The People of America's Oil and Natural Gas Indusry

Arctic: Energy Security

Barriers to Development

Alaska NPRA ANWR

Source: http://www.blm.gov/ak/st/en/prog/energy/oil_gas/npra.html

Alaska is home to some of the largest oil and natural gas reserves in the United States. Oil production in the state’s North Slope once supplied about a quarter of total U.S. oil output. An estimated 30 percent of the nation’s known recoverable offshore resources are in Alaska’s waters. However, 61 percent of Alaska’s land is controlled by the federal government, which has erected one obstacle after another to energy development. Even promising areas specifically established under federal policy as energy development zones remain largely off limits.

Oil and natural gas development is the backbone of Alaska’s economy, supporting one-third of all state jobs and contributing more than $6 billion in labor income. Alaska oil and natural gas production has been a lifeline for the U.S. energy supply, offsetting much of the mid-1980s production declines experienced in the Lower 48 and transporting 17 billion barrels of oil through the Trans-Alaska Pipeline (TAPS) south to the Pacific coast. Virtually all of that production took place on state and Native-owned lands. Yet the available geologic information strongly suggests that the resource potential in federal areas may far exceed the potential of state lands. Expanding access in resource-rich areas like the National Petroleum Reserve Alaska (NPR-A), small, designated areas in the Arctic National Wildlife Refuge (ANWR) and the Outer Continental Shelf (OCS) is vital not just for Alaska’s economy but for our nation’s long-term energy security.

Onshore Obstacles

The NPR-A was created in 1923 as a dedicated oil reserve at a time when the U.S. Navy was converting the fleet from coal to oil. Despite its specific designation as a strategic resource, little commercial oil and natural gas drilling has occurred there to date. According to U.S. Geological Society (USGS) estimates, 896 million barrels of oil and 53 trillion cubic feet of natural gas are located in the NPR-A. Yet in 2012, the federal government announced it was placing roughly half of the reserve’s 23 million acres off limits to development. A BLM decision in October 2015 to allow ConocoPhillps’ Greater Mooses Tooth Unit to move forward paves the way for the first production on federal NPR-A land in the century since it was first set aside for oil and natural gas development. The permitting delays and regulatory uncertainty that have held up this project for years – constraining a much-needed economic development opportunity – are typical of the barriers Alaskans face in accessing their energy resources. Potentially abundant reserves are also locked away in ANWR. A portion of ANWR’s Area 1002, located on the coastal plain, was set aside in 1980 for oil and natural gas development that could produce between 4.3 billion and 11.8 billion barrels of oil, according to USGS estimates. ANWR is about the size of South Carolina, and the land tracts targeted for development collectively equal about 2,000 acres – roughly the size of Dulles Airport. Despite the minimal possibility of impact to ANWR, decades of federal obstacles have prevented any development. A January 2015 recommendation from the Obama administration to place 12.28 million of ANWR’s 19.8 million acres into wilderness status is yet another barrier to the energy development that Alaskans strongly support.

Alaska State Rep. Ben Nageak, a Democrat who was born in ANWR and is a member of the Iñupiat tribe, criticized the decision, stating, “Our native people have been extracting resources from our lands since time immemorial” and “have proven that we can and will act responsibly. Locking up ANWR and the economic growth it promises, he says, “will permanently harm our people and all Alaskans,” adding, “it’s time the federal government quit tying our hands behind our backs.”

That sentiment is echoed by Richard Glenn, executive vice president for Lands and Natural Resources of Arctic Slope Regional Corporation, which represents the business interests of about 12,000 Arctic Slope Iñupiat. In Congressional testimony in 2015, Glenn stated, “The development of oil and gas resources in our region has fostered a stable local tax base that provides local education and community improvements that would otherwise be lacking or furnished at great expense by the federal government and other agencies.”

The partnership between local Native communities and producers of oil and natural gas has been integral to both economic transformation and cultural preservation. Glenn explains: “The development of Arctic oil and gas resources provides our communities with the means to preserve our traditional way of life and culture while also allowing our residents to enjoy a greater quality of life. Put another way, our communities cannot survive without continued resource development in our region.”

