Saturday, March 22, 2008

ANWR oil...

As oil prices are increasing (see graphs above for pricing in nominal and adjusted dollars, source: US Energy Information Administration the amount of economically recoverable oil in the Arctic National Wildlife Reserve (ANWR) should be increasing. Likewise as technology has improved, the amount of technically recoverable oil should also have increased. One wonders if there has been any improvement or refinement in the estimates of in-place oil. See the re-post of a 2002 piece below that explains the differences...

OPED 15 Oil in the ANWR from 02/05/2002 reproduced below:

Exactly how much oil is there in the Arctic National Wildlife Refuge (ANWR)? The answer to this question would seem to be an important factor in the debate regarding whether we should allow drilling for oil in the ANWR. One of the recommendations of Vice-President Cheney's energy task force was that drilling for oil be authorized in the Refuge. This recommendation has stirred up heated passions and split various constituencies for and against this possibility. In general, the Republicans, Alaskans, some unions that see job gains, and some native tribes that will profit from the drilling have come out in favor - while environmentalists, Democrats, some unions, and other native tribes have come out against. Following 9/11 this debate has resurfaced. Numbers are bandied about by both sides - those for drilling say that there is 30 years-worth of Saudi imports of oil available, and that drilling will enhance the national security and lessen dependence on imported oil (especially from the volatile Middle East.) Opponents say that the ANWR will supply less than 3% of US annual oil use, and that the price for drilling this small amount of oil will be the destruction of unspoiled land and the ANWR's flora and fauna.

Given this it would seem that a clear understanding of how much oil is estimated to be present, and recoverable, in the ANWR would be of some use. This OPED will look at the numbers in an effort to clarify the issue. It does NOT argue for or against drilling, nor does it look at the other factors that play into deciding for or against drilling, but ONLY considers the amount of oil present. For the other pros and cons visit these web sites or do a Google search on ANWR.

The ANWR is a section of 19.8 million square acres in the northwest of Alaska that was established as a refuge by the Alaska National Interest Lands Conservation Act of 1980. When passing the act Congress recognized the possibility that significant quantities of oil and natural gas could be present and that exploration might conflict with the area's maintenance as a wildlife refuge. Section 1002 of the act deferred a decision regarding drilling in the 1.5 million acre coastal plain (therefore known as the "1002 area") Thus, for drilling to occur an act of Congress is required.

Over the years there have been several (changing) estimates of the oil reserves in the ANWR:

  • In 1987 the Alaska Bureau of Land Management estimated a 19% probability of finding a commercially viable oil field in the ANWR. If any oil was found, recoverable reserves of 3.2 billion barrels of oil were estimated.
    In 1991 The Alaska Bureau of Land Management modified this estimate to a 46% probability (based on new seismic data).
  • In 1991 the American Association of Petroleum Geologists examined the ABLM's numbers. They determined that the ABLM was too conservative, and made an estimate of 7 billion barrels of recoverable oil.
  • In 1995 the General Accounting Office examined the numbers and, based on lower world oil prices, estimated that the chances of finding a commercially viable field at 27%.
  • In 1995 the US Geological Survey conducted another review that gave a mean estimate of 0.9 billion barrels of recoverable oil.
  • Finally, in 1998 the USGS completed a new survey to clarify the numbers. 40+ geologists mapped the area, conducted experiments, took seismic readings, and obtained test data to produce the ANWR, 1002 Area, Petroleum Assessment, 1998, Including Economic Analysis

An abbreviated background on exploration and the methodology used for estimating recoverable oil is in order. First, to evaluate the possibility of finding oil "play analysis" is conducted. A "play" is a set of geological features that when found together may contain oil and gas. Using seismic surveys, exploratory drills, etc. geologists look for oil-generating source rocks near porous rocks that can contain the oil, topped off by a layer of rock to prevent the oil and gas from escaping, and sealed by a 'trap' (a structural configuration that holds the oil and gas in an accumulation).

After the "plays' are identified the size of the potential find is estimated based on factors such as reservoir thickness and porosity, and this size is expressed as a range of possibilities at different probabilities. Following this, the results obtained are crunched by a risking procedure to get a probabilistic estimate of in-place oil accumulation, and then this number is multiplied by an estimated recovery factor to get a range of technically recoverable reserves at different probabilities. Next the costs of discovery, recovery, and transport (drilling, pipelines, etc.) are evaluated to finally arrive at a range of different economically recoverable petroleum reserves. Obviously at certain prices (e.g. a market price of $5 a barrel) it doesn't matter how much oil is present, since it would too expensive to recover it, while at other prices (e.g. $30 per barrel) it is economically feasible to extract much more oil.

Thus the final result of the 1998 USGS analysis is a set of estimates at various probabilities of the in-place, technically recoverable, and economically recoverable oil in the 1002 area, as well as in the coastal plain and the entire ANWR area. These wide ranges of numbers at different probabilities are what allow proponents and opponents of drilling in the ANWR to pick and choose their numbers to back up their political preferences.....

The first graph above demonstrates the relationships between the ranges of estimates of the different reserves explained above. The second graph gives the 95% probability, the 5% probability, and the mean (expected) probability estimates of economically recoverable oil at different price levels in the 1002 area.

The estimates of the technically-recoverable oil (i.e. ignoring the market price) in the 1002 area are as follows: There is a 95% probability of being able to technically recover 4.254 billion barrels of oil, and a 5% probability of recovering 11.8 billion barrels of oil. The mean expected estimate is of being able to technically recover 7.7 billion barrels of oil. Using the second graph we see that at an oil price of below $13/barrel no oil is commercially recoverable, while at an oil price of $30/barrel the 95% probability estimate is 3.2 billion barrels of oil, the 5% probability is 10.4 billion barrels of oil, and the mean expected estimate is 6.4 billion barrels of oil. At an oil price of $24/barrel the mean expected estimate comes in at 5.2 billion barrels of oil.

The Energy Information Administration (EIA) estimates that if the green light is given it would take 7 to 12 years to sell leases, do permitting, environmental reviews, etc. and that initial production could start in 2010 at the earliest. Assuming an optimistic scenario in which the mean expected technically recoverable oil in the entire coastal plain (not just the 1002 area) - 10.3 billion barrels - could be completely recovered (i.e. ignoring market pricing) the EIA estimates production of 600 million barrels a year. In comparison, US daily consumption is 18.5 million barrels a day, or 6,752 million barrels a year. Thus in this scenario ANWR, once on tap, would provide less than 9% of US annual usage (given that usage is trending upward..). Assuming a less positive scenario, at a market price of $24/barrel the mean estimated commercially recoverable oil is 5.2 billion barrels, and since the oil is in multiple plays rather than one large play the costs of exploiting the oil will be higher.

In conclusion, the amount of economically recoverable oil reserves in the ANWR, even if the numbers pan out exactly as estimated by the USGS, is dependent on the market price of crude. The graph above shows the US cost of a barrel of oil from 1970 to the present. This together with the estimates above provide an informed basis upon which to determine the possible recoverable oil from the 1002 area and make a decision regarding the desirability of drilling in the ANWR.

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