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Sunday, February 25, 2018

Arctic Drilling, Climate Change, and Dependence on Fossil Fuels


My cousin asked me to write a blog post about proposed drilling for oil in the Arctic National Wildlife Refuge.  As part of the Republican-led tax reform bill, Congress recently overturned a decades-old ban on drilling in the area, largely at the insistence of Alaska Senator Lisa Murkowski.  Alaska will share in the leasing and production tax revenues from oil development within the refuge.  ANWR is on Alaska’s North Slope, and covers about 30,000 square miles (a little bigger than Massachusetts, New Hampshire and Vermont combined).  The refuge is coastal plain adjacent to the Arctic Ocean, and mountainous to the south.  Most of the coastal plain was recognized as prospective for oil in the 1970s, and set aside by Congress as “Area 1002” in 1980 for a future decision on drilling.  Area 1002 covers about 2350 square miles (about twice the size of Rhode Island). 
Image Credit: Alaska Department of Natural Resources

Some issues are not simple.  Decisions regarding fossil fuels are that kind of issue.  To make these decisions, we have to look at both sides of the coin.

Fossil-Fuel Dependence
First, let’s consider our use of fossil fuels.  As you are reading this, the computer screen in front of you is made from oil.  The energy powering the computer was probably produced by burning natural gas or coal.  Everything you possess, everything you can touch, every stick of your house is either made from oil or was certainly transported by oil.  Most of the food you eat was produced on farms which use tractors powered by oil to plough and harvest.  You probably use oil to travel to work, and you are certainly supported in life by others who use oil for their daily lives, which enables them to make your clothes, transport your food, build your houses, sell you things, and so on.  If oil suddenly ceased to exist, most of the population on earth would not be able to live.  We are all connected, and together we are dependent on fossil fuels.  If you are breathing, you can thank an oil company.

That’s the status quo. 

Climate Change
The other side of the coin is that continued use of fossil fuels will cause great destruction unless mitigated by some costly and unproven technology.  There is no question that climate change is occurring, is accelerating, and is caused primarily by man-made emissions of CO2.  Forecasts for any scenario without removing CO2 from the atmosphere show an increase of average global temperatures between 3 and 8 degrees Celsius (from 1900).  The mid-range of these forecasts would greatly impair agriculture in the United States, and flood coastal communities and barrier islands within 150 years.  Natural disasters will become more frequent.  Food production from the ocean may fail.  The higher end of these forecasts is likely to render swaths of the planet uninhabitable, due to complete agricultural failure, heat extremes, or flooding.  Countries likely to be affected most are those near +30 and -30 degrees of latitude (due to atmospheric convection cells), including Australia, South Africa, Mexico, the southwest United States, Spain, Italy, Israel, Jordan, Syria, Iran, Iraq, Pakistan, India, Bangladesh and southern China.  It is worth noting the number of nuclear-armed countries on the list, particularly in South Asia.

Heating will continue even if all fossil-fuel use stopped today, because of the compounding effect of CO2 already in the atmosphere.

Renewable Energy Growth Limits
Renewable energy is currently about 3.5% of global energy supply.  
Data Source: BP Statistical Review of World Energy

Globally, renewable energy is growing at a rate of about 14% per year, while overall energy use is rising at 1% per year.  As a purely mathematical exercise, we could completely replace fossil fuels by the year 2044, if renewable energy continued to grow at the rate of 14% per year.
But there are limits to the growth of renewable energy, too.  Starting from a base of 3%, it is fairly easy to construct the next 0.4% of the global energy supply in a single year.  Starting from a base of 50%, it will be very hard to replace 7% of the global energy supply in a single year.  Massive new mines will have to be constructed to supply the rare-earth elements needed for wind turbines and lithium for batteries.  New factories will be needed to construct solar panels. Steel & aluminum will be needed for transmission.  And mostly, a massive amount of money will be needed for capital investment.  As a summary judgment, this cannot happen by mid-century.

We therefore need to research and implement CO2 capture & sequestration technologies or mitigation technologies as soon as possible.

