In Alaska, The Bid To Drill Oil Means Beating Off Myths, Too
BY MONICA SHOWALTER
INVESTOR'S BUSINESS DAILY
Posted 7/11/2008
Alaska was purchased from Russia in 1867 to ensure America's energy security. Secretary of State Henry Seward was the driving force behind the $7.2 million purchase, but at the time, a skeptical public called it "Seward's Folly."
More than 140 years later, it's possible to wonder if that's still the case, given the difficulty Alaskans have had in opening more of their reserves to energy development.
But it's not because Alaska doesn't have enough oil. Oil is Alaska's top industry, and since the energy crisis of the 1970s, it has developed several major areas.
But production at many existing fields is fading. Alaskans say onerous restrictions effectively put the brakes on the state's development.
Record energy prices have increased interest in expanding Alaskan drilling. The Arctic National Wildlife Refuge gets the most attention, but there are other areas.
Gov. Sarah Palin says it's a state and national imperative.
"It's a very nonsensical position that we are in right now, as we send the president and Secretary (of Energy Sam) Bodman overseas to ask the Saudis to ramp up the production of crude oil so that hungry markets in America can be fed, when your sister state in Alaska has those resources," Palin said. "But these lands are locked up by Congress and we are not allowed to drill."
The state has had little luck so far in opening up more federal lands, 65% of the state, to development.
Part of the problem is misperceptions about the 49th state in the lower 48. The governor and other Alaska observers outlined some of the myths.
• Myth One: New drilling in Alaska will do nothing to lower energy prices.
It's true that giving the green light wouldn't produce oil overnight, but that's all the more reason to get started as soon as possible.
Efforts to open ANWR for drilling have been stymied for more than a decade.
"ANWR would take five years to begin providing crude oil to our pipeline," Palin said, "But you have to consider that if we'd started this five years ago, then we wouldn't be in this position right now. And who knows where we're going to be in another five years."
There are bigger sources that could produce energy even faster. The Chukchi Sea area got record bids in February for offshore development. But Palin wants Congress to open up more parts of that region.
Alaska is the No. 2 supplier of energy to the rest of the U.S. Prudhoe Bay alone produces 400,000 barrels a day.
But ANWR could turn out 876,000 barrels of oil a day, DOE says, with reserves at a median estimate at 10.4 billion barrels.
Some forecasts are as high as 16 billion, said John Cogan, an industry attorney at McDermott, Will & Emery in Houston.
"The geological data are pretty old and most of the information we have is derived from older technology," he said.
If Alaska can open up ANWR and other sources of energy, "the natural expectation is that energy prices will fall," Palin said.
• Myth Two: With all its oil resources, Alaska's a rich state.
Alaska does have a state surplus. But 88% of state revenues come from the oil industry. And many aging fields are producing less oil.
"Unusually high oil prices mask the impact on Alaska's economy of declining production levels on the North Slope," stated a June 30 report from Information Insights, a Fairbanks-based forecaster.
With just 670,000 people, Alaska is a small-population state that doesn't have economy-of-scale benefits. Combined with its remote location, it usually means that for consumers, goods cost more. Outside of cities such as Anchorage and Fairbanks, some parts of the state "look like the Third World," Palin noted.
Average inflation-adjusted Alaskan household income has declined 6.8% since 2000.
Many Alaskans are stung by the irony of paying $4.63 a gallon for gas, the highest in the land, with remote areas paying up to $11 a gallon. Because food must be trucked in from far away, high gas prices raise already soaring food costs, too.
Only 9.4% of Alaska jobs are directly tied to the energy industry, according to Information Insights. But 31% of all professional and technical service jobs can be traced back to the industry.
"Without the development of energy, Alaskans would be paying a lot of taxes and getting a lot less in public services," concluded University of Alaska Professor Scott Goldsmith in a 2007 study of oil production's impact on Alaska's economy.
He noted that daily oil output has fallen from 4 barrels for every Alaskan in 1988 to 1 barrel today.
• Myth Three: Alaska's environment is in grave danger from oil drilling.
Opponents of ANWR drilling raise the specter of despoiling a vast wilderness and wildlife. But actual operations would take place in a tiny fraction of the reserve's 1.4 million acres.
"What we are talking about with ANWR is a 2,000-acre plot of land, that is a smaller footprint than LAX or big airports," Palin said.
Palin also fumes at the recent federal decision that polar bears are endangered.
"We have been coexisting with bears for decades to no detrimental effect, our bear population is thriving," she said. "This listing is nothing but interference from outsiders who insist on keeping Alaska from developing."
Palin said she has stepped up oversight since she took office two years ago, creating a Petroleum Systems Integrity Office to keep an eye on the industry's activities.
The popular governor also is trying to restore Alaska's reputation after many politicians ran afoul of corrupt ties with the energy industry.
Alaska has a vested interest in maintaining a pristine environment. Tourism is the state's No. 2 private-sector employer, accounting for 1 in 8 private jobs and growing.
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