The Arctic National Wildlife Refuge:
A Contribution to the U.S. Energy Security?
By Robert A. Speir
Innovation & Information Consultants, Inc.
Concord, MA 01742

Each day, more than 8 million barrels of crude oil must come in from foreign shores. That is a dangerous strategy by anyone's measure....1

By 2020 we are expected to be importing 64 percent of our petroleum. That is a prescription for economic and national security disaster....2

The damage to the U.S. economy wrought by a major disruption in oil supplies to the (eastern United States) would not be mitigated by the existence of Alaskan North Slope oil because the physical security of Alaska North Slope crude oil cannot be assured. Rather, much more significant factors would be the capacity of the lower 48 States to increase their oil production..., or of Mexico to increase its exports to the United States.3

 
Summary and Conclusions

Opening the Arctic National Wildlife Refuge (ANWR) is, for the first time in many years, a distinct possibility. The Republican Party, in control of both houses of Congress and the White House, is in a unique position to pass authorizing legislation that will not be vetoed by a Democratic president. Indeed, the new Bush Administration is sufficiently confident to have included federal revenues derived from ANWR leasing in its tax cut plan.

In light of the difference of opinion captured by the above quotes, it is worthwhile to examine the contribution of ANWR oil production to the U.S. oil supply and economy. A short review of available information shows that:

	Oil production from ANWR would, at most, reduce U.S. oil import dependence from 64 percent to 59 percent.
	ANWR production would not reduce the economic effect of an oil supply disruption on the United States.
	Employment estimates associated with developing the ANWR oil field are at least a factor of 10 lower than those that have been publicized.

 
ANWR's Effect on Oil Import Dependence

In 1999, the U.S. Geological Service (USGS) estimated that ANWR might contain 10.3 billion barrels of recoverable oil reserves (this is the "mean" or most likely estimate). In March 2000, Senator Frank Murkowski, Chairman of the Senate Energy Committee, asked the Department of Energy's Energy Information Administration (EIA) to estimate year-by-year oil production consistent with the USGS reserve estimates. EIA's analysis indicated that:

	production might begin 7 to 12 years after ANWR exploration is authorized;
	under a normal development schedule, production might peak at slightly more than one million barrels per day about 26 years after the first barrels are produced; and,
	under an accelerated development schedule, production might peak at year 18 at a level of over 1.3 million barrels per day.

Each year, EIA estimates domestic energy supply and demand for the next 20 years in its "Annual Energy Outlook (AEO)." One by-product is the foreign oil dependence figure that Senator Murkowski and others have used in justifying opening ANWR (i.e., 64 percent of U.S. oil supply will be from foreign sources by year 2020). Figure 1 below combines the AEO 2001 oil import tables with the ANWR production analysis above to show the effect of ANWR production on U.S. foreign oil dependence. The accelerated development schedule was used to maximize ANWR's impact. The figure shows that ANWR's contribution is only modest. The principal problem is that, by 2020, EIA projects that the United States will be consuming almost 26 million barrels of oil per day, compared to 19 to 20 million today. Because oil production from other U.S. fields will decline, absent ANWR, the entire increase in consumption must be made up with imported oil. Put in its best light, then, one might conclude that ANWR production might reduce the growth in imported oil by 25 to 26 percent. However, the fact remains that, even with ANWR explored and developed, today's best estimates indicate that the United States will depend on foreign sources for 59 percent of its oil in 2020. Between now and then, ANWR's contribution would be of lesser significance.

 
ANWR Does Not Reduce Economic Vulnerability

Alaskan oil is not cheaper than imported oil . . . the world market price is established by the price of Saudi light.4

This was a correct assessment. Unless rigidly enforced price and export controls are in effect, oil prices in the United States would rise and fall with world oil prices. Figure 2 shows that, during the opening phases of the 1990–1991 war with Iraq, West Texas Intermediate (WTI), Alaskan North Slope (ANS), and Saudi Light crude oil spot prices all moved upward in lock step. In fact, the ANS prices in Los Angeles shown in the figure were even more responsive than the other two crudes. The fact that relatively isolated California only depended on foreign crude sources for about 6 percent of its supply further underscores the fact that import dependence (in an open market) does not affect price response at all.