Energy Security
The United States consumes about 20% of the world’s energy, with about 4% of the world’s population.  As this blog has noted before, the use of so much energy is largely responsible for America’s high productivity and wealth, (http://dougrobbins.blogspot.com/2011/08/wealth-of-nations.html).

American oil production peaked at 10.2 million barrels in 1970, as predicted by M. King Hubbert in 1956.  The development of horizontal drilling & fracking technology made large volumes of unconventional resources economically viable, invalidating Hubbert’s assumptions.  The decline in US production reversed dramatically in 2008 due to shale-oil production.  Shale oil now accounts for 6.5 million barrels per day – about two-thirds of American production, and still growing.  The United States is expected to pass the 1970 peak sometime this year and become the world’s leading oil producer in 2019. 
U.S. oil production has grown from 5 million barrels a day to 10 million barrels a day since 2008 as a result of shale-oil fracking.  Petroleum demand has fallen from near 20 million barrels a day to about 13.5 million barrels a day of net consumption thanks to greater efficiency in energy usage.  The U.S. still has a supply deficit of about 3.5 million barrels a day.

Increased domestic production and improved automotive efficiency now allow the U.S. to refine & export refined product.  The level of our dependence on foreign oil is a little difficult to quantify, because we are importing 10 million barrels of crude oil per day, refining the oil, and re-exporting 6.5 million barrels per day, mostly as refined product.  That leaves us with a net deficit of about 3.5 million barrels per day, most of which can be supplied from Canada, a relatively safe supplier. 


U.S. Oil Imports by Country, 1000s of Barrels per Day
Canada
3986
Chad
94
Mexico
841
Angola
77
Saudi Arabia
780
Libya
72
Iraq
611
Spain
67
Venezuela
555
United Kingdom
61
Nigeria
470
France
53
Russia
357
India
52
Colombia
337
Indonesia
44
Brazil
228
Netherlands
43
Ecuador
193
Norway
38
Algeria
120
Bahama Islands
32
Kuwait
117
Malaysia
32
Peru
107
United Arab Emirates
28
Korea
104
Trinidad and Tobago
28


Nevertheless, the United States is vulnerable to supply disruptions or embargos in the event of an international crisis or war.  We would no longer be able to supply the buyers of our refined petroleum products, which would cripple our customers’ economy, and by connection, our own. 

 The United States has a strategic oil reserve of about 725 million barrels, but even this reserve would last only 100 to 200 days if all sources of foreign oil were cut off.  In the event of a conflict, military demand would clearly take priority in the use of the strategic reserve.  An extended conflict could leave the country with insufficient oil for the economy, for trade with potential allies, and for military use. 

Where Will You Get Your Oil?
As I noted in the beginning of this post, oil is still necessary for the transportation of all goods, the manufacture of most goods, the raw materials and energy for manufacturing, the production and transportation of food, and the energy and materials for construction.  We can’t yet live without oil. 

Solar and wind renewable energy sources currently account for about 3% of the global energy supply.  Those sources are growing at 14% per year, but even in the most aggressive renewable energy scenarios, the global economy will remain dependent on oil for decades.

Many people object to various sources of oil.  People protest fracking of oil shale.  People protest offshore oil production (which is generally safer than oil transportation by tankers).  People protest the use of oil sands.  People protest Arctic Ocean drilling.  People protest oil pipelines (which are safer than oil transportation by rail). 

Those who protest any particular oil project should answer the question: if not here, where will you get your oil?

Foreign oil production is often conducted less responsibly in terms of the environment than production in America.  There is weaker environmental oversight, more flaring of gas, and more frequent transportation accidents.  Foreign purchases of oil transfer large amounts of wealth to foreign interests who may use that wealth directly against us.  Major exporters of oil include Islamic autocracies, Russia, Venezuela, and other countries who oppose the United States.  These sources may also be subject to an embargo in the event of a conflict.

