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17 Aug, 2020 20:18

Trump speeds up plans for oil development in Alaska wildlife reserve, but drillers may show little interest amid industry slump

Trump speeds up plans for oil development in Alaska wildlife reserve, but drillers may show little interest amid industry slump

The Trump administration said it will begin leasing oil exploration blocks in Alaska's Arctic National Wildlife Refuge (ANWR), inflaming opposition at a time when it may not even be economically attractive to drill in the region.

Interior Secretary David Bernhardt said Monday that opening up 1.5 million acres of federally owned land in the refuge will create thousands of jobs and marks “a new chapter in American energy independence.” The first lease sale could take place by the end of this year, four years sooner than is required by 2017 legislation. A tax bill passed that year by Congress, then controlled by Republicans, included a provision that lease sales be held by 2024.

But speeding up leasing in ANWR would seem to have little strategic economic relevance at a time when the oil industry is slashing costs to cope with this year's collapse in crude prices. On the other hand, it could have political relevance for President Donald Trump, as it would underline a key policy difference between him and Democrat Joe Biden, who has called for stopping all oil and natural gas drilling on federal lands.

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Prior to the Covid-19 outbreak, Trump could point to surging US petroleum output and oil industry job creation as a major economic success. But even before the pandemic, Alaska had fallen out of favor because of its relatively high costs and the discovery of easier, more profitable pickings in places like the Permian Basin of west Texas and offshore Guyana.

Industry giants Exxon Mobil, BP and ConocoPhillips backed out of a $44 billion (LINK) project to pipe Alaska North Slope gas to the Kenai Peninsula for liquefaction and export as LNG in 2016, citing poor project economics. BP, which helped launch the Alaska oil boom in 1969 with a major oil discovery in Prudhoe Bay, sold its assets in the state to Texas upstream independent Hilcorp Energy in July.

Another oil major, Shell, abandoned its offshore drilling program in the Alaskan Arctic in 2015, after drilling results failed to outweigh the difficulties of dealing with environmentalist opposition. ConocoPhillips and Norway's Equinor relinquished their Alaska leases in the Chukchi Sea that same year.

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ConocoPhillips retrenched further in April, saying it would cut its Alaska oil output by about half, to around 100,000 barrels a day, because of low oil prices. Alaskan oil production has been in steady decline since peaking above two million barrels a day in 1988, sliding to a paltry 466,000 barrels a day in 2019 and wrecking the state's energy-reliant budget.

That's not to say there will be no interest in ANWR investment, especially if oil prices recover. BP and Chevron made $22.5 million in lease payments to retain their exploration rights on tribal lands in the reserve between 2017 and this year. All drilling in the reserve had been halted since 1986, and lease payments only resumed when Congress passed the 2017 legislation to reopen the reserve.

Alaska Oil and Gas Association President Kara Moriarty said that despite low oil prices, it's critical for the government to meet its legal obligation to carry out lease sales for ANWR “to support America's oil and gas industry in meeting ongoing domestic and global demand.” A ballot measure that would increase industry taxes is the biggest threat to being able to develop new oil prospects in the state, she said.

And as they were in the Chukchi Sea, environmental groups are already gearing up to block the drilling. “Interior just took the next step to open the sacred Arctic refuge up to oil and gas exploration,” Earthjustice said Monday on Twitter. “We can't let them get away with it.”

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