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The Effects of the Alaska Oil and Natural Gas Provisions of H.R.4 and S.1766 on U.S. Energy Markets |
II. Opening the Coastal Plain area of the Arctic National Wildlife Refuge to Crude Oil Production Summary of Results Title V of H.R. 4, “Arctic Coastal Plain Domestic Energy Security Act of 2001,” calls for establishing a competitive oil and gas leasing program in the coastal plain of the Arctic National Wildlife Refuge (ANWR), resulting in an “environmentally sound” program for the exploration, development and production of oil and gas resources in this area. EIA’s analysis shows that opening ANWR to crude oil production will likely increase domestic production, and reduce foreign oil dependence. Using the mean estimates of the available resources, opening ANWR to crude oil development is expected to add 800,000 barrels per day to U.S. crude oil production in 2020, 9 years after production in ANWR is projected to begin. The increased production, relative to the AOE2002 reference case, is projected to reduce the net share of foreign oil used by U.S. consumers in 2020 from 62 to 60 percent, while increasing domestic production by 14 percent. A high resource sensitivity case projects that adding ANWR production could add as much as 1.5 million barrels per day to total Alaskan production and reduce import dependence to 57 percent. In a low resource sensitivity case, ANWR adds 590,000 barrels per day by 2015, before production declines to 510,000 barrels per day in 2020. Since the natural gas resources in ANWR are estimated to be about one-eighth the size of the oil resources, opening ANWR to natural gas production is not considered to have as significant an impact on U.S. energy markets, and is not considered in this analysis.
Background The Federal Government now prohibits oil and natural gas development in ANWR. ANWR is located on the northern coast of Alaska, due east of Prudhoe Bay, the largest oil field ever discovered in the United States, and the National Petroleum Reserve-Alaska (NPRA) (Figure 1.) Surveys conducted by the U.S. Geological Survey (USGS) suggest that between 5.7 and 16.0 billion barrels of technically-recoverable oil are in the coastal plain area of ANWR (also referred to as the 1002 Area), with a mean estimate of 10.4 billion barrels, divided into many fields.3(Technically-recoverable resources are resources that can be recovered with today’s technology.) This estimate includes oil resources in Native lands and State waters out to a 3-mile boundary within the coastal plain area. The mean estimated size of oil resources on Federal lands alone is 7.7 billion barrels. In comparison, the estimated volume of technically-recoverable undiscovered oil in the rest of the United States is 136 billion barrels. Ultimate recovery at the Prudhoe Bay field, including production to date, is estimated to be 13.0 billion barrels. ANWR was created by the Alaska National Interest Lands Conservation Act (ANILCA) in 1980. Section 1002 of ANILCA deferred a decision on the management of oil and gas exploration and development of 1.5 million acres of potentially productive lands in the coastal plain of ANWR. Title V of H.R. 4 proposes to open this coastal plain area to exploration and production. The coastal plain area represents about 8 percent of the total area of ANWR. The USGS estimates that 74 percent of the oil resources in ANWR’s coastal plain area are on Federal lands, with the remaining 26 percent on State and Tribal lands. To date, there has been no assessment of the oil and natural gas resources in the rest of ANWR outside of the coastal plain area. However, it is unlikely that the non-coastal plain area of ANWR has the same levels of resources that are estimated to be in the coastal plain area, due to differences in geology. The “Arctic Coastal Plain Domestic Energy Security Act of 2001” only calls for opening the coastal plain area to development, and does not include any provision to open any of the rest of ANWR. Methodology and Assumptions The effects of opening the coastal plain area of ANWR were determined by incorporating the ANWR region into the Oil and Gas Supply Module of the National Energy Modeling System (NEMS.) 4 The key assumptions required to forecast crude oil production from the coastal plain of ANWR are discussed below.
At the present time, there has been no exploration and development activity in the coastal plain region. An earlier EIA report, Potential Oil Production from the Coastal Plain of the Arctic National Wildlife Refuge: Updated Assessment (Report # SR/O&G/2000-02) suggested that between 7 and 12 years were required from an approval to explore and develop to first production from the coastal region of ANWR. The study further noted that the time to first production could vary significantly based on time required for leasing after approval to develop is awarded, and that environmental considerations and the possibility of drilling restrictions also could significantly affect projected schedules. Following the earlier study, this analysis assumes that passage of the current legislation in 2002 will result in first production from the ANWR area in 2011.
The current analysis uses the USGS assessment of potential field sizes in the coastal plain area, based on its assessment of the underlying geology. For the purposes of evaluating the impact of opening ANWR for U.S. markets, EIA assumed that State and Tribal lands within the coastal plain of ANWR would be opened for development. In the mean resource expectation case, the total volume of technically recoverable crude oil projected to be found within the coastal plain area is 10.4 billion barrels. The largest projected field in ANWR is nearly 1.4 billion barrels. While considerably smaller than the 13 billion barrel Prudhoe Bay field, this would be larger than any new field brought into production in decades. Subsequent fields are expected to be considerably smaller, with two additional fields with 700 million barrels of oil, five additional fields each with 340 million barrels of oil, and a large number of smaller fields. To put this in context with recent domestic oil discoveries, the Alpine Oil field in Alaska – the largest field to start producing in recent years – is estimated to have 413 million barrels of ultimate recovery.
