01 June 2008
ANWR is a Distraction
This evening, for the second time in about a month, I heard conservative friends and family decry the ANWR (Artic National Wildlife Reserve) fiasco, where environmentalists were standing in the way of oil that would allow us to stop buying from Saudi Arabia and the Middle East. This makes about as much sense as re-electing George Bush.
If we pumped out ALL the oil from ANWR in one year, it would meet about 30% of global demand. In one year. This might halve oil prices. For one year. And then we would be back to our current situation. More reasonably, the output from ANWR would dribble out in smaller quantities - probably increasing global supply by about 1 or 2% over a period of 10 to 20 years and have a negligible impact on oil prices.
Further, the oil from Alaska does not change our dependence on oil from the Middle East. Oil is a global market. The Saudis will still sell oil, as will the folks in Russia, Iran, China, Mexico, Canada, UAE, Venezuela, and Norway (which, along with the US, constitute the list of the top ten oil producing countries). Imagine water being pumped into one pool by ten hoses. The level of the water is determined by the collective efforts of the ten hoses, but you cannot swim in just one hose's water. You swim in the pool or do not. Oil markets are made up of output from many countries: once the oil is on the market, it is all sold at the same price (adjusting for different refining costs, etc.) and goes into the same pool. Using a bit more oil from Alaska does not hurt existing oil producing countries that much.
Oil prices have gone up by 6X in the last decade. (From less than $20 a barrel to $127 a barrel.) It is hard to believe that a price relief of, say, even 5% would be noticed much in the context of 600% oil price increases.
The truth is that ANWR would supply oil for about 6 to 25 months of US consumption. The problems of oil supply and climate change are problems that will play out over decades. I'm working with one client now who is developing a new drug from a molecule: they are currently projecting a launch date for the drug in 2017. This is, by comparison with energy, a very simple project for which only one team in one company is responsible. Energy and climate change are problems that will take decades to address and, ultimately, coordinating the activities of millions of people. In this context, the 6 to 25 months that ANWR could buy us is noise. And to the extent that it mitigates the problem of oil supply, it exacerbates the problem of climate change. It is, in short, a non-issue and this will be the last time that R World addresses this issue. (And if that does not settle it, well then ...)
In truth, we could flip a coin on the issue of ANWR. I think it would be a mistake to drill there, but it won't make much difference whether we leave it alone or exploit. What will make a difference is if we move past oil and aggressively into alternative energy sources. If we could harness even 1/10th of 1% of the solar energy that hits the planet every day, we could replace all the oil we are now using. Unlike the distraction of ANWR, that is a promising possibility worth pursuing. To waste more political time and effort on an issue like ANWR is like re-arranging deck chairs on the Exxon Valdez.
Meanwhile, as long as oil companies can convince people that high prices are because of environmentalists they can distract us from the real issues. In that sense, ANWR is a distraction.