy legislation, so will discussion about producer access to the Arctic National Wildlife Refuge in Alaska. One part of the environmentalist case against leasing deserves special attention from the oil and gas industry. If not repudiated in the ANWR debate, the argument will haunt future efforts to increase oil and gas supply.

The spurious claim is that potential production from the 1.5-million-acre Coastal Plain, the only part of the 19-million-acre ANWR that can be leased, would be inconsequential to US oil supply. Leasing opponents derive this conclusion from artful arithmetic.

‘Just’ 3.2 billion bbl

The Sierra Club, for example, starts from the assumption that the Coastal Plain holds “just” 3.2 billion bbl of economically recoverable oil. “Each day, the United States consumes about 19.5 million bbl of oil, an annual total of about 7 billion bbl each year,” it says, using data from 1999. “Given this rate of consumption, if arctic oil was our nation’s only source, it would fuel America’s demand for less than 6 months.”

The calculation makes 3.2 billion bbl of oil sound unworthy of any environmental risk, let alone the small risk of drilling and production. But it’s misleading.

Commercial oil fields don’t exhaust their reserves instantaneously or in only 6 months. For that and other reasons, a consumption rate divided by a reserves assumption means very little. Even if the conditions were realistic, the implication that the Sierra Club makes on the basis of them-that 6 months’ oil supply doesn’t matter-is wrong.

If it were indeed possible to bring onto production an oil field able to satisfy US demand for 6 months, the country could suspend crude imports of about 9.7 million b/d during the period, saving $485 million/day on trade accounts at an average crude price of $50/bbl. It also would be able to export its other 5.5 million b/d of production for a trade gain of $275 million/day. Unable to refine crude at the hypothetical production rate, it would have to swap crude for product, but the dollar effects would be negligible.

By any standard, conversion of the US into a substantial oil exporter, even for 6 months, would be a significant supply event. Yet the Sierra Club and its friends want the country to dismiss it as not worth the trouble.

The hypothesis deserves another stretch. Last year, US exports of goods and services totaled $1.147 trillion and imports, $1.764 trillion. Half the resulting trade deficit is $309 billion. If the total-import value is halved and lowered by the value of 6 months’ worth of suspended crude imports at $50/bbl, and if the half-year value for total exports rises by the same period’s worth of new oil shipments, the half-year trade deficit drops to $170 billion. There would be partial offsets, not least among them the suddenly diminished ability of US crude suppliers to buy US goods and services. Even so, the effect on US trade balances would be enormous while the hypothetical oil was gushing to market. The economic goodness might even make US politicians want to encourage the domestic industry to find more oil.

Possible production

In the real world, of course, oil deposits produce slower and over many years. The production rate from 3.2 billion bbl of reserves would depend on reservoir quality and the extent of development. For perspective, Egypt produces 700,000 b/d from 3.7 billion bbl of reserves, Malaysia 850,000 b/d from 3 billion bbl. Those numbers apply to numerous, mostly mature fields in extensively developed countries. A similar volume of conventional reserves concentrated into a relatively few new fields at ANWR would almost surely yield oil at higher rates. Yet even if the average for the first 10 years of field life were the lower of the samples given here, the supply and economic benefits to the US would be great. To imply otherwise about 700,000 b/d of oil in a country craving supply is absurd.

The Senate has shown majority support for ANWR leasing. The House is working on an energy bill with a leasing provision. As the issue draws new attention, leasing opponents will call potential supply from ANWR insignificant. It’s time to expose the bluff.