ANWR Doesn't Hold the Answers
By Christopher Edmonds
Special to TheStreet.com
8/6/01 9:47 AM ET
Congress' move last week to open for drilling a tiny part of the Arctic National Wildlife Refuge, or ANWR, may appear to give the Bush energy plan a boost. But a closer look suggests the victory is hollow, both for the president and in the bill's lofty claim in its title to secure our future energy.
And, as your investments go, ANWR is irrelevant.
If the watered-down bill passed by the House of Representatives is any indication, it isn't likely the Alaskan tundra will see a drill bit anytime soon.
To gain passage, the bill's supporters accepted amendments limiting drilling to just 2,000 acres of the protected refuge -- dramatically less than Bush's proposal to open the 1.5 million acres of ANWR that could be developed under current land preservation laws. (The entire refuge encompasses more than 19 million acres.)
But that drop in the bucket may be more than can be expected in the Democratic-controlled Senate, where even if it were to sneak its way to the floor, Sen. John Kerry (D-Mass.) has said he would filibuster any legislation authorizing ANWR drilling.
Insignificant and Untimely
When the Bush administration claims that ANWR is a panacea to the nation's energy future, it's thinking about your children's future. In fact, the most optimistic pundits say we wouldn't see a drop of oil from ANWR until at least 2006, likely later. As G. Bryan Dutt of Ironman Energy Capital and a member of the TSC Energy Roundtable quipped earlier this year, "The cycle will probably change three or four times between now and the time real ANWR production occurs."
Indeed, the cycle has already changed, leaving many wondering if we really need to disturb ANWR at all.
Current estimates suggest that the entire Arctic National Wildlife Refuge could provide the equivalent of 10 billion-20 billion barrels of oil. The 2,000-acre House plan would likely yield somewhere around 20 million barrels, equivalent to one day of U.S. consumption -- hardly a legacy for future generations.
Those figures make rhetoric of arguments that drilling in ANWR will result in everything from a significant improvement in national security to a solution to the California power crisis. While exploring ANWR may be in the nation's long-term energy interests, it's time to be more realistic about benefits from the Alaskan tundra.
Opportunity Costs
As this column has noted before, from an investment perspective, the beneficiaries of any ANWR drilling will be limited to those companies that already have a presence in Alaska and the integrated super-majors with resources to build out uncharted exploration and production territories. The shortlist would include BP Amoco (BP:NYSE - news - commentary), Exxon Mobil (XOM:NYSE - news - commentary), Chevron (CHV:NYSE - news - commentary) and Phillips (P:NYSE - news - commentary).
But if only 2,000 acres of ANWR are opened for production, many of the integrated names might choose to pass on the opportunity. After all, the fixed costs to establish drilling infrastructure would be significant -- even for 2,000 acres -- possibly making limited exploration uneconomical. The cost per barrel of production from a limited area may be high enough to eliminate the benefits of drilling altogether.
Clearly, ANWR, especially as Congress has cast it, isn't a panacea at all for either investors or those looking for a fix to future energy security.
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Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. |
