Will Biden’s oil plans unleash an Arctic ‘carbon bomb’?

By Heather Richards | 01/07/2022 07:11 AM EST

Conoco-Phillips Carbon location in the National Petroleum Reserve-Alaska

Drilling operations by ConocoPhillips Co. in the National Petroleum Reserve-Alaska are pictured. AP Photo/Judy Patrick, File

The Biden administration is facing a critical test about oil drilling in a vast region of the Arctic with so much crude it has been called a “carbon bomb.”

The Interior Department has declared that it may stymie drilling in the well-known Arctic National Wildlife Refuge (ANWR) — suspending leases pushed through at the end of the Trump administration. But it’s unclear what it may — or can — do in the 23-million-acre National Petroleum Reserve-Alaska (NPR-A).

The decisions that the administration make in the reserve will help shape the future of the Alaska oil and gas industry, which state leaders and industry advocates argue remains vital to the state’s economic well-being. Environmentalists counter any more drilling could irreparably damage a priceless landscape and cause a major uptick in emissions.

Yet industry and greens agree on one aspect of NPR-A’s future: They don’t know what to make of the White House’s strategy.

“Policies out of the gate, you know, have been a little bit mixed,” said Kara Moriarty, president of the Alaska Oil and Gas Association.

President Biden moved quickly in calling for a review of NPR-A’s management plan, called an “integrated activity plan.” Penned with guidance from pro-oil Alaskans during the Trump administration, it expanded oil’s potential for leasing to 82 percent of the reserve, up from 52 percent previously. It also carved into special protections around the Teshekpuk Lake, a coastal wetland treasured for its beauty, rich avian life and herds of caribou.

Laura Daniel-Davis, principal deputy assistant secretary for land and minerals management, said in a September memo that the plan was “inconsistent” with the Biden administration’s priorities and warranted greater attention.

But she also made it clear that the administration has yet to decide whether to revoke the old management plan. As a stopgap, Interior has frozen the sale of new leases in areas opened by the Trump-era plan.

Raising the stakes on what comes next is the oil potential maturing in the NPR-A. The region’s future is under scrutiny with high oil prices and recent efforts by the administration to increase oil supplies. The reserve also has pivoted in recent years from a quiet expanse of federal lands with limited oil activity to the new hot spot on the North Slope.

Recent oil and gas discoveries in the reserve — located like ANWR on the Arctic Coast — have driven talk of a renaissance for Alaska’s declining North Slope oil fields.

The most significant discovery has been ConocoPhillips Co.’s Willow prospect, a $6 billion investment to produce some 750 million barrels of oil equivalent — if it can get clearance from the Biden administration.

And Willow is not alone. The even newer Peregrine oil discovery by 88 Energy Ltd. estimates 1 billion potential barrels from the same source rock under NPR-A. These and other projects have buttressed confidence in the reserve’s growing importance to invigorate Alaska’s oil-dependent coffers — and drive decades of new oil and gas development on federal lands.

Oil champions today say that oil is needed. They have pointed to the current high price of gasoline to underscore that drilling from a fat American supply of oil and gas over the long term ensures cheaper energy prices. After all, it was the desire for a reliable supply of oil that spurred the creation of NPR-A in 1923, when President Harding set aside the reserve as a backup for the U.S. Navy’s fleet, which was moving from coal to oil.

But climate activists say finally tapping Harding’s reserve in depth, which is what these projects would do, creates greater costs than those associated with gasoline spikes.

It would mean pollution in Native communities and a contribution to life-altering climate change in the Arctic, where scientists say warming is occurring at three times the rate of the rest of the globe. They also argue the costs of climate change, from disasters like coastal flooding, drought, extreme storms and heat, mount to monstrous expenses that should be considered as much as the price of energy.

Activists are hoping the climate-focused White House sees things their way and will restrain new projects before companies can punch their holes in the tundra.

“The federal government has an obligation and the authority to restrict oil and gas activity in the reserve to protect other resources, including the climate,” said Jeremy Lieb, a senior attorney for Earthjustice, which is fighting the ConocoPhillips Willow project in court. “The science is clear that the world can’t afford to develop even a small portion of that oil.

