GOP on verge of opening Arctic refuge to drilling

Lawmakers are the closest they’ve been in decades to letting oil and natural gas companies drill in northeast Alaska’s Arctic National Wildlife Refuge (ANWR). 

The tax bill approved by the Senate includes a provision allowing two sales of drilling rights in the coastal plain of the wildlife refuge.

While the House’s version of the tax bill does not include ANWR drilling, the provision is likely to survive in the final legislation and become law if it reaches President Trump’s desk.

But even after the policy is approved, ANWR drilling is far from certain. Companies are unlikely to jump at the opportunity to drill there, analysts say, and any exploration is likely years away.

And even if companies are interested in drilling there, environmental groups are nearly certain to challenge them every step of the way in the courts. 

Plus, if Democrats elect a president or take a majority in the House or Senate, they could put up significant roadblocks, or even stop ANWR drilling altogether.

“There’s a lot of manic hyperbole about ‘oh my gosh, they’re going to start drilling tomorrow.’ That couldn’t be further from the truth,” said Kara Moriarty, president of the Alaska Oil and Gas Association, which has strongly supported allowing ANWR drilling for decades, an opinion shared by most residents and state leaders in Alaska.

The U.S. Geological Survey estimates that the federally owned refuge’s coastal plain, the only area that would be open for drilling, could have up to 11.8 billion barrels of oil, though it hasn’t updated the assessment in years.

The area was declared a refuge in 1960. In 1980, Congress expanded it and left open the door to potential drilling in the coastal plain, but dictated that lawmakers would have to act to approve it. 

Under the provision in the Senate’s tax bill, the Interior Department would hold auctions for the rights to drill in certain parcels, and then charge royalties on the prices of the oil and gas.

The drilling provisions, written by Sen. Lisa Murkowski (R-Alaska), are estimated to bring in $2.2 billion in fees during the first 10 years, with the money coming entirely from bids, as oil production is not expected to start within that time frame. Half of the income would go to Alaska’s government and half to the federal government.

But whether any of that oil gets pulled out of the ground depends on a number of factors, the main one being the going price for oil, which on Friday hovered just below $60 on international markets.

Without a price that would allow an oil company to recoup the high costs of operating in Alaska, plus a profit, producers are unlikely to bite.

Kevin Book, managing director of policy consulting firm ClearView Energy Partners, said that judging by price forecasts, he expects oil companies to pay for ANWR leases, but not to produce oil from them unless prices rise significantly. 

“Price is the final arbiter. You can sell a lot of leases at any price, but you can’t produce barrels at any price,” Book said. 

“Producing oil at a $35 price environment means very few investment options, and at $100 a barrel, almost nothing gets ignored.”

Pavel Molchanov, a researcher at Raymond James, was less optimistic about industry interest in ANWR.

“As a practical matter, there is virtually no interest in the industry to drill in ANWR. There is little interest in the industry in investing in Alaska generally, but particularly ANWR,” he said. 

Molchanov said ANWR is a “frontier exploration” area, on par with the Great Australian Bight, where industry has little experience, infrastructure or interest in the current economic conditions.

He said some companies might pay for leases in case prices rise in the future, but just a small number. 

“It’s fundamentally a symbolic change,” he said of opening ANWR. 

One thing that makes drilling in ANWR unattractive is the prospect of facing lawsuits from environmentalists.

Greens have long argued that drilling would harm the delicate environment and wildlife in the refuge, and that the oil and gas produced would be catastrophic for climate change. 

While the opening of ANWR to drilling would be a major loss for greens, they don’t plan on giving up. 

“There will be lawsuits. The [National Environmental Policy Act] process, even in the most ideal circumstances, will take time,” Sen. Brian Schatz (D-Hawaii) said, referring to the law that requires environmental reviews of federal government actions.

“So we have the ability to slow it down and then we have [to] win some elections,” he said.

Nearly every final action by the Interior Department would be subject to litigation, including decisions to hold auctions, approve permits to drill and permit infrastructure. 

Earthjustice, a green group that focuses on legal fights, is likely to be at the center of the legal challenges.

“The fight to protect the Arctic Refuge has been going on for longer than 30 years, and it will continue beyond the pending vote on tax reform,” said Marissa Knodel, associate legislative counsel for the group.

“In the end, we and others who have worked consistently for decades to defend the Arctic Refuge will continue to take any action we can to preserve this treasured landscape for future generations.”

But the courts aren’t the only front on which environmentalists are prepared to fight. Greenpeace, for example, is likely to stage its signature, attention-grabbing protests. 

“When Shell tried to drill in the Arctic Ocean, they met unprecedented resistance,” said Greenpeace spokesman Travis Nichols. “If Trump and his oil and gas cronies try to exploit one of the most vulnerable areas on earth for more profits for their dead-end industry, they’re very likely to see more of the same.”

Other ANWR drill opponents aren’t ready to think about the next steps yet, and are hopeful they can still stop the provision in the tax bill from becoming law.

“It’s been on the Hill for 30 years, it’s seen all kinds of votes, and the refuge has remained protected,” said Kristen Miller, conservation director at the Alaska Wilderness League. “So at the end of the day, as long as they haven’t voted for it, we’ll keep working to make sure it gets out of any final piece of legislation.”

Drilling supporters recognize the headwinds, but they say it won’t dissuade them. 

“Operators in Alaska, they just factor the time and cost of litigation into their business model nowadays,” Moriarty said.

As for oil prices, she said industry is always in the long game and often optimistic.

“My guess is that they’re not going to think that the price today will be the same 40 to 50 years from now,” she said.