Secretary of State David Bernhardt predicted Monday that the administration’s oil and gas rental program in Alaska’s Coastal Plain could “create thousands of jobs” and mark a new chapter in U.S. energy dependence.
“At current and too predictable oil prices, the sector’s appetite for drilling into ANWR will be exceptionally low and possibly zero,” Pavel Molchanov, energy analyst at Raymond James, told CNN Business.
That is not to mention the public relations and legal nightmares that would ignite drilling in Alaska’s wildlife. Oil companies are under fire from socially-conscious investors to embrace cleaner energy, not double down on fossil fuels in wild refuges.
“Management teams understand that this is very politically controversial,” Molchanov said. “Oil companies prefer to avoid the complications, the scandals and the headlines.”
Massive supply glut
The Interior Department’s announcement Monday to clear the way for drilling in ANWR was set in motion by the Republican tax adjustment in late 2017. That law required the department to maintain two lease sales until 2024.
But the energy landscape has changed drastically since late 2017.
First, Russia and Saudi Arabia participated in an epic price war that swept the market with excessive cruelty. Then the pandemic caused the demand for oil to fall when offices were closed, factories were shut down and jets were grounded.
ANWR plan can be a ‘flop’
“Given the perpetual dominance, the market no longer needs drilling, and tighter budgets are likely to mean the sector lacks the capital to do so,” said Michael Tran, director of global energy strategy at RBC Capital Markets.
Jason Bordoff, a former Obama energy adviser, said Trump’s moves to open ANWR to drilling “could turn out to be a flop.”
“Even if Trump can overcome legal challenges to offer lease sales in ANWR, that does not mean that everyone will rise up given the increasing social and environmental pressures, low oil prices and uncertainty over oil demand,” Bordoff, founding director of Columbia University’s Center on Global Energy Policy, said in an email to CNN Business.
Of course, the need for drilling in ANWR depends a lot on the prospect of oil demand.
“Based on the prevailing ‘peak demand’ consensus … oil companies may prefer to develop less expensive assets,” Robert McNally, president of consulting firm Rapidan Energy Group, wrote in an email to CNN Business. “History, however, suggests that the only thing that is certain about a hot consensus in oil is that it is wrong.”
“The upcoming cycle of boom oil prices will make the ANWR development much more attractive to oil companies than it is in today’s smooth market,” McNally said.
‘Very expensive’ place to drill
There are still serious obstacles before development in ANWR becomes a reality, including a wave of lawsuits from environmentalists and tribal groups.
But the biggest obstacle is the hefty cost of drilling in a brand new area where equipment, manpower and electricity all have to be brought in.
“ANWR could be a very expensive zone to start in. It does not have much infrastructure,” Per Magnus, chief analyst at Rystad Energy, told CNN Business.
Unless there is a “massive discovery” happening, Magnus said burglary costs could be around $ 80 to $ 85 per barrel. That is roughly double the breakeven levels in the Permian Basin at low cost.
Magnus said there are probably tens of billions of tunnels hidden “underground” in ANWR – but these fats are “hard to find and even harder to extract and label.” Oil companies would have to launch massive and expensive reconnaissance programs to find it all.
Concerns about climate change
But these companies, along with private oil farmers, may find it difficult to raise the money needed to explore the Arctic.
Investors, tired of losing money in the energy industry, have urged oil companies to close their wild spending in favor of a more conservative stance. And the rise of ESG investing makes it very difficult for fossil fuel companies to attract investment on normal projects, let alone those in ANWR.
For all these reasons, it seems unlikely that Alaska’s wildlife refuge will soon become a hotbed for oil drilling.
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