Potential production from ANWR fields is based on the size of the field discovered and the production profiles of other fields of the same size in Alaska with similar geological characteristics. In general, fields are assumed to take 3 to 4 years to reach peak production, maintain peak production for 3 to 4 years, and then decline until they are no longer profitable and are closed.
This study assumes that the much of the oil resources in ANWR, like the other oil resources on Alaska's North Slope, could be profitably developed given the current levels of technology. This study assumes that new fields in ANWR will begin development 2 years after the last field was opened. It is assumed that larger fields will be developed before smaller fields. The decision to use a 2-year lag in bringing ANWR fields into production is driven by four factors. First, there is the size of the fields in ANWR themselves. Second, there is considerable investment infrastructure required to both begin production in these fields and to link these fields to the Trans-Alaskan Pipeline System (TAPS). Third, there is competition of resources from other projects, including the projected development of oil fields in National Petroleum Reserve Alaska, that potentially limits the resources available for ANWR development. Finally, increasing the rate of ANWR development could also require an expansion of TAPS capacity. This study does not assume that the expected rate of technological change in the oil and gas industry will affect the rate of development of ANWR. While a higher rate of technological development may reduce costs and lead to more efficient development of ANWR resources, the impediments to the development of ANWR resources are the legal restrictions and the infrastructure required to bring the ANWR fields into production and tie ANWR fields to TAPS.
The USGS estimates the total volume of non-associated, technically-recoverable natural gas resources available in ANWR to be between 0 and 10 trillion cubic feet (Tcf), with a mean estimated value of 3.5 Tcf. An additional 2.0 to 5.5 Tcf of technically-recoverable natural gas is estimated to exist in ANWR as associated gas, with a mean estimate of 3.6 Tcf. The 35 Tcf of stranded natural gas assets estimated to have been found already in Prudhoe Bay and other areas of the North Slope is not currently being commercially developed. These reserves would most likely be developed first if the infrastructure is developed to market North Slope natural gas. Therefore, this paper does not project ANWR’s natural gas resources to be developed commercially over the forecast period. Results Total Alaskan oil production after opening ANWR is estimated to reach 1.9 million barrels per day in 2020. Total Alaskan production in 2020 is projected to be 800,000 barrels per day higher than it is in the AEO2002 Reference Case, which does not include opening ANWR. The projected volume of production from ANWR represents roughly seven-tenths of 1 percent of projected world oil production in 2020. Total U.S. crude oil production is projected to reach 6.4 million barrels per day, compared to 5.6 million barrels per day in the Reference Case (Figure 2.) The increase in ANWR production would lead to a decline in the U.S. dependence on foreign oil. In the AEO2002 Reference Case, net imports are projected to supply 62 percent of all oil used in the United States by 2020. Opening ANWR is estimated to reduce the percentage share of net imports to 60 percent (Figure 3.) Nearly 89 percent of the offset imports come from reducing crude oil imports, with the rest of the offset coming from product imports. Opening ANWR is also projected to increase U.S. employment in the oil and gas sector, but estimating the size of the employment effects is beyond the scope of this analysis. The High Resource ANWR case Because the coastal plain of ANWR has had little exploration activity, there is considerable uncertainty in the size of the oil resources that might be eventually recovered. The High Resource ANWR Case has been developed as a sensitivity analysis, to project how production might be different if the volume of crude oil resources were at the high end of the USGS distribution instead of at the mean. The High Resource ANWR Case is based on the USGS estimate of 16 billion barrels of technically recoverable resources in the coastal plain area. This estimate is at the high end of the range of recoverable resources that the USGS considers possible. The USGS estimates that it is 95 percent likely that the volume of recoverable oil is less than 16 billion barrels. The USGS estimates that there is only a 1 in 20 chance that the volume of actual recoverable resources of oil will be as high as it is in the High ANWR Resource Case. In the High Resource ANWR Case, the field size distributions are adjusted upwards, based on field size distributions developed by the USGS. The timing of initial production, schedule of subsequent development, and production profiles of the new fields are unchanged from the mean ANWR case. The expected volume of crude oil resources in the largest field is 2 billion barrels in the High Resource ANWR case. This compares to the Kupurak River field, also in North Alaska, which was discovered in the late 1960’s and has a total estimated ultimate recovery of 2.7 billion barrels. Alaskan production reaches 2.6 million barrels per day in 2020, 1.5 million barrels per day higher than projected production in the AEO2002 Reference Case and 0.6 million barrels per day higher than in the Mean Resource ANWR Case (Table 1.) This level of production would exceed historical Alaskan