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Alaska oil and natural gas exploration boom in question

Washington (Platts)--21 Dec 2017 1111 am EST/1611 GMT


Congressional Democrats and environmentalists are preparing for a legislative and legal fight against oil and natural gas drilling in Alaska's Arctic National Wildlife Refuge after Congress this week approved drilling there for the first time in decades.

* Lease sales included in tax bill

* Midterm elections could reverse

"The new phase of this fight has begun," Adam Kolton, a senior director with the Alaska Wilderness League, said Wednesday.

"It's a disgrace, it's an abomination and we are going to fight it," Massachusetts Senator Ed Markey, a Democrat, said during a call with reporters.

On Tuesday, the House and Senate approved a $1.5 trillion tax reform package that includes a provision requiring the US Interior Department to hold at least two lease sales in the Coastal Plain of ANWR, offering a minimum of 400,000 acres each within 10 years. The House made technical fixes to the legislation Wednesday and President Donald Trump is expected to sign it into law early next month.

What the fight against ANWR drilling will look like going forward was uncertain Wednesday and will depend largely on the partisan makeup of Congress in coming years.

Markey, for example, said Congress could pass a bill to permanently bar drilling in ANWR, voiding the pending federal lease sales, if Democrats shift the balance of political power in Washington in upcoming elections.

Environmental groups are also expected to sue to block ANWR development, challenging potentially inadequate environmental reviews.

"We are going to do everything in our power to defend [ANWR]," Collin O'Mara, president and CEO of National Wildlife Federation, said Wednesday. "It's not economical, it's not safe and the environmental impacts are too great." O'Mara pointed to a growing argument against drilling in ANWR: lack of commercial interest in drilling there.

"It may be legal, but that doesn't mean it'll happen," Kolton said. In a note Wednesday, analysts with Barclays said the decision to lift ANWR drilling prohibitions put in place during the Carter administration may never result in additional drilling there.

"Although the economic benefits of developing a potentially prolific region such as ANWR may be attractive, companies will have to consider the potential reputational risks of investing in such a project," the analysts wrote. "In the current climate of environmental conservation, companies investing in ANWR oil and gas developments may be looked upon unfavorably."

A potential ANWR producer would risk "significant backlash," amplifying the operational risk of drilling there.

"Lawsuits could result in response to any operational errors, which could result in closure of facilities and shutting-in of production until legal issues are resolved," they wrote.

But Sam Ori, executive director of the University of Chicago's Becker Friedman Institute for Research in Economics, said critics of ANWR drilling may be overstating the economic risks of drilling there and understating the lack of interest in oil and gas development there.

"ANWR will have its own set of challenges, but it is a stable operating environment with a transparent fiscal regime. And it's onshore," Ori said. "My bet is that if there is a commercial discovery, companies will eagerly develop it."

Drilling in ANWR may currently offer more risk than drilling in a US shale play, such as the Permian, but likely poses less risk than other plays, such as Nigeria.

In a recent interview with the Platts Capitol Crude podcast, Christopher Guith, a senior vice president for policy at the US Chamber of Commerce's Global Energy Institute, said he has heard from several companies interested in drilling in ANWR.

"I have got several members who would absolutely participate in lease sales," he said.

Alaskan oil production has fallen from about 530,000 b/d in 2012 to 490,000 b/d in 2017, according to the Energy Information Administration. Production is expected to continue to fall to 480,000 b/d in 2018, EIA projects.

A 1998 US Geological Survey report estimated that there are between 4.3 billion barrels and 11.8 billion barrels of technically recoverable oil within ANWR, excluding state and native areas. The survey found a mean value of 7.7 billion barrels.

These estimates are expected to be updated before the first leases in ANWR are offered.

--Brian Scheid, brian.scheid@spglobal.com




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