Is Drilling Offshore Alaska Worth It?

President Obama’s proposal to lift the exploration and drilling ban along the US Outer Continental Shelf (OCS) could result in the recovery of billions of barrel of oil and trillions of cubic feet of natural gas. Over half of the estimated undiscovered, recoverable resources are located in the Gulf of Mexico.
Another 30% of the resources lie offshore of Alaska. In the President’s proposed exploration plan, all of Bristol Bay would be protected from development, but additional acreage on the northern OCS in the Chukchi and Beaufort Seas would be opened to exploration.

As the map shows, aside from the northern OCS, Bristol Bay, and Cook Inlet, there is little potential for new resources offshore of Alaska. Bristol Bay supports some 40% of the total US fisheries and the bay will not be developed.

It’s not much of a loss. The US Minerals Management Service estimates that there is a 95% certainty of recovering just 200 million barrels of oil and 400 billion cubic feet of natural gas from Bristol Bay. Cook Inlet is estimated to produce even less, and the last scheduled lease sale was canceled for lack of interest.

The Chukchi Sea dominates the potential for new exploration and drilling. The region could hold as much as 40 billion barrels of recoverable oil and more than 200 trillion cubic feet of natural gas. The Beaufort Sea region holds potential for about 23 billion barrels of oil and 72 billion cubic feet of natural gas.

The 2008 lease sale in the Chukchi Sea region resulted in 487 leases sold. No further sales are planned until the 2012-2017 lease plan is released. So far nothing has happened due to litigation over the leases.

The Beaufort Sea region will also see no new leasing opportunities until the 2012-2017 plan is issued. There are 186 active leases in the region, and there is one producing project and another two are in development.

The harsh, and delicate, environment off Alaska’s north shore presents a range of problems unknown in more hospitable climates. As a result, exploration and development of north shore leases are very price sensitive. It’s a good bet that the price of crude will be high enough to make it economical to develop the north shore, but it’s not a given.

Again, the President’s proposal for developing Alaskan oil and gas resources has drawn fire from both supporters and opponents. This appears to be Obama’s preferred method of operation: make sure everyone is shooting at you, but also make sure that they don’t hit anything.

Paul Ausick