It's hard for me to believe the debate over drilling in the Arctic National Wildlife Refuge is still going on. I suppose some people would say it'll continue until they finally decide to drill it. But anyway, it has been going on for years. My wife wrote a thesis on the rhetoric of the photography used during the debate, basically how pictures are used to convey different meanings and feelings. And just like pictures, the facts are construed to convey different meanings. At the heart of the debate is the amount of oil in the wildlife refuge and whether it is worth drilling.
According to the Dept. of Interior, there are 10.4 billion barrels of technically recoverable oil in the ANWR [1]. According to the Dept. of Energy, there is a 95% likelihood of there being 5.7 billion barrels, a 5% likelihood of there being 16 billion barrels, with an average estimate of 10.3 billion barrels [2].
Now, ten billion barrels of oil sound like a heck of a lot, huh? Well, the US consumed 20.7 million barrels a day in 2004 [3]. So doing the math, the ANWR only has enough oil for 502 days or 16.5 months. That's not much.
10.4 billion barrels / 20.7 million barrels per day = 502 days
I personally don't think it's worthwhile to disturb the ANWR for a little more than a years worth of oil. The oil is located in vital Caribou habitat [4]. But before we make any hasty judgments, lets look at what the proponents of oil exploration say. According to anwr.org, "ANWR oil could provide an additional 30 to 50 years of reliable supply" [5]. Now somebody has to be lying. We just showed it won't even last 2 years. Well, not exactly. We aren't going to pull 10 billion barrels of oil out of the ANWR all at once, so there probably will be 30 to 50 years of production, which could also be seen as 30 to 50 years of direct environmental impact. But let's assume that we do drill in the ANWR and take oil for 30 years, how much is that a day?
10.4 billion barrels / (30 yrs * 365.25 days per year) = 0.95 million barrels per day
The daily production from the ANWR would be less than 5% (0.95/20.7) of 2004 US oil consumption. Assuming oil consumption grows in the future, the ANWR oil would be an even more insignificant portion of the total oil. But we need oil and every little bit helps, right? Well, how about we reduce consumption instead. We could put 5% more ethanol in our gasoline, we could drive 5% less, or we could have more efficient vehicles. For example, the average passenger car gets 27.5 mpg [6]. If that average was increased to 29 mpg, passenger cars would consume 5.5% less gasoline - BAM no need for ANWR oil.
So, bottom line, there isn't much oil in the ANWR, so we might as well leave it there and start putting our resources to reducing oil consumption.
[1] US Department of Interior: http://www.doi.gov/news/030312.htm
[2] US Department of Energy: http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/
arctic_national_wildlife_refuge/html/anwr101.html
[3] US Department of Energy: http://www.eia.doe.gov/emeu/cabs/topworldtables3_4.html
[4] US Fish and Wildlife Service: http://arctic.fws.gov/carcon.htm
[5] http://www.anwr.org/case.htm
[6] National Highway Traffic Safety Administration: http://www.nhtsa.dot.gov/cars/rules/cafe/overview.htm
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8 comments:
Domestic Oil production is only 6 Mil bbl/day. The nearly 1 Mil bbl/day you anticipate ANWR generating would represent a 16.7% increase in US capacity. That's hardly insignificant, and likely the reason why the debate continues.
The US imports nearly 1.2 million bbl a day from Iraq. The nearly 1 mill bbl/day from the ANWR would go a long, and politically poignant way to decrease our dependence on foreign oil.
At a price of $50 bbl (lower than current market price, and certainly low balling the value of the ANWR reserves if you believe scarcity of crude is influencing current prices) the ANWR reserves are worth $520 billion.
What dollar value would you consider a justification for drilling?
I definitely agree the US needs to reduce its dependence on foreign oil, but the US needs to look at alternatives to oil and ways of reducing consumption. The US can not drill its way out of its dependence. US domestic oil production peaked in 1970 at 9.6 Mil bbl/day, and has fallen steadily to 5.1 Mil bbl/day in 2005 [1]. Trying to drill our way out of foreign oil dependence is a very short sighted solution, that really won't work at all. In 4 years the US oil consumption will have grown by 1 Mil bbl/day (assuming current growth rates), so before we can even get the ANWR oil to market, our consumption will have risen so our dependence on foreign oil will be the same.
A reduction in consumption either through efficiency or by switching to alternatives fuels is the only solution to the US oil dependency problem.