The combined impact of so many federal restrictions threatens “to starve our Trans- Alaska Pipeline System of new oil,” according to Sen. Lisa Murkowski (R-Alaska). TAPS has been a key component of America’s energy infrastructure for decades, supporting jobs and contributing to energy security. Each missed energy opportunity poses a risk to TAPS. Declining production already creates challenges and increases costs for safe operation, and there could be a time when oil production is so low that the pipeline can no longer be operated cost-effectively. Removing federal restrictions to allow further development in federal areas on the North Slope and offshore is essential to maintaining Alaska’s economy and the viability of a pipeline that plays a critical role in America’s energy security.

Arctic Potential

Alaska Offshore Potential

Source: The Bureau of Ocean Exploration and Management (BOEM) - http://www.boem.gov

Failure to harness the energy potential in the Alaska offshore region today could have significant consequences for the nation’s long-term energy security. The world’s largest remaining conventional, undiscovered oil and natural gas reserves – estimated at 13 percent of recoverable oil and 30 percent of recoverable natural gas resources – await development in the Arctic. Estimates indicate the Beaufort and Chukchi seas have more technically recoverable oil and natural gas than the Atlantic and Pacific coasts combined – with the Chukchi Sea alone home to 29.04 billion barrels of oil equivalent, according to 2006 government estimates. A 2011 study by the Anchorage firm Northern Economics projects that developing resources in the Beaufort and Chukchi seas could generate as many as 50,000 jobs nationwide.

Although about 700 leases have sold for offshore oil and natural gas exploration in Alaska since 2005 – generating billions in revenue for the federal government – only one well has been drilled to production depth due largely to delays and continually changing restrictions imposed by the federal government. Seven years of repeated federal obstacles elapsed before Royal Dutch Shell was allowed to proceed with drilling a single exploratory well in 2015. The company’s decision to discontinue the project was based partly on the well’s output, but Shell also cited the “challenging and unpredictable federal regulatory environment in offshore Alaska” in its decision.

Interior Secretary Sally Jewell has stated, “The Arctic is an important component of the administration’s national energy strategy, and we remain committed to taking a thoughtful and balanced approach to oil and gas leasing and exploration offshore Alaska.”

Recent history does not demonstrate the balanced, forward-looking approach necessary to fulfill the potential of Arctic energy. Four Chukchi and Beaufort sea lease sales that were included in the 2007-2012 Leasing Program and proposed to take place between 2009 and 2012 were canceled. Only three lease sales were included in the 2012-2017 Leasing Program, and the Interior Department announced in October 2015 that it would cancel those and deny lease extension requests.

Only one lease sale each for the Beaufort and Chukchi seas has been proposed for the 2017-2022 Leasing Program. Collectively, the decisions represent a system of regulatory and permitting unpredictability and uncertainty that continues to undermine investment decisions. Regulatory certainty combined with routine opportunities for leasing are necessary to secure the promise of Alaskan oil and natural gas production in federally controlled areas.

To boost American energy security in the coming decades, development in the Arctic must begin right away. According to a report from the National Petroleum Council, “Given the resource potential, and long timelines required to bring Arctic resources to market, Arctic exploration today may provide a material impact to U.S. oil production in the future, potentially averting decline, improving U.S. energy security, and benefitting the local and overall U.S. economy.”

Decades of experience operating in Arctic environments – most notably at Prudhoe Bay and across Alaska’s North Slope – demonstrates the oil and natural gas industry has the technology and expertise to safely develop Arctic offshore resources.

Russia, Canada and Norway are already active in Arctic offshore exploration. There is overwhelming support among Alaskans for increased development of oil and natural gas resources, and more than 40 wells have already been drilled offshore Alaska going back to the 1980s. A consistent, forward-thinking regulatory framework that prioritizes regularly scheduled lease sales is necessary to enhance U.S. energy security and maintain America’s position as a global energy superpower.