What Do We Do Without ANWR?

Abstract: Exploring the Alaska National Wildlife Refuge is out of tune with the times again, but the "melody" lingers on; meanwhile, domestic producers are looking at what they have in hand.

Analysis: As everybody in the industry knows, two U.S. Senators--and both Republicans, at that--earlier this month defeated President George W. Bush's attachment to the 2004 budget resolution bill that would have lifted the ban on drilling in the Alaska National Wildlife Refuge (ANWR).

So, the "procedural quirk" mentioned earlier this year in this spot (see "President Could Get ANWR Nod Soon," Jan. 13, 2003), which was supposed to have made ANWR drilling a shoe-in, never got on its feet.

But it was a loss, for sure. Former Sen. Frank Murkowski (R-AK), now governor of his state, must have felt the defeat intensely. Literally for decades, he fought for opening up ANWR. So did his former partner and still Senator, Ted Stevens, also a Republican. And you can count on Alaska's newest senator, Lisa Murkowski, Frank's daughter, whom he appointed to serve out the remainder of his Senate term, to be equally disappointed. She comes up for re-election next year.

In any case, the ANWR debate is closed once again. Probably, however, it's only a temporary retirement. Drilling in ANWR is likely to be resurrected again fairly soon, given the war in Iraq and all the uncertainty about the Middle East, coupled with ethnic troubles in Nigeria that are affecting oil and gas operations there right now, and a continued hot seat for President Manual Chavez in Venezuela--all of which mean possible restrictions on U.S. oil imports. Oil prices have climbed into the $30 per barrel (bbl) range, and some prognosticators believe they won't go below $25/bbl for a long time to come. With the ever-increasing U.S. demand for oil and natural gas, it's not difficult to imagine that American drivers might not see $1.40/gal. gasoline ever again, and that their gas bills will climb to equal or surpass their electricity bills.

Inside the political arena, the Democrats just don't have any faith in domestic oil and gas supply. In their much-publicized view, any oil produced from ANWR would provide only a few months' worth of U.S. supply, but would risk trammeling an untrammeled environment--one, by the way, that most Americans will never see except on television.

And besides, say the Democrats and the environmental lobby, we need to cut way back on our use of petroleum products--meaning motor fuels. Apparently, Americans have no other choice but to suffer the "Jonesing" of withdrawal from our addiction to petroleum-based products--make that fuels of the gasoline and diesel persuasion. The time has come, they opine, to replace them with batteries and, eventually, fuel cells.

Not surprisingly, most Americans, and even most American companies, agree with at least the last two words of that sentence. The first part, however, is iffy. Battery-powered automobiles may indeed find a niche with some folks who need only to go to the grocery store once a week, or with rich people who'd love to have one to go with the Corvette and the Isotta-Frachini in their third and fourth garage stalls. But, the electric automobile industry itself says it needs to improve on the size and service life of the cars' batteries and motors.

President Bush's entire energy policy is based on increasing domestic petroleum supply to safeguard homeland security. But now, however, without the prospect of finding billions of barrels of oil beneath ANWR, what do U.S. oil companies have in the way of places to find and produce new oil and gas, and where are they located? For conventional oil and gas, at least three main domestic sources exist today, not counting areas like ANWR and the submerged lands off both the east and west coasts, which currently are banned to the drill. These three sources are, in no particular order: the Rocky Mountain West, the Mid-Continent area, and the Gulf of Mexico.

In the Rocky Mountain area, where the U.S. government controls a vast majority of unexplored land, there is the potential for producing billions of barrels of conventional oil and trillions of cubic feet of gas, both conventional and unconventional. There, ranching and farming interests, in conjunction with environmental groups, have fought tooth and nail to keep oil companies from exploring on public lands. A deft use of the law has continued to delay attempts by the petroleum industry to test those lands, even though the federal government says they've done nothing to stall leasing. It's hoped that with apparently assured access to millions of acres of public lands in the Intermountain West, domestic producers will now meet the other stakeholders somewhere in the middle, and then dot every "i" and cross every "t" in satisfying all required environmental reporting in order to finally get on with exploration and production.

In the U.S. Mid-Continent area, billions of barrels of oil remain unproduced, mainly because oilfields discovered there in the first half of the 20th century were drained poorly and the natural water or gas drive mechanisms lost forever. New enhanced oil and gas recovery (EOR) technologies, however, make the Mid-Con area a potentially highly productive area for domestic producers, particularly if oil prices harden around the $25/bbl mark. Mid-Con oil is harder to get now, but it's still largely "sweet (low-sulfur)," has ready access to existing pipelines, and is a welcome feedstock for any refinery.

In the Gulf of Mexico, the step out into deepwater areas (1,000 ft of water or more) has resulted in discovery of a growing number of respectably sized oil and gas fields. The discoveries are not giant-sized, but are adding to recoverable reserves in increments of 75 to 150 million bbls apiece. Incursions into ultra-deepwater areas (3,000 ft plus) by some major companies also are resulting in new discoveries, some even larger than the deepwater strikes. Back towards shore, on the Outer Continental Shelf (OCS), independent companies are reviving development by drilling for and finding deep natural gas reserves. And finally, thanks to the December 2001 sale of federal offshore leases in the Eastern Gulf--the first since the 1980s--producers are accumulating seismic and geological data in preparation for exposing leases to the drill. Several companies, including Shell, Anadarko, and Oklahoma City-based Devon Energy, have filed paperwork that will allow them to test Eastern Gulf! leases. Observers say this is a high number of active exploration plans for a sale held only two years previously. A fourth company, Marathon, already has begun drilling on a lease in the Eastern Gulf, acquired years earlier. The well, drilled in Desoto Canyon Block 937 in about 8,500 ft of water, was spudded in January.

The Eastern Gulf sale spurred lots of controversy. The blocks offered were considered by some to be located "too near" Florida's west coast. This riled the state's tourist industry and even caused a rift between President Bush and his brother, Jeb, Florida's governor. Subsequently, the blocks to be offered were rearranged so that the closest now are about 100 miles from the Florida coast, which tourist industry bigwigs regard as still too close for comfort. In any case, the Eastern Gulf area has potential for vast natural gas reserves, say the experts, since it extends outward from geological trends on the Alabama/Mississippi OCS, almost all of which produce gas. Additionally, however, there are hundreds of subsea salt domes all across the Eastern Gulf lease area, and nobody has tested them, period. Subsalt wells in the Central and Western Gulf have produced both oil and gas, sometimes in huge quantities.

Of course, a number of other U.S. geographical areas have excellent potential for developing both new and proved oil and gas reserves. The eastern overthrust belt continues to produce both oil and gas, with some interesting new gas finds in states like Tennessee and West Virginia. Existing onshore California oil reservoirs continue to yield production with the aid of EOR techniques, and producers continue with a dogged, but yet unsuccessful, attempt to find deep gas in and around the San Joaquin Basin. Older fields in Wyoming, Utah, and Montana may take on new life thanks to EOR, and coalbed methane plays in Wyoming, Colorado, and New Mexico have given coalgas an eight to nine percent share of total U.S. gas production so far.

But without ANWR, and without even a chance to mention exploring off the U.S. east and west coasts, those are the areas that U.S. producing companies have to search for and develop domestic reserves--at least during the next five to 10 years. If observed as a whole, it's truly a vast area. And who knows? By embracing new technologies--an exercise that's quite new to an industry that for centuries just didn't take to off-the-rotary-table thinking--there are giant reserves, and maybe even giant fields, yet to discover.