I’ve been tempted to make a simple game for this question.  The player is asked “Where will you get your oil?” and must choose between options.  It is not possible to leave the game, and necessary to choose sufficient options to meet the country’s economic and security needs.  It would look something like this:
Where Will You Get America's Oil?
All values in millions of barrels per day.  Twenty million barrels per day are required.  “Available” barrels are probably available for use or import.  I assume that no additional barrels are available from conventional fields in the lower 48 onshore, or Gulf of Mexico offshore. The “Current” column represents America’s current oil supply mix.
Available
Current
Conventional Onshore Oil
1.3
1.3
Offshore Gulf of Mexico Oil
1.7
1.7
Offshore Florida, California or East Coast
2.0
0.0
Arctic Oil
2.0
0.5
Shale Oil Fracking
10.0
6.5
Canadian Oil Sands
8.0
4.0
Islamic Country Imports
21.0
1.9
Russian & former Soviet Imports
13.0
0.4
South American, Unstable Country Imports
7.8
1.4
African Imports
5.6
0.6
European & S. Asian Imports
5.0
1.7
So, spend a moment and choose where you will get America’s oil.  It is necessary for all of the things that you use in a normal day, and also necessary for all of the people who provide you with things and services.  

Policy Recommendations
I reluctantly favor drilling in the Arctic National Wildlife Refuge and the (ANWR) National Petroleum Reserve in Alaska (NPRA).  The volumes of oil which might be produced from these areas is uncertain, but they have the potential to add one or two million barrels of oil a day to American production.  This would materially increase the nation’s energy security and reduce the money paid to America’s geopolitical opponents. 

Not drilling in ANWR will not reduce the world's use of oil.  It will simply displace Alaskan oil supply with supply from authoritarian regimes elsewhere in the world, and the money earned will fuel social repression and wars.  Instead, we have the choice to produce Alaskan oil, and use the money for education, health-care, and broader environmental protections.  

The USGS mean resource estimate for ANWR 1002 area is 7.7 billion barrels of oil. Volumes of gas were not explicitly estimated, but are undoubtedly large.  The mean resource estimate for NPRA is 8.7 billion barrels and 25 TCF.  The NPRA estimates were revised upwards in 2017 due to recent large discoveries in Cretaceous stratigraphic traps.  The apparent specificity of the numbers is an illusion.  There is an order-of-magnitude uncertainty in these numbers, but there is strong potential for large volumes of production.

Exploration of ANWR will take more than a decade.  The process will involve the acquisition of seismic images of the subsurface, processing and interpretation of the data, a leasing process to establish the right to drill, exploratory drilling, and design of development & production facilities.  All of these activities will be regulated to minimize impacts on the environment.   Most activities will be conducted only in winter when the ground is deep-frozen, to avoid impact on tundra wetlands. 

I do not favor drilling in the waters of the Arctic Ocean.  An oil spill on land is relatively easy to clean up, compared to an oil spill in Arctic waters. 

Conclusion and Carbon Tax
The decision whether to drill for Arctic oil requires balancing our current dependence on oil with the impending disaster due to climate change, with consideration for whatever alternative sources of oil exist.

Our economic dependence on oil requires that we continue to drill and produce oil at the present time, while we develop renewable energy sources and technologies as quickly as we can.  In my opinion, it is not wise or effective to block individual petroleum projects on a one-off basis.  Every one of us is still dependent on oil, and we are supported in every aspect of our lives by others who are dependent on oil.  Each decision to prohibit an oil development project necessarily is a decision to obtain oil somewhere else.  Often those alternatives are environmentally less responsible, and counter to the fundamental economic and military security of the United States.

I believe a steep carbon tax is the most effective incentive to rapidly develop renewable energy without causing debilitating economic disruption.  I favor a carbon tax rather than cap-and-trade schemes, because of the relative simplicity of a tax system compared to the difficulty of ensuring compliance under cap-and-trade.  But I realize the any measures to control carbon emissions will be difficult, especially in the United States.  A carbon tax will be politically unpalatable and possibly impossible in a democracy.  A carbon tax will also hurt poor people disproportionally.  But if we proceed with Arctic drilling to ensure America’s energy security, it should be accompanied by measures like a carbon tax which will reduce total carbon emissions. 

References
ANWR resource estimates.
NPRA resource estimates.

Limit on surface development in ANWR is 2000 acres.
Revenue from oil leasing (and production royalty) would be split evenly between the US and Alaska.



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