Sean Parker is a staff writer for Brief Policy Perspectives and a second-year ENRP student.
Alaska’s Oil Bust
The auctioning of federal lands to oil companies in the Arctic National Wildlife Refuge (ANWR) was intended to bring an economic boon to the remote interior of northeastern Alaska. Of the 22 tracts that were offered for leasing on January 6th, roughly half received bids. Only three interested parties made an offer on the eligible 1.56 million acres of land for oil exploration and development. Of those three offers, one came from the State of Alaska, which now faces scrutiny surrounding the legality of the state’s bidding on leases made for oil companies. $14.4 million dollars in revenue were generated from the bidding, falling far below the total projected value of $900 million. These underwhelming results were not what the Trump administration had hoped for when the plans were set in motion four years ago with the passage of the Tax Cuts and Jobs Act of 2017.
The Vast Unknown
The lack of enthusiasm for the land parcels within the Coastal Plain of ANWR stems from a multitude of uncertainty — starting with the impact from COVID-19. Demand for oil went down considerably when the pandemic went into full effect. Global oil demand decreased by eight percentage points in 2020, underscoring the need for expanding investment for new oil supplies. The amount of capital needed to develop the Coastal Plain is particularly expensive and risky due to the remote nature of its location and unpredictable weather. Uncertainty over how much oil is available and where it is located complicate the matter even further.
Aside from the pandemic, oil companies are taking cues from public attitudes towards the development of protected lands. Many companies are choosing to opt out simply to avoid bad publicity. Extracting oil in this fragile ecosystem proves to be unpopular with the general public. Its lack of public support stems from the refuge’s status as a home to many endangered species that are unique to the area, including the iconic polar bear. Other endangered species such as the Porcupine Caribou could suffer if their grazing land is disturbed. Disappearance of the caribou would also affect the local Gwich’in tribe who rely on the caribou for nourishment. The combination of these factors discourages companies from wanting to get involved.
For companies considering investing there is limited available financing. Goldman Sachs and JPMorgan Chase are part of the growing trend of large investment banks opting out of lending money to projects that are located within the refuge. For many large investors, the uncertainty around the quantity of potential oil and the costs for development make for a risky investment. Additionally, with a new Biden administration halting all new lease sales, the future of regulation in ANWR is unclear to these investors.
Setting The Stage
The controversy surrounding oil and gas development in the Coastal Plain stems back decades to when the Department of Interior released its environmental impact statement (EIS) discussing the potential for extracting billions of barrels of oil in the region. The Coastal Plain was established within ANWR for the purpose of studying wildlife and resource extraction potential. The discovery helped pave the way for the passage of the Federal Onshore Oil and Gas Leasing Reform Act of 1987. The law enables the Department of Interior to auction federal land through competitive and non-competitive leases. A process that the Trump administration tried to expedite through executive order 13807. The order required EIS’s to be restricted to a maximum of 150 pages and for the assessment to be completed in one year or less. The purpose was to streamline the process for assessing environmental impacts on federal projects. While the order helped speed the process for developing and reporting EISs, it underscored the ability of researchers to identify all the potential environmental risks by limiting the scope of their reports. The order exempted federal agencies from no longer assessing the impact of infrastructure projects on climate change. However, the order has since been revoked by the Biden administration.
To Drill or Not To Drill?
The battle over the future of the Coastal Plain will likely continue despite the transition of a new administration. President Biden has already halted drilling on federal land over concerns around climate change. It is unclear what will happen next in the region. For now, it seems both sides of the debate are unsatisfied with the current situation. On the one hand, the auctioning did not produce the economic boon promised by the previous administration while on the other, concerns around development have not dissipated with the changing of federal leadership.
The immensity of ANWR is something that cannot be understated. The 19 million acres of pristine wilderness is larger than many of the states in the lower forty-eight. Its vastness and ecological diversity make it one of few remaining protected animal sanctuaries in the world. There are no roads leading into the refuge so if you want to visit you must schedule a charter flight. Aside from its resources, the state benefits from the refuge’s ripe recreational potential. Revenues generated for Alaska’s local economy from outdoor enthusiasts visiting ANWR generated $29 million dollars in 2017. Alaska doesn’t need to extract oil to benefit from ANWR. The costs associated with developing the Coastal Plain should be an indicator that the refuge is better off being protected.