Rystad: Willow's approval is a balance between energy security, energy transition

The Biden administration's decision to approve ConocoPhillips Co.’s Willow project on Alaska's North Slope shows how governments are struggling to balance the dueling priorities of energy security and the journey to a cleaner future, according to Rystad Energy.

“A seamless transition requires policies that utilize a mix of all energy sources with ongoing efforts to decarbonize existing operations while accelerating investments for a cleaner and greener future. The approval of the three-pad development by ConocoPhillips’ is viewed by some as a prudent balancing act at a time when energy security during the bridge years of the transition becomes paramount,” said Radikha Bansal, vice president at Rystad Energy.

ConocoPhillips has had leasing rights in the region since the 1990s, which are extremely difficult to be overturned in a court of law, and the administration may use this as justification for approving the project, according to Radikha.

“Considering the big picture, the US withdrew 180 million bbl of oil from its Strategic Petroleum Reserve last year in an attempt to lower soaring gasoline prices, and additional volumes will be released in June this year. The Willow project’s estimated 600 million bbl of crude will help refill storage and meet domestic demand, but the asset is not going to start producing before 2028,” said Radikha.

Willow is expected to get final approval in first-half 2023, with construction completed in 8-10 years. The approval of the project also ensures the continued operation of the Trans-Alaska Pipeline System, which requires regular supply of oil to run smoothly and efficiently. Alaskan oil production has been declining since the 1980s after it peaked at more than 2 million b/d. By 2010, it was barely 600,000 b/d, and Rystad’s estimates show 2022 output fell to 430,000 b/d.

“A reversal in the state’s declining production trajectory is only possible, however, with larger projects on the North Slope like Willow replacing the natural decline on existing fields,” said Radikha.

Rystad Energy estimates the Willow project will have a competitive breakeven Brent oil price of less than $30/bbl, offering a solid cushion against any potential future oil price drop. The project is expected to attract investments of $7.4 billion and has a net present value of almost $3 billion.

“The administration tried to appease environmentalists and critics by negotiating with ConocoPhillips to relinquish oil rights to 68,000 acres of its existing leases in the National Petroleum Reserve, including about 60,000 acres in the Teshekpuk Lake Special Area. They also announced the protection of almost 16 million acres of Alaskan land and water from any future oil and gas leasing. Even so, continued controversy and pushback is expected. Legal challenges are forthcoming, which could delay or jeopardize the project’s future. Still, if the Biden administration remains fully committed to the project, crude production from Willow could be a major boost for US supply, helping alleviate some of the strain on global markets as Western nations away from Russian energy volumes,” said Radikha.