US Congressional report: Economic impacts of ANWR mixed bag

Oct. 5, 2001
A nonpartisan report prepared for the US Congress says the economic benefits of oil drilling in the coastal plain of the Arctic National Wildlife Refuge are cloudy because of too many unknown and uncertain variables. The report follows another recent ANWR analysis on new oil drilling technology.

Maureen Lorenzetti
OGJ Online

WASHINGTON, DC, Oct. 5 -- A nonpartisan report prepared this week for the US Congress says the economic benefits of oil drilling in the coastal plain of the Arctic National Wildlife Refuge in Alaska are unclear because of too many uncertain variables.

"The oil market and economic impacts of ANWR oil development would depend upon the amount of oil discovered, the sizes of the individual fields, the response of the world oil market to the discovery, the amount of oil eventually produced, the state of the US economy, and the effects of additional US oil production any change in world oil prices," said Bernard Gelb, congressional research specialist in industry economics for the Resources, Science, and Industry Division of the Congressional Research Service.

The report follows a recent CRS analysis on drilling in ANWR with new oil drilling technology. CRS found new drilling advances might be an important factor in addressing the debate over exploration of the Arctic National Wildlife Refuge's coastal plain region (OGJ Online, June 20, 2001).

CRS said the report comes at a time when Congress is deciding "whether to continue to protect the ecosystem on the coastal plain of ANWR or to open it to oil and gas development, with good prospects of finding economically recoverable amounts of oil. Less certain are the broad impacts of development on world oil prices and on the US economy, including employment."

CRS said the uncertainty has been compounded by the Sept. 11 terrorist attacks, with their yet to be fully determined consequences.

Some Senate Republicans wanted to attach the House energy bill that included a provision to lease ANWR to a pending defense spending bill. That effort failed, but industry proponents still would like to see the Senate pass comprehensive energy legislation that includes ANWR. The Senate Committee on Energy and Natural Resources will resume its markup of an energy bill next week, but ANWR may not be addressed until after the new year. Congress is expected to leave town, at least temporarily, in early November.

ANWR volumes
Gelb said the US Geological Survey's estimates of ANWR field sizes and volumes vary widely.

"Given that the sizes of a possible overall discovery and of individual fields are unknown, all estimations of the overall cost of developing ANWR are hypothetical."

He cited as an example the latest USGS estimate -- done in 1999 -- which found that there is a 95% chance there are at least 4.3 billion bbl and a 5% chance there are at least 11.8 billion bbl of technically recoverable oil. The mean estimate is 5.2 billion bbl.

But estimated economically recoverable amounts may be smaller, he said. USGS estimated that if the price of crude is $24/bbl (1996 dollars), there is a 95% chance of at least 2.03 billion bbl and a 5% chance of at least 9.37 billion bbl; the mean estimate is also 5.2 billion bbl.

USGS also found very wide ranges of possibility with respect to oil field sizes. USGS found a 95% chance of 3 or more fields and a 5% chance of 6 or more fields with 256-512 million bbl of technically recoverable oil. It also estimates a 5% chance of 1 or more fields and a 95% chance of 4 or more fields with 512-1,024 million bbl.

During the exploratory phase, each company would have data, and then would select the most promising areas based on its own interpretation of geological data, its own resource assessment, and its own financial criteria, Gelb said.

Oil market response
The CRS report said that other things being equal, an increase in supply would be expected to result in a price decline.

The size of the price decrease would depend to some extent upon how close world oil output would be in relation to world production capacity and on the reaction of other suppliers to the world oil market.

"If supply in the world oil market is tight in 2020 and the market reasonably competitive, 1.4 million b/d of ANWR production could result in lower world oil prices in the short run. The Organization of Petroleum Exporting Countries and other producers, however, may cut output sooner or later to offset the supply effect, as has occurred before," Gelb said. "For example, OPEC has reduced production volumes 3 times in 2001."

With regard to imports, ANWR production would reduce reliance on foreign oil and the economy would improve temporarily. The relative fall in dollars abroad, however, could cause the dollar to appreciate, he said. "This would tend to reduce exports and expand imports to some extent, reversing the initial improvement."

Employment effects
Oil and gas development in ANWR would generate additional jobs, but direct impact on the economy is uncertain, Gelb maintained.

Private and public estimates of new jobs created from new ANWR production vary widely. A Bureau of Labor Statistics study in 1998 found 60,000 jobs could be created; a 1990 report by the WEFA Group determined there could be 735,000.

The impact of ANWR development on employment is affected by the continually changing overall state of the economy, Gelb said. "Even without the impact of recent events, the effect of ANWR oil on world oil prices would be uncertain, and any price drop would have to be considerable and sustained for the macroeconomic effects to be reasonably noticeable, and the job effects would be highly uncertain."

Contact Maureen Lorenzetti at [email protected]