Oil Production in the

Arctic National Wildlife Refuge:

Impacts on Deficit and National
Energy Security

David J. Murphy1

November 1, 2017

1 Assistant Professor, Environmental Studies Department

St. Lawrence University, Canton, NY 13617
dmurphy@stlawu.edu
OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

Executive Summary

T
HE MOST RECENT PRESIDENTIAL BUDGET, released on May 23rd, 2017, assumes that
government revenue will be generated from the sale of oil and gas leases within the Arctic
National Wildlife Refuge (henceforth Arctic Refuge), as do the ibudgets from the U.S.
House and Senate. Once again, therefore, the executive and representative branches of the U.S.
federal government will likely be considering legislation aimed at authorizing oil and gas leasing
within the 1.5 million acre Coastal Plain region of the Arctic National Wildlife Refuge, reigniting a
multi-decade debate. Some see the Arctic Refuge as a way to reduce U.S. dependence on foreign oil
or for the U.S. to dominate world oil markets, while simultaneously reducing the deficit through
collecting revenue generated by leasing federal land for oil and gas development. Others see the
Arctic Refuge as a place that should be sacrosanct from such activity due to the human, wild and
wildlife values that led the United States to include the area within the National Wildlife Refuge
System.
This report aims to contextualize the production of oil in the Arctic Refuge within the broader
national energy and budget landscapes, focusing specifically on the following questions: 1) What
likely impact would oil development in the Arctic Refuge have on U.S. domestic energy security, and
what alternatives to such drilling exist that can advance U.S. energy security, and 2) is it likely that
lease sales in the Arctic Refuge will reduce the deficit.
With respect to the first question, this report concludes that there simply is not enough oil
projected to be under the Refuges coastal plain to appreciably increase U.S. energy security, and the
legitimacy of this policy goal is further undercut by the export of domestically-produced oil to the
world market. For the same reason, oil from the Arctic Refuge, or from the United States in its
entirety, cannot meaningfully advance the Trump administrations energy dominance goal. At the
same time, the U.S. has made great strides toward enhancing U.S. energy security through, among
other things, the progressive Corporate Average Fuel Economy (CAFE) increases enshrined in
current law. In sum, pursuing better fuel efficiency by simply maintaining the current 2017-2025
CAFE standards would reduce domestic oil consumption by roughly six times the amount of oil
projected to be within the Arctic Refuge. Such decreases in oil demand also represent a permanent
solution, whereas oil production in the Arctic Refuge would only temporarily and marginally address
oil dependence.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

In addition, revenue targets from bonus bids in the presidential and congressional budgets are
inconsistent with recent lease sale bids in the likely Arctic Refuge lease sale scenario. Oil companies
would have to bid an average of $2400 per acre for each of the roughly 1.5 million acres on the
coastal plain of the Arctic Refuge to meet the presidential budget, and over $1300 per acre to meet
congressional targets. Two main issues with this scenario are that 1) it is highly unlikely that oil
companies will lease every acre, and 2) even if they did, recent bidding activity has resulted in
average lease values of $194 per acre, more than ten times lower than the $2400 per acre level
needed to meet the current budget. Shells 2008 bid in the Chukchi Sea was an outlier on the higher
end an offshore sale, with only 10% of the total acreage offered resulting in a bid, and the per acre
bid level was $977 per acre, roughly three times less than that projected in the current presidential
budget.
This report starts with an explanation of trends in U.S. oil and gas development from the mid-
2000s to the present; the time period since Congress last placed significant attention on Arctic
Refuge drilling. It then addresses the relationship between Arctic Refuge drilling and U.S. energy
security, and considers alternatives to Arctic Refuge drilling that can advance that security. Finally, it
addresses the relationship between lease sales in the Arctic Refuge and the U.S. budget.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

