Alaskan Oil Abundance Versus Washington's Wasted Billions

The case for new oil drilling in Alaska and off America's coasts

Oil imports now count for almost 80 percent of American consumption and cost some $300 to $400 billion yearly. They wreck our trade balance, subsidize many of our enemies, and add to our already mountainous foreign debt.

For political reasons, Venezuela, Nigeria, and Mexico—all major sources of U.S. oil imports—have suffered precipitous declines in production, with scant hope of recovering soon. Russian oil production is limited by government incompetence and lack of re-investment. Iraq's vast oil potential is paralyzed by political strife. At any moment, Iran might be attacked by Israel or America which would shut down its production. Further, Iran has threatened to retaliate against any attack by blockading the narrow passage in the Arabian Gulf through which most Saudi Arabian and Kuwaiti oil flows.

Analysts are already forecasting 100-dollar-a-barrel oil within a year. Yet the Obama administration is still blocking offshore drilling in America—even though it was approved by Congress last year—and wants to raise taxes on oil companies. Several years are needed to get major new production on line, even without anticipated environmental lawsuits designed to stymie or at least harass and delay any drilling of new wells off of America's east and west coasts.

In Alaska, we have a pipeline which could flow another 1.5 million barrels per day—worth nearly $50 billion per year—from vast oil resources waiting to be drilled. Oil appears to be abundant all the way across Northern Alaska from the Canadian border, where British Petroleum (BP) spent a billion dollars for new Canadian leases, to the shallow Chukchi Sea near the border with Russia, where test drilling is planned for next year.

New oil drilling in Alaska and off America's coasts would create hundreds of thousands of American jobs and billions of dollars in real tax revenue for Washington. Compare that to government spending to create jobs, which costs some $200,000 per job. Furthermore, administration claims for alternative energy rarely mention the billions of dollars in subsidies, lost tax revenue, and new government debt they require.  

For example, solar power involves billions of dollars in costly subsidies which add to the ballooning budget and trade deficits, as many of the panels are imported. A 30 percent tax credit comes right off an installer's income taxes. Giant companies such as Florida Power & Light, for example, now pay much lower income taxes mainly because of the credits.

Wind farms receive a 30 percent cash subsidy from the government in a program estimated to soon cost taxpayers some $10 billion, according to the Wall Street Journal. And billions more in government financing will still be needed to build transmission lines from out-of-the-way locations. Ethanol was similarly hyped by Washington—another gigantic political boondoggle with severely damaging consequences for food prices and tens of billions of dollars of wasted resources. Making gasoline economically from switch grass and other plants remains another pipe dream.

Major technological breakthroughs make vast new oil production possible—once Washington permits it. Natural gas is already abundant and promises to stay cheap into the foreseeable future (see my previous article at Reason.com, "The Coming Energy Abundance"). Many trucks, buses, and taxis could be easily converted to run on natural gas, costing less than a dollar a gallon for the energy equivalent of gasoline or diesel oil. According to USA Today, there exists tremendous potential for natural gas in auto and truck engines, which consume some 20 percent of all the fuel used on highways. Still, nothing compares to oil products for most transport needs. They are relatively safe, easy to store and divide up, and easy to transport.

For oil, extended reach drilling has made vast new production possible. BP is now drilling eight miles out from a manmade island off Alaska's shallow Arctic coastal plain. Artificial islands might even allow new wells to reach under the potentially vast ANWR oil fields from offshore, although less costly exploratory wells would first have to be drilled from sites on the ANWR preserve.

Horizontal drilling allows wells to reach out into oil reserves as never before and to produce far more oil from each field. Multiple extensions can also be drilled sideways out from a single vertical well. Until a few years ago all oil wells were vertical. For comparison, a traditional vertical well might expose 2 to 300 feet of reservoir rock. A new well using multiple horizontal sections can expose over 20,000 feet of reservoir rock, according to the BP's publication Arctic Energy. The process is called coiled tubing drilling. It is vastly increasing production and lowering costs.  

The 800-mile-long Alyeska Pipeline from Northern Alaska is now flowing at 600,000 barrels per day-its original capacity was over 2 million. BP expects its new offshore island to produce at least 40,000 barrels per day while the new Alpine field of Conoco Phillips Company is already producing some 110,000 barrels per day. The companies are also working on producing some of the billions of barrels of unused heavy oil from Alaska's Prudhoe Bay, trying to develop technologies to mix it with lighter hydrocarbons so it can flow through the pipeline. These numbers give some idea of how the pipeline might again be filled to capacity, assuming that ANWR production is permitted by Washington.  

Meanwhile, the Obama Administration is a prisoner of its "base," which includes extreme environmentalists doing all they can to delay and handicap new oil and gas drilling. If just a fraction of the $700 billion stimulus bill was spent on subsidizing natural gas fueling facilities at interstate truck stops, America could use more of its natural gas to avoid tens of billions of dollars of oil imports.

Moreover, none of the above addresses the new technology in nuclear electric power generation.  Small, factory built reactors could be operational by 2018. They could supplement or replace costly giant plants which now take 10 years for approval and construction. Low cost energy abundance is again well possible for America.

Jon Basil Utley is associate publisher of The American Conservative. He was a foreign correspondent for Knight Ridder newspapers and former associate editor of The Times of the Americas. For 17 years, he was a commentator for the Voice of America. In the 1980s, he owned and operated a small oil drilling partnership in Pennsylvania.