For its part, industry is holding firm, banking on the fact that oil companies can outlast administrations and federal rights to drill are hard to dislodge.

“Our federal lands hold a lot of promise,” said Moriarty. “The renaissance is certainly attainable. And frankly, it’s needed. It’s needed for our state’s economy, and it’s needed to meet global demand.”

Willow and the oil rush that followed

ConocoPhillips announced its Willow discovery in 2017, the same year most Arctic oil watchers were captivated by the congressional decision to open ANWR to oil for the first time in its history.

But Willow, too, could be historic, and might have more legs than proposed development in ANWR.

Willow’s discovery helped flip the narrative of decline that’s characterized the North Slope for a decade, as the oil flowing on the TransAlaska Pipeline System, the artery connecting the Arctic to refineries and markets to the south, has gradually tapered off.

“Five, six years ago, if anyone wanted to talk about Alaska, it was, ‘What’s going to happen when the pipe runs dry?’” said Mark Oberstoetter, head of Americas upstream research for Wood Mackenzie.

Then, Willow — as well as the earlier Pikka discovery on state lands that operator Oil Search sees holding between 500 million barrels to 968 million barrels of technically recoverable oil — helped change that narrative, he said.

ConocoPhillips has emphasized that the company sees more oil potential deeper into NPR-A. And with its optimism came investments that could lock the oil industry in place for many years.

Of the $42.4 million industry has spent acquiring leases in the reserve in the last decade, the biggest bursts were during sales in 2016 and 2019.

ConocoPhillips today holds a massive leasing presence in NPR-A, encircling Willow.

Other companies also jumped in, including Australia’s 88 Energy, the company that says a billion-barrel find lies under the reserve. Armstrong Energy Corp., the Denver-based firm that helped find the Pikka discovery and is often patted on the back by the rest of industry for its “wildcatter” spirit of drilling in frontier areas, has also bid into NPR-A.

These potential drilling opportunities will pose a real challenge if the Biden administration decides to slow or stop oil from federal lands in the Arctic. Experts anticipate industrialization moving farther into NPR-A than ever before, with every new pipeline and well pad an incursion into untapped reserve lands that could last years.

‘Get it out of the ground’

Oil development in Alaska map. Arctic National Wildlife Refuge, National Petroleum Reserve of Alaska, Trans Alaska Pipeline System. ConocoPhillip’s Willow project, the Peregrine oil discovery, and Pikka oil discovery
| Claudine Hellmuth/E&E News

NPR-A embodies a critical question raised by experts for the Biden administration’s climate goals, and the answer has resonance across public lands that hold oil and natural gas: Can the Biden administration limit industry’s right to drill in places where, like Willow, industry already holds federal drilling rights?

If Interior can’t dislodge existing drilling rights, new development could continue for a long time in NPR-A and elsewhere as oil and gas companies hold an enormous reserve of untapped leases. Across the country, more than 26 million acres of Interior lands are currently leased to fossil fuel developers. Roughly 14 million acres of that are not yet producing.

Last year, Interior Deputy Secretary Tommy Beaudreau promised a panel that the administration was going to overhaul the oil program to align it with climate risks, but he acknowledged that the process would have to be methodical and that the laws on federal oil and gas resources were written with a very different purpose in mind: “Get it out of the ground to enhance domestic sources of energy supply.”

The reform agenda released by the White House this winter, echoing an Interior report critical of the oil program’s capitulation to industry and decades-old regulations, is one that could curb drilling in sensitive areas, add additional — and costly — burdens to new projects, impose new fees, demand higher royalties, and increase bonding requirements. Taken in total, these reforms could depress oil and gas development in places like NPR-A even if the administration’s hands are tied on dislodging existing leases, experts and industry agree.

But that approach hasn’t pleased climate advocates who want more aggressive limits on oil and gas drilling.

Environmental advocates have also tried to force markets to protect the Arctic where federal policymakers fall short. They are increasingly pressuring investors to curb Arctic fossil fuel spending, citing outsize climate concerns in the region and making the argument on Wall Street that oil investment in the Arctic is unethical in environmentally sensitive or culturally rich areas.