I. Background - Trends in U.S. Oil and Gas Development

T
HE LAST DEBATE about whether the United States should produce oil from the Arctic
Refuge region occurred in the mid-2000s, and since that time much has changed within the
oil industry. This section will serve as a primer on what has happened within the oil
industry from 2004 through 2017.
The last thirteen years of oil production can be separated into three periods. The first is from
2004-2008, which was marked by a steady increase in global demand for oil with a concomitant
increase in oil prices. The second, from 2008-2011, was dominated by the economic collapse of
2008 and subsequent recovery. The third period is from 2012-2017, defined by the impact of oil
production from tight (i.e. shale) oil resources. The following is a brief description of each of these
periods.
World oil demand grew steadily from 2004-2008, and paired with slow oil supply growth from
within and outside of OPEC, oil prices started to increase culminating in record-breaking oil prices
in the summer of 2008.1 With respect to Alaska, the North Slope region (defined in this report as
including the North Slope, Beaufort Sea, Chukchi Sea, National Petroleum Reserve Alaska (NPR-
A) and North Slope Foothills leasing areas) has remained an area of interest since the development
of Prudhoe Bay. In addition, in 2006, the USGS released a new study of oil and gas reserves in the
Arctic Alaska Petroleum Province estimating that more than 50 billion barrels of oil (BBO)
remained to be discovered, including a mean estimate of 15.4 BBO to be found in the Chukchi Shelf
and a mean of 8.2 BBO in the Beaufort Shelf.2 In 2008, the Department of Interior held the first
sale of oil leases in the Chukchi Sea since 1991. With renewed interest in arctic oil development due
to high global oil prices, Royal Dutch Shell paid $2.1 billion and ConocoPhillips and other oil
companies paid another ~$500 million for the rights to ~2.75 million acres out of over 29 million
acres that were offered for lease. 3 The results of Sale 193 exceeded recent records for both total
bids and bids for specific blocks on Americas Arctic lands and waters.4

1 E. Kreil. Why Are Oil Prices So High? Short-Term Energy Outlook Supplement-November 2007. U.S. Energy
Information Administration.
2 D. Houseknecht, K. Bird. Oil and Gas Resources of the Arctic Alaska Petroleum Province. U.S. Geological Survey Paper 1732-

A. [pg. 10]
3 MMS Chukchi Sea Lease Sale 193 Breaks Energy Records With $2.6 Billion in High Bids. 2008. U.S. Mineral Management

Service Newsroom Release #3777.

4
MMS Chukchi Sea Lease Sale 193 Breaks Energy Records With $2.6 Billion in High Bids. 2008. U.S. Mineral Management
Service Newsroom Release #3777.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

The financial crisis in September 2008 led to a global oil price collapse from a record high in July
2008 of $132 per barrel (bbl) to $41 per bbl in December 2008.5 The global economic recession that
ensued led to a decrease in world oil consumption for the first time since the early 1990s.6 The post
economic collapse (2008-2011) period was one of recovery in almost every major economic sector,
and it wasnt until oil prices rebounded to above $100 per bbl in March 2011 that interest in Arctic
oil resumed.
Over the years that followed, Shell, the only active Sale 193 leaseholder, spent another ~$5
billion on its exploration program.7 Both within Arctic waters and outside of Arctic waters Shell
encountered many problems with its exploration activities, including an oil spill containment dome
which in testing breached like a whale and was crushed like a beer can; the grounding and
complete loss of one of its drill rigs in rough Alaskan waters; a series of legal setbacks related to its
environmental permitting; and widespread and growing public controversy regarding the prudence
of drilling in Americas Arctic waters.8
Despite Shells large time and money investments, Shell completed only one exploration well,
and it failed to find sufficient amounts of oil to justify development.9 In the fall of 2015, seven and
a half years after purchasing the leases, and after spending $7 billion, Shell announced that it would
cease further exploration activity in offshore Alaska for the foreseeable future.10 By 2017, Shell
had relinquished nearly all of its U.S. Arctic waters investments, retaining only a minority interest in
13 lease tracts.11,12 Without doing any exploration of their own, Conoco Phillips and others
abandoned their exploratory drilling program in the Chukchi, effectively ending the industrys
Arctic-offshore ambitions.13