production, and thus, poses logistical problems. Historically, the Trans-Alaskan Pipeline System (TAPS) has been limited in throughput to a maximum of 2.2 million barrels per day. In order to accommodate the increased crude flows in the High Resource ANWR case, the capacity of TAPS would have to be expanded beyond its historical levels. This might be accomplished by reopening closed pumping stations, and redesigning and rebuilding parts of the line; however, expanding the pipeline above its historic capacity could be a costly engineering challenge. The share of imported oil drops to 57 percent in the High Resource ANWR Case by 2020. The Low Resource ANWR Case The Low Resource ANWR Case is based on the USGS estimate of 5.7 billion barrels of technically-recoverable oil in the coastal plain area. The USGS estimates that there is a 5 percent chance that total recoverable oil will be smaller than 5.7 billion barrels, and a 95 percent chance that the total volumes will exceed 5.7 billion barrels. The USGS estimates that there is only a 1 in 20 chance that the volume of actual recoverable resources of oil will be as low as it is in the Low ANWR Resource Case. The field sizes are correspondingly smaller in the Low Resource ANWR Case, with no expected field size exceeding 1 billion barrels. Under this case, Alaskan production reaches 1.6 million barrels per day in 2020. The change in the underlying field sizes between the Low Resource ANWR Case and the Mean Resource ANWR Case is not as great as the change between the Mean Case and the High Case, and therefore the change in production between the Low Resource and the Mean Resource cases is also not as great. Opening ANWR with High World Oil Prices In the AEO2002, a high world oil price case was presented to reflect alternative assumptions regarding the expansion of crude oil production capacity in the Nations comprising the Organization of Petroleum Exporting Countries (OPEC). In the AEO2002 High World Oil Price Case, world oil prices are projected to reach $30.58 per barrel by 2020, compared to $24.68 per barrel in the AEO2002 Reference Case (prices in 2000 dollars.)5 Domestic production is higher in the High World Oil Price Case than in the Reference Case while consumption is lower. This results in a reduction in the share of net imports of consumption in 2020 from 62 percent in the Reference Case to 57 percent in the High World Oil Price Case. The High World Oil Price Mean ANWR Resource case shows how oil production from ANWR (equal to the volumes in the Mean Resource ANWR Case) influences U.S. markets when world oil prices follow the price path set by the High World Oil Price Case of the AEO2002.Total domestic production in 2020 is projected to be 7.2 million barrels per day in the High World Oil Price Mean ANWR Resource Case, compared to 6.4 million barrels per day in the AEO2002 High World Oil Price Case (Table 2 and Figure 4). The share of oil production from Alaska increases from 17 percent of total domestic production to 27 percent. The share of imported oil in 2020 is projected to be 54 percent (Figure 5), which is expected to be the same net share of foreign oil consumed in 2001. As an additional sensitivity, the high ANWR resource assumptions were combined with the high world oil price assumptions to make the High World Oil Price High ANWR Resource Case. In this case, total production is projected to be 7.9 million barrels per day, including 2.6 million barrels of Alaskan production per day. Once again, projected Alaskan slope production is greater than the historical peak TAPS throughput. The net share of petroleum imports in 2020 is projected to be 52 percent. Opening ANWR with High Transportation Technology The effects of opening ANWR were also modeled in a low-demand case, based on the Transportation High Technology Case developed in the AEO2002. This case assumes that there will be lower costs, higher efficiencies, and earlier introduction of energy-saving technologies than the AEO2002 reference case assumes, leading to a 9 percent decline in total transportation energy use. Higher average fuel efficiency in the light duty vehicles is the largest component of the difference in demand between the Transportation High Technology Case and the reference case, accounting for 76 percent of the change in energy consumed in transportation.6 The increased rate of technological change in transportation leads to lower oil consumption, and a lower share of total oil supplied by foreign imports than the AEO2002 Reference Case. By 2020, total projected consumption of oil is 24.9 million barrels per day in the High Transportation Technology Case, compared to 26.7 million barrels in the reference case. The projected share of oil supplied by imports is 60 percent, compared to 62 percent in the AEO2002 Reference Case. In the High Transportation Technology, Mean ANWR Resource case, lower total demand and increased domestic production due to opening ANWR leads to an even lower share of net imports (Table 3 and Figure 6.) Assuming that ANWR resources are produced following the assumptions outlined above, opening ANWR with total recoverable resources at the mean of the USGS estimates causes the projected net share of foreign oil to be 57 percent in 2020. In the High Transportation Technology, High Resource ANWR case, ANWR crude oil resources are assumed to be equal to the high end USGS estimates, and the net share of foreign oil drops to 55 percent. ANWR Production Uncertainties There are several areas of uncertainty when considering the impact of opening ANWR on U.S. energy markets:
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