For its part, Alaska industry has argued that nowhere in the world are environmental restrictions more stringent than the U.S. Arctic. Still, most of the country’s big banks, like JPMorgan Chase & Co. and Morgan Stanley, have made pledges not to directly support projects in places like ANWR or more broadly in the Arctic region.

But Alaska experts said both federal limits and financial investment constraints are unlikely to significantly stop existing developments or known resources.

“The majors don’t need to worry about financing. They’ve got plenty of money to spend,” said Matt Berman, a professor of economics at the University of Alaska’s Institute of Social and Economic Research. “When it comes to NPRA … there’s nothing really stopping development.”

Echoing industry’s hopes and environmentalists’ fears, he said oil on the North Slope and in NPR-A has decades of life in it regardless of political and environmental justice pressures. If oil isn’t plumbed from the Arctic in the long term, it will be for the same reason the rest of the world isn’t drilling anymore: The energy transition will have happened, he said.

“In the long term, the outlook is not good. But that’s sort of global,” Berman said. “It’s not gonna be going on in 100 years … because we won’t be using oil.”

A climate test for Biden

Even if the energy transition is years away for the Arctic, how much oil flows in the intervening years from federal lands in the frigid north may hinge on Willow.

Environmental groups won, in part, their lawsuit in August alleging that the Willow project approval under the Trump administration failed to account for the climate implications. That sent the project back to the Interior Department for a supplemental assessment of Willow’s impacts.

Willow matters to industry, enviros and the Biden administration, not only because it’s a lot of potential oil, but because it would connect remote lands in NPR-A to the massive heart of the Alaska oil industry on state lands in the central North Slope, with its pipelines, processing facilities, gravel pits, ice roads, fuel barges and all the other requirements of oil operations in the seemingly impossible conditions of drilling in the Arctic.

For industry, that would mean a hefty investment from operators that would entrench their operations in NPR-A for years. It could also invite new exploration on existing leases that previously would have been too costly to develop in the remote reserve.

“We’re no longer creeping or crawling [into NPR-A],” said Oberstoetter of Wood Mackenzie. “That’s why Willow has massive importance.”

That’s also why critics of Arctic development want to see bold action on Willow. Lieb, of Earthjustice, said the administration must take more forceful steps to transition these lands away from oil, like closing the door on new leasing, restricting development on existing leases and enforcing a decline in current production.

In NPR-A, that’d mean the three fields that ConocoPhillips already has under development would be forced toward retirement and the Willow prospect, and others like it, would never get drilled.

For its part, ConocoPhillips has told investors it remains confident it can work with the administration on a solution.

“We will continue to perform engineering design work in anticipation of a future final investment decision (FID),” said Rebecca Boys, a company spokesperson, in an email. “However, given the recent Court decision, we do not expect to make the FID decision in 2021 and continue to be clear that we won’t make the FID until the legal risks are resolved.”

Boys said Willow still represented the company’s “next significant North Slope project.”

“The merits of the project represent a strong example of environmentally responsible, low cost of supply development that offers extensive benefit to the public and to the residents of the North Slope,” she said

Observers say they can’t predict if Biden will stall the project or let it proceed.

The Biden administration chose not to fight Willow when it could have joined activists in the court fight. But observers on both sides of the issue have also noted the climate focus underscoring Interior decisions. The agency recently released a national climate assessment it says will strongly consider the greenhouse gas impact of its oil decisions going forward, and it’s put NPR-A’s management plan on ice.

Kristen Miller, acting director of the Alaska Wilderness League, said the court decision on Willow has handed the Biden administration a way out, a chance to make a climate argument for denying oil and gas in NPR-A and in the Arctic more broadly.

And environmental groups are planning to give no quarter as they ramp up their campaign to end federal drilling in the far north.

“We are really looking at the Alaskan Arctic as the next frontier in fighting the climate crisis,” Miller said. “There’s a big question about how oil and gas can go forward.”