5 Global Economic Monitor Commodities, The World Bank. Crude oil, avg, spot, $/bbl.
6 BP Statistical Review of World Energy, 2017.
7
Funk, McKenzie. The Wreck of the Kulluk. The New York Times Magazine. December 2014.
https://www.nytimes.com/2015/01/04/magazine/the-wreck-of-the-kulluk.html?_r=1
8 DeMelle, Brendan. Shells Arctic Oil Spill Gear Crushed like a beer can in Simple Test. Huffinton Post. February 3, 2013.

http://www.huffingtonpost.com/brendan-demelle/shell-arctic-drilling_b_2238066.html
9
Shell updates on Alaska exploration. 2015. Shell Global. http://www.shell.com/media/news-and-media-
releases/2015/shell-updates-on-alaska-exploration.html
10 Ibid.
11 Upstream Business and Property. Shell Annual Report 2016-Strategic Report.
12 Detailed Listing of Active Leases, Updated: April 20, 2017. Bureau of Ocean Energy Management, Alaska OCS Region.
13 Regulatory Uncertainty Leads ConocoPhillips to Put 2014 Chukchi Sea Exploration Drilling Plans on Hold. 2013. ConocoPhillips

Alaska.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

As some companies were investing in Arctic oil extraction, other oil companies were investing in
a different type of unconventional oil production tight oil.14 Tight oil deposits such as the Bakken
in North Dakota and Eagle Ford in Texas, newly recoverable thanks to technological improvements
in hydraulic fracturing, drove impressive production gains in the lower-48 United States. Production
in North Dakota surged from roughly 0.25 million (MM) bbl per day in 2010 to over 1 MM bbl per
day in 2016 while the gains in Texas were even bigger.15,16 The resulting oil glut (aided as well by
slackening demand in Asia) caused another worldwide drop in oil prices; in January 2016 oil prices
had fallen below $30/bbl for the first time since 2003.17
The growth of tight oil production has rapidly changed the landscape of energy production in
the United States. New oil wells, the majority of which have been tight oil wells, made up 48% of oil
production in the lower-48 in 2015. For its part, Shell in its 2016 Sustainability Report refers to tight
oil as a future opportunity, one that we expect to become a significant growth priority for Shell
beyond 2020.18 The Energy Information Administration (EIA) has projected that tight oil
operations will make up most of the increase in domestic production through 2050 (Figure 1).19 By
2037 which is roughly when Arctic Refuge drilling would reach peak production if it were
authorized today EIA predicts that tight oil will make up 57% of U.S. oil production. 20

14 Tight oil is defined by the EIA as Oil produced from petroleum-bearing formations with low permeability such as
the Eagle Ford, the Bakken, and other formations that must be hydraulically fractured to produce oil at commercial
rates. Shale oil is a subset of tight oil.
15 North Dakota Field Production of Crude Oil, updated 5/31/2017. U.S. Energy Information Agency.
16 Texas Field Production of Crude Oil, updated 5/31/2017. U.S. Energy Information Agency.
17 Global Economic Monitor Commodities, The World Bank. Crude oil, avg, spot, $/bbl, current.
18 Shales. Shell Sustainability Report 2016-Managing operations.
19 Tight oil expected to make up most of U.S. oil production increase through 2040. Annual Energy Outlook 2017 Reference case.

U.S. Energy Information Agency.

20
Energy Information Administration. Annual Energy Outlook. 2017.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

Figure 1. Oil production in the United States, both historic and projected, separated by tight oil, U.S. oil production
(excluding Alaska and Tight oil), and Alaska oil production (excluding Arctic Refuge and Tight oil).