The damages that economists normally associate with oil supply disruptions derive directly from crude oil price escalation. These increases translate to higher costs for gasoline, diesel fuel, and other petroleum products, and, through fuel substitution in the industrial and utility sectors, cause sympathetic price movements in other energy markets. Together, they increase inflation and have a depressing effect on economic activity. The magnitude of the problem is dependent on the direct and indirect "oil intensity" of the economy — the amount of oil used per unit of economic output. It follows that, if ANWR would not hold in check increases in U.S. oil prices, and it would not reduce oil intensity, then it would not provide any economic protection against an oil price shock.

  Employment Benefits of ANWR are Overstated

Proponents of opening ANWR have stated that it "could generate up to 735,000 jobs."5 While the basic data for this estimate derive from a 1980s study, we can corroborate the general magnitude with data developed in the Department of Energy's 1994 report on the effects of permitting Alaskan North Slope crude oil exports.6 Those figures suggest a total estimate of about 660,000 "jobs."7 Given the uncertainty in economic analysis, these estimates should not be viewed as being inconsistent. The problem is in the presentation. Specifically:

These estimates are job years, not permanent jobs. That is, they are spread over 7 to 12 years of exploration and development, and perhaps some of the early years of production. The employment estimate would be an order of magnitude lower. That is, it would be more nearly correct to say that ANWR development could generate employment for 50,000 to 100,000 persons during the exploration and development cycle.

It should be obvious that these are not additional jobs for the U.S. economy unless unemployment is very high during the ANWR development years. Currently, when our economy is essentially at full employment, new jobs created by the opening of ANWR would be held by people who had left other jobs.8

Even though employment for 50,000 to 100,000 people is only one-fourth to one-third of the jobs our economy generates each month, the level is not insignificant. However, the estimates might be high. This is in part because the basis of the 735,000 "jobs" estimate reflects 1970–1980 exploration and development technology. Additionally, the 660,000 new jobs figure implicitly includes a considerable amount of North Slope infrastructure that would be available for any ANWR activities.

 
Endnotes

1.		Press release by Senator Frank Murkowski, Chairman, Senate Energy and Natural Resources Committee, announcing introduction of the National Energy Security Act of 2001, which would open ANWR for exploration and development.
2.		Press release by Senator Murkowski, announcing introduction of the Arctic Coastal Plain Domestic Security Act of 2000, that would have opened ANWR.
3.		Statement of Hon. Frank H. Murkowski, Chairman, Subcommittee on East Asian and Pacific Affairs of the Senate Committee on Foreign Relations, arguing for legal authority to export Alaskan North Slope crude oil to Asia. Presented to the Subcommittee hearing "Export of Alaskan Crude Oil," July 19, 1983.
4.		Statement of Hon. Frank H. Murkowski, Chairman, Subcommittee on East Asian and Pacific Affairs, July 19, 1983 Alaskan oil export hearing.
5.		Undated op ed article from the Office of Senator Frank Murkowski available at http://www.senate.gov/ ~murkowski/oped/arcticdrilling.html
6.		"Exporting Alaskan North Slope Crude Oil: Benefits and Costs," U.S. Department of Energy, June 1994.
7.		The DOE figures, updated from 1992 to 2001, indicate that Alaskan North Slope reserves cost about $3.70 per recoverable barrel to develop. Using a USGS estimate of 10.3 billion barrels of recoverable reserves, and a jobs cost of 17.4 job years generated per million dollars, produces about 660,000 job years generated by ANWR exploration and development.
8.		Of course, some of the ANWR-related jobs might be held by non-U.S. laborers, or the ower-paying jobs ANWR workers leave might be filled by non-U.S. workers.