[1] http://www.eia.doe.gov/emeu/ipsr/t41c.xls
Your ANWR ref in your original post indicated domestic production was 6 mil/bbl a day. If that was -incorrect, and the ANWR offers a 17.5% increase in US production, it becomes an increasingly attractive prospect.
The political debate exists because there is a substantial opportunity for profit by exploiting a resource that has only been protected since the Carter administration.
I'd drill it myself for 1% of the profits. Wouldn't you? The debate will continue until the opportunity disappears.
I'm not hung upon on decreasing dependence on foreign oil, or any of the political goals that support drilling. I trust that the market will guide consumers appropriately moderate consumption.
During the last year's high gas prices, consumers - not the government - selected higher mileage vehicles.
In fact, government regulation of the automotive industry can hinder the availability of fuel efficient vehicles. VW's 2008 diesel engine for US Spec Rabbit/Jettas will be 2.0 liter engine with 40/60 MPG (city/hwy) (by current EPA tests, not revised 2008 stds). It will have only 10 fewer ponies than my 2.5, and significantly more torque.
This engine has been on sale in europe for years. But US regulations, particularly state emissions standards in CA, MA, CT, ME, VT made it impossible to import at a profit.
Pat is right - there is no way ANWR could possibly make any dent in U.S. demand. First ANWR production would peak at 1 mbpd; first it would slowly ramp up then slowly ramp down over the 35 to 50 years quoted in the source. Pumping any faster than that would seriously damage the field. Adding to this, ANWR production wouldn't start until about 10 years after work begins -- long after global Peak Oil and long after it could help anyone.
Market demand works too slowly to prevent tragedy. It's time we quit desperately grasping at each last drop-in-the-bucket oil pocket (and there are very few left), admit the reality of our energy usage, and figure out solutions.
The pro-side of the drilling in the ANWR debate is largely unconcerned with decreasing demand for petroleum products in the states. It is interested in profiting from this opportunity. Adding to a resource supply has no impact on demand. That’s fundamental economics. Supply and demand are completely independent. Price depends on both and impacts the volume of transactions. Markets vary in their elasticity in regards to price. The oil market seems relatively inelastic until a price of $75-80 / bbl, where we may see some impact.
While I believe that there will be a point where oil production peaks, I doubt it will follow the Hubbert's elegant bell curve - technology will dramatically impact the decline side.
US Oil production would not have peaked in the early 80s if it weren't for growing "Not in my backyardism" prohibiting the exploitation of fields in the great lakes, and Alaska. (Drilling lake Erie must be easier than drilling in the Gulf of hurricanes). I suppose you could argue that political resistance is a reasonable “difficulty” impeding access to oil. I doubt it’s what Hubbert had in mind.
Global oil production certainly won't peak in 2007 - Just like it didn't peak in the 80s, 1995, etc. It may not peak by 2017 – allowing ANWR oil to hit the market before the peak. Forward looking statements have implicit uncertainties.
Also, any "crisis" potential of a declining oil production (which would be negligible using the bell curve, and even less with tech induced tailing) would only occur by rippling through markets.
It seems inconsistent to argue that market kinetics have an unreasonable lag and in the same breath express concern about a crisis in the petroleum market.
Does anyone honestly believe that the response to any oil supply crisis will be to stop adding production capacity? It will only force the hand of exploitation. Is the general sentiment on the con-side of the ANWR debate “Don’t drill it now, you’ll need it later?”
No. It’s don’t drill it. Not now. Not Ever.
Ben, Where did you learn economics? You even contradict yourself. You state that for a resource supply “Supply and demand are completely independent”, but then say “The oil market seems relatively inelastic until a price of $75-80/barrel, where we may see some impact.” Supply and demand certainly does determine the price of oil and are not independent. That is why oil prices go up when OPEC decides to cut production or when a hurricane disrupts oil distribution. Granted demand on oil is relatively inelastic. As you state, if oil prices climbed significantly to $75-80/barrel then there would be a more immediate change in demand. Demand is not independent of supply below that price, it will still respond but not as quickly. Most people won’t turn in there SUV tomorrow if oil prices rise $5/barrel, but they would if prices stayed high when they are ready to by a new car. From economic theory, the elasticity of demand is related to the availability of suitable substitutes. One of the big problems with the energy industry in the US is that we are stuck with oil. If there was E85 ethanol and regular gasoline available at all gas stations, then the demand curve for oil would be much more elastic, as I could easily put E85 in my tank instead or regular gas (many vehicles today can run on either fuels). Similarly, if there were more fuel efficient cars available, oil demand would also drop.