Though the tight oil boom has increased U.S. oil production dramatically over the past few
years, U.S. production is not forecasted to become a large share of global production in the next few
decades. This is because the U.S. has only ~3% of known world oil reserves (Figure 2).21 One of the
most important trends over the past few years has been the change in the relative cost in production
costs in tight oil plays. For example, the break-even price for North American tight oil (i.e. shale oil)
is $40 -$60 per barrel,22,23 while that for Arctic oil production averages $78 per barrel.24 Thus tight
oil in the lower-48 is out-competing Arctic oil, with some claiming that oil sands and the Arctic
continue to be the most expensive resources.25

21
BP Statistical Review of World Energy. 2017. Accessed at: http://www.bp.com/en/global/corporate/energy-
economics/statistical-review-of-world-energy.html
22 Berman, Art. Low break-even prices are for everyone, not just shale companies. Forbes. April 9, 2017.

https://www.forbes.com/sites/arthurberman/2017/04/09/low-break-even-prices-are-for-everyone-not-just-
shale/2/#7c1d907151ba
23 Oyedele, Akin. This chart shows how painful things still are for U.S. oil producers. Business Insider. September 19, 2016.

http://www.businessinsider.com/breakeven-costs-for-us-oil-production-2016-9
24 Global Liquids Cost Curve: shale is pushing out oil sands and arctic, offshore is still in the race. Rystad Energy, June 12, 2014.

https://www.rystadenergy.com/NewsEvents/PressReleases/global-liquids-cost-curve
25 ibid

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

Figure 2. Share of global crude oil proved reserves for all countries with at least 2.5% of global reserves. Dark color
denotes the OPEC member nations.

II. U.S. Energy Security, the Arctic Refuge and Other options

O
IL FROM THE ARCTIC REFUGE WOULD HAVE A NEGLIGIBLE IMPACT on our nations
energy position or dependence on foreign sources of oil. At the same time, there are
safer and more effective ways to meet our nations energy needs outside of finite fossil
fuel sources. Keeping in place the existing rules on CAFE standards is decreasing demand for
foreign oil and as the auto industry complies with the new standards called for under those rules that
demand will decrease even more.26 These two options, drilling for more oil vs. improvements in
vehicle efficiency can be considered supply-side and demand-side solutions, respectively, to the issue
of foreign energy dependence. Supply-side solutions are those that try to replace the foreign supply
of oil with a fuel supply that is controlled domestically. Demand-side solutions are those that try to
reduce consumption and therefore offset the need to import more oil. Both of these options are
already utilized within the United States. The Renewable Fuels Standard, for example, is an effort to

26
Regulatory Impact Analysis: Final Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and CAFE
Standards. 2012. U.S. EPA. (pg 4-137)

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

substitute domestically-produced renewable fuels for fossil fuel-based transportation fuels i.e. a
supply-side solution. CAFE standards, on the other hand, are an effort to reduce consumption of
fossil fuel-based transportation fuels by increasing the efficiency (miles per gallon) of the average
vehicle i.e. the demand-side solution.
Beyond the obvious and serious risk of damage that oil drilling can cause on the environment
and people, there are a number of disadvantages to pursuing oil drilling as a supply-side solution.
Non-renewable supply-side solutions like drilling in the Arctic Refuge are only successful if the oil is
found and produced. Yet, as so aptly highlighted by Shells Arctic offshore oil program over the past
decade, oil exploration and production is notoriously uncertain. Oil companies must first find the oil
that is estimated to be underground. The United State Geological Societys (USGSs) mean estimate
for potential oil within the federal portion of the Arctic Refuge is 7.7 billion bbl of technically
recoverable oil.27 The 7.7 billion bbl is the meanor P-50estimate, which has only a 50%
probability of discovery. Stated another way, there is only a 1 in 2 chance that 7.7 billion bbl will be
discovered.28 The P-95 is the higher probability estimate (95% probability that this amount of oil will
be found) but it is only 4.3 billion bbl, just over half the P-50 estimate.29
Beyond this inherent uncertainty, even if oil was found and produced from the Arctic Refuge,
over time that oil production will decline and eventually end. In fact, the mean case for oil
production from federal land would only supply, in total, an amount of oil equal to that which the
U.S. currently uses in one year. Once that oil is depleted, the U.S. (and Alaska for that matter) will be
in the same energy position as it is today, and yet the U.S. will have lost permanently the largest, and
perhaps most pristine, refuge in the United States.
Moreover, since drilling in the Arctic Refuge is slow and expensive work, oil development and
production will require high oil prices for decades. Yet, as underscored by the swings of the last five
years, oil prices are notoriously volatile. The expectation that oil prices will remain high enough to
justify a long-term investment in the Arctic Refuge has not been supported historically. Today, many

