How drilling in the Arctic National Wildlife Refuge will hurt Mountain West oil producers

Arctic National Wildlife Refuge | U.S. Fish & Wildlife Service

To finance a small portion of the costs of the Republican tax plan currently working its way through Congress, lawmakers are pushing to open Alaska’s pristine Arctic National Wildlife Refuge to oil and gas drilling. Considered one of the last intact spaces in the United States, opening the Arctic to drilling has long been a dream of Alaska Senator Lisa Murkowski.

Until now, most press reports have focused primarily on the environmental risks of drilling and the very problematic economics of selling leases inside the remote wildlife refuge. What has not been reported is the potential impact of developing oil reserves inside the Arctic National Wildlife Refuge on the lower 48 states, particularly the Mountain West.

Increased oil supply from Alaska comes in direct competition with oil produced in the lower 48 — harming producers in the Mountain West.

Earlier this week, the Senate Energy and Natural Resources Committee approved a measure to mandate oil and gas leasing inside the coastal plain of the Arctic National Wildlife Refuge, known as the “1002 Area.” This tract of coastal plain, roughly the size of Delaware, was estimated in 1998 to contain between 4.3 and 11.8 billion barrels of recoverable oil. Champions of Arctic drilling argue that the area has the potential to be the “next Prudhoe Bay,” channeling millions of barrels of oil to market through the aging Trans-Alaska Pipeline System.

Prudhoe Bay has long been Alaska’s largest oil producing region. Approximately 12.2 billion barrels of oil have been produced in Prudhoe Bay since oil production began there in the 1970s. From 1977–2016, Prudhoe Bay produced an average of 834 thousand barrels per day. At its peak in 1988, Prudhoe Bay produced 1,602 thousand barrels per day.

The mandatory leasing of at least 800,000 acres of the Arctic Refuge will be subsidized by tax breaks, low royalty rates, waived environmental safeguards, and low leasing fees, driving down the price of Arctic oil. As subsidized oil flows from Alaska to refineries in Washington, California, and other Western states, it will join the supplies of oil produced in Colorado, Montana, Wyoming, New Mexico, and other major Western oil producing states.

So what might be the impact to Mountain West oil producers?

If Arctic Refuge drilling proponents’ bullish estimates prove accurate — a claim that has been contested because of the high costs of drilling in the frontier environment — the amount of oil flowing from Alaska to the lower 48 has the potential to dwarf production totals in Rocky Mountain states. If the Arctic National Wildlife Refuge produces oil at a rate anywhere close to that of Prudhoe Bay over the last quarter century, production in the 1002 Area could match or surpass total production for the entire Mountain West region.

The Mountain West has seen record oil production in recent years, up 52.2% since 2010. In 2016, Mountain West states (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming) produced 1,062 thousand barrels per day. New Mexico was the largest producer with 399 thousand barrels per day, and Colorado was the second largest producer with 317 thousand barrels per day.

These states have already struggled with high production and low oil prices. With Alaskan oil entering the same markets, Mountain West producers would be in direct competition with subsidized Arctic oil. When Senator Murkowski promises a “a steady supply of energy for West Coast refineries” from the Arctic, what she fails to mention is that “steady supply” will harm Rocky Mountain producers.

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