A couple other corrections on your comments. US Oil production peaked in 1970, not the early 80s as you state. M. King Hubbert successfully predicted the 1970 peak way back in 1949. Kenneth Deffeyes has applied Hubbert’s method to global oil production and predicted a 2005 oil production peak. Realistically, production may not peak exactly according to theory, but since the amount of oil is fixed, the higher the peak climbs, the faster we fall from it. You seem to desire a dramatic crash in available oil. “Does anyone honestly believe that the response to any oil supply crisis will be to stop adding production capacity?” Clearly, on fixed oil planet, the more capacity we add the faster capacity will decrease.
As far as your “trust that the market will guide consumers [to] appropriately moderate consumption.” How can the market do that if the true costs of oil are not present in the market? The oil industry receives federal subsidies, and the market has no natural way to incorporate the environmental, social, and political costs of oil.
The original post was on the oil in the Arctic National Wildlife Refuge, and it seems we’ve gotten off topic. To summarize my post, I mainly argued not to drill in the ANWR on a pure energy assessment – the ANWR oil would make a small dent in our overall oil consumption and we should start looking at alternatives to oil because we are soon going to see a drop in global oil production. I also made mention of a second reason not to drill, the purely environmental reason – that piece of land should be left pristine because of its beauty and for the caribou. Another reason not to drill the ANWR oil that wasn’t discussed in my post is a combination of energy and environmental concerns. Either combining my two points, or bringing the discussion of CO2 emissions from oil into the debate.
After your comments, it seems your only reason for drilling for the ANWR oil is greed – that some oil company could make a lot of money.
Admittedly, I haven't taken an econ course in six years and am a bit rusty. However, supply and demand are independent functions of price and quantity- well supply is less easily defined than demand but that's semantics. The independence of supply and demand was the fundamental concept my prof wanted us to take away from the course.
I was correct in addressing that issue, and never implied that they are constants.
My phrasing describing price and volume in a space defined by supply and demand was at best confusing, and at worst incorrect. I'm not doing the math to figure out if I can transform the spaces.
Demand elasticity is short for "price elasticity of demand" not supply elasticity...
I've attempted to address your questions as to why the debate about ANWR continues. There is an opportunity for profit by significantly increasing domestic production of a valuable resource. An apt analogy for the political reality is to consider a young child on a long car trip. There are only two things that will stop the child from asking "are we there yet". one is to arrive at the destination. The other is to occupy the child with something more interesting than that question.
Since the goal of the con-side of the ANWR debate is to avoid reaching the analogous destination, it would most effectively achieve its goals by offering a more interesting opportunity to those who seek to develop those resources.
Arguing that it would fail to achieve the energy agenda of many people on the con-side will not build a rapport with oil companies that tend to have a completely different agenda. An energy argument preaches to the choir, and avoids forward progress. Of course with that said, I fully recognize the need for extreme viewpoints on either side of the issue. Without extremists, the centrists would have no idea where to stand.
If there were an equal or greater opportunity for profit in alternative energy, business would move in that direction. The street's general lack of interest in alternative energy suggests that there is no energy crisis that would impact 2, 5 or even 10 year investments because business that will profit tremendously from that event are not attracting large investment. Prior recessions have been caused by market overvaluation, and over-supply of commodities. I am not aware of a widespread under valuation of a basic commodity causing an economic crash.
I don’t see how tax subsidies intended to encourage domestic production of oil, many dating to the Clinton administration, would have a dramatic impact on the real price of the commodity when US production is such a small fraction of the global supply. I can’t believe it would add more to the price if gasoline than the state taxes tacked on to the commodity, suggesting that Americans are paying more than the “real” price of gas. Just not as much as our over taxed friends in Europe. FYI, I don’t support subsidies and protectivist measures for many struggling industries, I completely disagree with subsidizing wildly profitable businesses.
But if oil is going to hit $100 or 200 a barrel in the near term, I'd imagine there's a lot of money to be made with long term oil and gas futures, and a lot of profit for companies that can quickly bring alternative fuels to the market.
I don’t see that opportunity, and will stick to momentum trading biotech stocks. ACOR has done remarkably well since announcing phase III results, and will assuredly go higher if the FDA approves their new MS drug.
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