27 It is worth noting that the technically recoverable resource estimates used in this analysis are higher than the actual
economically recoverable estimates. According to the USGS report Arctic National Wildlife Refuge, 1002 area,
Petroleum Assessment, 1998, Including Economic Analysis the technically recoverable resources are that Volume of
petroleum representing that proportion of assessed in place resources that may be recoverable using current recovery
technology without regard to cost. The Economically recoverable resources are That part of the technically
recoverable resource for which the costs of discovery, development, and production, including a return to capital, can be
recovered at a given wellhead price.
28 Arctic National Wildlife Refuge, 1002 Area, Petroleum Assessment, 1998, Including Economic Analysis. United States Geological

Survey Fact Sheet FS-028-98.

29 ibid

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

analysts are projecting low oil prices for decades.30 Tight oil in the lower-48 states continues to
dominate new oil additions in the U.S. and is projected by the EIA to remain the dominant source
of new oil for the next few decades, mainly because the cost of tight oil is low, especially as
compared to that in the Arctic.31 When Arctic Refuge drilling would reach peak production if it
were authorized today, two decades from now tight oil is predicted to make up 57% of U.S. oil
production, 32 whereas Arctic Refuge oil could, at best, account for 4 - 5% of U.S. oil production.
For companies it is a zero-sum game. Sustained low prices have restricted available capital
expenditures, and because Arctic drilling is more expensive than many alternativesand the Arctic
Refuge specifically comes with significant political and legal costsenergy analysts predict very
little interest in drilling in the refuge for the foreseeable future.33
On the other hand, demand-side policies like progressive CAFE standards have a number of
advantages for achieving national security policy objectives. First, increases in efficiency allow for
more productivity from the same investment. In the context of liquid fuels, people can drive using
less gasoline, therefore permanently reducing demand for oil both foreign and domestic. The
original CAFE standards were implemented after the 1973-1974 Arab Oil Embargo and have since
been credited with reducing U.S. fuel consumption by over one trillion gallons of gasoline.34 Yet
even small improvements in vehicle efficiency can result in a large reduction in oil consumption. For
example, the EPA estimates that the 2017-2025 CAFE and Greenhouse Gas Emission Standards
will lead to cumulative savings equivalent to roughly 45 billion barrels of crude oil by 2050, which is
roughly six times the P50 estimate of oil within the Arctic Refuge (Figure 3).35
By far the less risky way to reduce dependence on foreign oil, while at the same time driving
benefits to consumers, is to leave the existing CAFE standards in place rather than terminating them
and authorizing drilling in the Arctic Refuge. Analyses even indicate that whatever costs there are to
increasing the fuel economy, the consumer will still save thousands of dollars over the life of the

30
Butler, Nick. Plentiful oil will sustain the age of hydrocarbons. The Financial Times, September 25, 2017.
https://www.ft.com/content/1f64d472-5cf1-3aef-8595-53b93ea4c333
31
Tight oil expected to make up most of U.S. oil production increase through 2040. Annual Energy Outlook 2017 Reference case.
U.S. Energy Information Agency.
32
Energy Information Administration. Annual Energy Outlook. 2017.
33
Eilperin, Juliet. Trump administration working toward renewed drilling in Arctic National Wildlife Refuge. Washington Post.
September 15, 2017
34 Draft Technical Assessment Report: Midterm Evaluation of Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate

Average Fuel Economy Standards for Model Years 2022-2025. 2016. U.S. Environmental Protection Agency, U.S. Department
of Transportation, California Air Resources Board-EPA-420-D-16-900.
35 These regulations raised the corporate average fuel economy standard, stipulating that the average Model Year 2025

car or light-duty truck would have fuel economy of 54.5 MPG. The standards are proportional to the vehicles footprint
and regulate emissions of climate-change contributing gases as well as fuel economy.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

vehicle.36 In sum, simply leaving in place the existing CAFE standards will offset much more foreign
oil imports than that which could be offset by oil produced in the Arctic Refuge.

