NELSON: ANWR -- Trillion-dollar Arctic cathedral

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By Robert Nelson

COMMENTARY:

Barack Obama promised change. Here is a good prospect. Few areas of public debate have been as stale - as barren of substance, focused instead on powerful emotional symbols - as the oil development of the Arctic National Wildlife Refuge (ANWR) in northeast Alaska.

For the environmental movement, ANWR development long ago became a sacred cause that served above all as a litmus test of whether "you are with us or against us." It is time to move past all that.

The proponents of ANWR development have also distorted the picture by themselves making false arguments. First, it should be acknowledged that ANWR oil production will not in itself come close to achieving energy independence for the United States. Second, ANWR production alone will not affect oil prices significantly. Even the large reserves that ANWR possesses are not large enough, relative to the total world oil market, to have much effect on future world prices.

The real issue in ANWR is the proper use of the fiscal assets of the U.S. government. The oil there is worth, minimally, $500 billion in gross value and, potentially, $1 trillion dollars or more - depending obviously on the future world price of oil. With the current dire economic situation, and federal deficits projected to approach a trillion dollars in the next year or two, the United States can no longer afford to leave this immensely valuable economic asset to simply sit idle.

The best estimates available, released by the U.S. Geological Survey in 1998, concluded there was a 95 percent probability of finding at least 5.7 billion barrels of "technically recoverable" oil, a 5 percent probability of finding 16.0 billion barrels, and a 50 percent "mean" probability of finding 10.4 billion barrels. For the mean probability, this includes 7.7 billion barrels actually inside ANWR on federal lands, and 2.7 billion barrels owned nearby by Alaska Native Corps. and the state of Alaska (which could be economically produced only in conjunction with the development of the ANWR federal reserves).

World oil prices have been changing so rapidly that any prediction is uncertain. But at assuming for purposes of discussion a future world oil price of $50 per barrel, the mean expectation for the federal and nonfederal ANWR oil reserves is a cumulative gross market value of more than $500 billion - and it would be worth more than $1 trillion at prices of $100 per barrel. It might cost $20 to $30 per barrel to produce most of the ANWR oil, but the net revenues (after costs) would still probably be greater than $300 billion (and could turn out to be much higher, depending on the future price of oil). To put this in perspective, the United States could have paid most of the interest payments on the national debt in 2008 with the likely future oil revenues obtainable from ANWR.

The objection will no doubt be raised that ANWR production would benefit oil companies, not the federal government or average American citizens. As noted above, however, three-quarters of ANWR oil is on federal land, and the rest is on Native American and Alaska state land. Like existing federal oil and gas leasing on the Outer Continental Shelf (OCS), the ANWR oil would probably be made available to oil companies by competitive auctions and the government would also charge a large royalty on any future production. Throughout the world, the true beneficiaries of petroleum resources are not the oil companies who may physically extract the oil but the actual owners of the resource.

It is true that the residents of Alaska might benefit disproportionately - one reason virtually every Alaska politician, Democratic and Republican alike, has strongly favored ANWR production. In past proposed legislation to make ANWR oil available for exploration, any future revenues derived from the federal part of the oil resource would be shared 50/50 with the state of Alaska. However, if oil prices stay as high as they have been recently, it would be reasonable to reduce the Alaska share - say to 25 percent or less.

But what about the environmental costs? Remarkably enough, considering the widespread opposition to oil development, they are modest. In 2003, the National Academy of Sciences released the most authoritative study to date of the environmental consequences of oil development on the North Slope of Alaska. The study concluded that in the Prudhoe Bay area (on lands owned by the state of Alaska) the extensive past oil development "had not resulted in large or long-term declines in the size of the Central Arctic Herd" of caribou (which had in fact increased in numbers). Ironically, some animal species increased in numbers due to the oil company presence. It might not represent the ideal of wild nature but brown bears, Arctic foxes, ravens, and glaucous gulls had benefited from "the ready availability of new sources of food from people in the oil fields."

The proponents of ANWR oil development have signaled a willingness to divert a share of future revenues to other environmental purposes. Even if this is only a small percentage share, many billions of dollars of ANWR revenues could be committed to building new trails, providing greater visitor services, and otherwise upgrading the National Parks. Additional billions could be made available to compensate private land owners and otherwise taking more steps to protect endangered species.

Seen in this light, the net environmental impacts of ANWR oil development from the perspective of the nation as a whole would be overwhelmingly positive.

Instead, the environmental movement seeks to maintain ANWR as a quasi/religious symbol of isolated nature supposedly "untouched by human hand." Given all of today's other fiscal needs, a cathedral in the Arctic worth as much as a trillion dollars is more than the nation can afford.

Robert H. Nelson is a professor of environmental policy in the School of Public Policy at the University of Maryland and an affiliated senior scholar with the Mercatus Center at George Mason University.