Figure 3. Comparison of the potential oil production from the Arctic Refuge with the projected savings from current
CAFE standards. Production of oil from the Arctic Refuge is based on EIA 2008 Report Analysis of Crude Oil
Production in the Arctic National Wildlife Refuge.

To consider these energy solutions from national security standpoint, Refuge oil and demand
side solutions must be put into a larger domestic and world energy context. Domestic oil contributes
to our national security only to the extent it is discovered, produced, and stays in the United States.
Given the estimates for Arctic Refuge oil, there is a 50% chance that drilling for oil will result in the
production of 7.7 billion barrels of oil, and, hence, at most could reduce oil imports by that amount
of oil over the life of oil production.37 Yet, since oil is a fungible commodity, there is no guarantee
that any of the oil from the Refuge would be used to reduce imports rather than to increase exports

36
Fuel Economy and Emissions Standards for Cars and Trucks, Model Years 2017-2025. The Union of Concerned Scientists
Fact Sheet. Accessed June 17 2016. http://www.ucsusa.org/sites/default/files/attach/2016/06/Fuel-Economy-
Standards-2017-2025-summary.pdf
37
As noted above, there is no bar on oil exports in the U.S. and some or all of U.S. oil could be exported to foreign
companies.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

of petroleum products to any of the 101 countries to which we are currently exporting.38 For
example, even though the U.S. produced 8.9 million barrels per day in 2016, we also exported 5.19
million barrels of petroleum products per day, roughly 58% of the total oil produced.39,40 Demand-
side solutions, on the other hand, would directly contribute to our nations domestic security by
removing the need for that energy from any source, therefore eliminating the political and geological
challenges that make the supply-side approaches like drilling the Arctic Refuge so much less
appealing.
Riding the tight oil boom, the new administration looks to American Energy Dominance as a
further justification for increasing domestic energy production.41 Domestic oil production was 65
percent of consumption in 2015, the largest share since 1985 (see also Figure 1). Nevertheless, even
with the tight oil boom, the United States does not have enough oil to dominate the world oil
market. The U.S. has ~3% of world reserves, while we consume 20% of the worlds oil. Arctic
Refuge oil, by comparison, is less than 1% of world oil reserves. The point being that the U.S. might
be able to increase domestic production, but as long as that oil is sold on a global market, and the
U.S. does not significantly decrease its demand, the U.S. will remain vulnerable to OPEC. And of
course, exporting oil in an effort to influence such markets means that eventually there will be less
oil for domestic use, thus having a negative effect on U.S. energy security.
The last argument that some make to drill for oil in the Arctic Refuge is that it will lower oil
prices. This argument has also been thoroughly debunked by academics42 and by the Energy
Information Administration.43 The theory goes that production from the Arctic Refuge would
simply increase supply on the world market and thus lower prices. As Cleveland and Kaufmann state
the actual effect will be close to zero.44 The EIA also has been clear about the inability of Arctic
Refuge oil production to lower oil prices, stating that [OPEC] could neutralize any potential price

38
Frequently Asked Questions: How much Petroleum does the United States import and export?
https://www.eia.gov/tools/faqs/faq.php?id=727&t=6
39
U.S. Field Production of Crude Oil. Energy Information Administration.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=a
40
Frequently Asked Questions: How much Petroleum does the United States import and export?
https://www.eia.gov/tools/faqs/faq.php?id=727&t=6
41 Laura Blewitt. Trumps U.S. Looks Past Energy Independence to Global Dominance. 2017. Bloomberg.
42 Cleveland and Kaufmann. Oil Supply and Politics: Dj vu all over again. 2003. Energy Policy 31, pp 485-489.
43 Energy Information Administration. Analysis of Crude Oil Production in the Arctic National Wildlife Refuge. 2008.

https://www.eia.gov/analysis/requests/2008/anwr/pdf/sroiaf(2008)03.pdf
44
Cleveland and Kaufmann. Oil Supply and Politics: Dj vu all over again. 2003. Energy Policy 31, pp 485-489

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

impact of ANWR coastal plain production by reducing its exports by an equal amount.45 According
to EIA, the calculated impact that Arctic Refuge oil production would have on prices is roughly
$0.75 per barrel, or less than 2 cents per gallon.46
In summary, drilling the Arctic Refuge would do little to nothing to increase U.S. energy security
or facilitate some form of U.S. control over world oil markets. On the other hand, demand-side
solutions such as existing progressive CAFE standards are able to both reduce the dependence of
the United States on foreign sources of oil while simultaneously reducing the exposure of the U.S.
economy to swings in oil availability and prices.

III. Is it likely that lease sales in the Arctic Refuge will reduce the deficit?

P
RESIDENT TRUMPS BUDGET PROJECTS REVENUES from the leasing of the coastal plain, i.e.
the 1002 area, for oil and gas development. Most of this revenue is expected to be
derived from bonus bids paid during the sale of oil and gas leases.47 As explained below, this
projection is unsupported by the revenue history of North Slope region oil and gas lease sales, and,
notably, if the projected revenue target is not met by the lease sales, should they occur, then oil
extraction in the Arctic Refuge would actually add to the deficit.
As an initial matter, under current law, the State of Alaska would receive 90% of revenue
generated from an Arctic Refuge leasing and drilling program.48 As some previous Arctic Refuge
drill bills sought to change this to a 50/50 federal/state split, we take a conservative approach for
the remainder of this report and assume an even split between the federal government and the State
of Alaska. This means that since the current Trump budget projects revenue of $1.8 billion dollars,
the actual amount raised in the lease sales would need to be $3.6 billion to account for the 50%
revenue share with Alaska.
For the federal treasury to receive $1.8 billion in revenue from the auction of leases from the
Coastal Plain of the Arctic Refuge, companies would need to bid a minimum of $2400 per acre on
average, assuming that an Arctic Refuge lease sale would be 1.5 million acres in size and that every

45 Energy Information Administration. Analysis of Crude Oil Production in the Arctic National Wildlife Refuge. 2008.
https://www.eia.gov/analysis/requests/2008/anwr/pdf/sroiaf(2008)03.pdf
46 ibid
47 Office of Management and Budget. Major Savings and Reforms. Section of the Budget of the U.S. Government, Fiscal

Year 2018. Page 143.

48 Alaska Statehood Act of 1958, PL 85-508, Section 28.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

single one of those acres would be leased at that level.49 These numbers are wildly unrealistic for a
number of reasons.
Historically, only a small percentage of acreage typically offered in federal lease sales in the
North Slope region is actually leased. For instance, the highest bidding in a North Slope region lease
sale in recent history was the 2008 Chukchi Sea Lease Sale 193. The average bid received was $977
per acre, which is three times lower than the $2400 per acre bid required in the current budget
(Figure 4). Even more, only 10% of the acreage was leased in the Sale 193.50 If only 10% of the
acreage is leased in the Arctic Refuge, the per acre bid would need to be $24,000 per acrean
amount almost 25 times higher than the Chukchi bid.51

Figure 4. History of bonus bids within the North Slope region of Alaska, 2000-2016. The dashed red line on the
figure indicates the $2400 bonus bid level projected in the current presidential budget, while the dashed blue line is the
offshore average and the dashed green line is the onshore average. All values, aside from the current budget estimate, are
in constant 2010 dollars.

49 Congressional legislation may call for 1 billion in revenue from the Arctic Refuge, which would reduce the per acre bid
to $1300 assuming again that every acre were leased.
50 Chukchi Sea Lease Sale 193 Final Second SEIS at page 5,

https://www.boem.gov/uploadedFiles/BOEM/About_BOEM/BOEM_Regions/Alaska_Region/Leasing_and_Plans/
Leasing/Lease_Sales/Sale_193/2015_0127_LS193_Final_2nd_SEIS_Vol1.pdf
51 As noted above, Shells foray into the Chukchi Sea was not only expensive, but a failure. Shells experience is likely to

temper the enthusiasm of other companies to spend big on controversial frontier drilling, further undercutting the
presidential and congressional budget projections.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

The estimates in the current budget seem even more extreme when compared not just to the
Chukchi but to all of the recent bidding in the North Slope. The average bid across all North Slope
acreage is only $194 per acre over 10 times lower than the $2,400 bid required by the current
presidential budget (Table 1).52

Leased Total Bonus Average Value

Lease Area
(Acres) Received (2010 $) (2010 $/acre)
Beaufort Sea 2,439,355 144,955,167 59
Chukchi Sea 2,758,377 2,696,029,859 977
North Slope 5,271,156 167,056,883 32
NS Foothills 1,386,079 18,513,692 13
NPR-A 4,731,908 197,329,283 42
All Areas 16,586,875 3,223,884,885 194

Table 1. Inflation-adjusted (constant 2010 $) bonus bid totals and acreage leased within various areas of the North
Slope region in Alaska from years 2000-2016.

Further, there is a clear distinction as well between onshore and offshore bidding. Bonus bids
for offshore acreage in the North Slope region averaged $547 per acre since 2000, while that for
onshore acres has been a mere $34 per acre (Table 2). The 1002 area in the Arctic Refuge is onshore
oil production, and even if it were considered a higher quality prospect, it is doubtful that bids
would increase almost 10-fold over this recent bidding activity and cover all of the offered area,
which would be the only way to meet the projections in the current budget. Given the shift in our
national energy picture, Arctic Refuge acreage will now be competing with less expensive tight oil
acreage, which could easily result in much lower bid levels for leases. All of this is to say that
companies will be understandably reluctant to make high lease bonus bids for the Arctic Refuge
since oil can be produced quicker and cheaper in the tight oil formations of the lower-48.

52The historical data for bonus bids was gathered from a number of sources, including: 1) NPR-A Sale Statistics 1999 to
Present. 2016. U.S. Bureau of Land Management; 2) Summary of State Competitive Oil and Gas Lease Sales 1959 to Present.
2017. Alaska Dept. of Natural Resources- Division of Oil & Gas; 3) Historical Alaska Region Lease Sales. 2017. Bureau of
Ocean Energy Management, Alaska OCS Region. 4) R. Fineberg. Projected Bonus Payments from Proposed Leasing On the Arctic
National Wildlife Refuge Coastal Plain Greatly Exceed North Slope Historical Trends. 2005. Research Associates.

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OIL PRODUCTION IN THE ARCTIC NATIONAL WILDLIFE REFUGE: IMPACTS ON DEFICIT AND NATIONAL ENERGY SECURITY

Average Bonus
Total Bonus Received
Lease Area Total Acres Leased Received per Acre (2010
from Leases (2010 $)
$)
Onshore 11,389,143 382899858 34
Offshore 5,197,732 2840985026 547
All 16,586,875 3223884885 194

Table 2. Inflation-adjusted (constant 2010 $) bonus bid totals and acreage leased for both onshore and offshore
acreage within the North Slope region in Alaska from years 2000-2016.

IV. Conclusion

D
RILLING IN THE ARCTIC REFUGE is a policy that can only be decided by Congress. As
one of our nations most debated pieces of public lands, the practicability of an effort to
drill in the Arctic Refuge must be analyzed in the context of a national energy policy. An
analysis of the likely oil to be found under the coastal plain of the Arctic Refuge reveals that drilling
there would have little appreciable effect on increasing U.S. energy security, even if domestically-
produced oil were not exported from the U.S., which it is currently. To the extent the Trump
administration seeks to advance a new policy of using oil to assert U.S. energy dominance, Arctic
Refuge oil would provide no appreciable step toward achieving that goal. On the other hand,
demand-side policies like existing progressive CAFE standards achieve the same goal of increasing
U.S. energy security, yet carry none of the risk inherent in the pursuit of oil from the Arctic Refuge;
indeed this is a proven tool that can meet U.S. goals without further degradation to the
environment. Finally, an analysis of lease sale bids in the North Slope region shows that current
presidential and congressional budget projections are unrealistic, and thus that it would be fiscally
irresponsible to pursue this path on a budget justification.

i
This report was commissioned by the Alaska Wilderness League.

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