Alaskan auction signals change
If the federal government auctions off Alaskan drilling leases, and no major energy company makes a bid, does it mean the oil is not needed?
If the primary bidder is a state-owned economic development corporation, does it mean it’s no longer the energy they want, but the jobs? The answer to both is yes. The Bureau of Land Management’s auction of oil leases in the Arctic National Wildlife Refuge marks an interesting turning point for the industry.
Major corporations are not willing to court public controversy for profits, and the drilling debate is becoming more about job creation than energy independence.
The auction results were damningly disappointing. Congress had mandated drilling in the refuge to help pay for President Donald Trump’s debt-accelerating 2017 tax cuts. Advocates promised that wells in ANWR would generate $1 billion a year and decrease the budget deficit.
The Alaska Industrial Development and Export Authority was the only bidder on 400,000 acres at the minimum price of $25 an acre. The state-owned economic development organization never has drilled a well.
Two small companies, neither of which produces a significant amount of oil, were the sole bidders on another 75,000 acres.
Analysts cannot imagine how they could launch an exploratory drilling program, particularly because major U.S. banks have promised to never finance drilling in the refuge.
The Bureau of Land Management received no bids on about half the tracts on offer.
The total cash haul was a measly $14.4 million. Unless the leaseholders can seduce a supermajor oil company to self-finance a multibillion-dollar drilling campaign that will take a decade to pay off, the refuge remains safe.
Just before Christmas, I explained why leasing inside the refuge was at best a long-shot speculative play and, at worst, a fool’s errand to appease Trump.
While I called on oil companies to boycott the auction, I was just puffing my chest. The economics are all wrong for Arctic drilling and always will be.
The world is awash in oil, with OPEC and its allies holding back 8 million barrels a day to keep prices high. More and more analysts believe demand will never return to pre-pandemic levels as more people work from home.
So why even talk about Arctic oil? Because the existing Alaskan fields are petering out, and thousands of Alaskans rely on the oil patch for work. Unless someone drills more wells, a lot of people will lose their jobs in a place where there are few alternatives.
The other problem is the industry’s unpopularity. Commuters are not excited to try out the latest gasoline formulation. No one buys more than one British Thermal Unit of natural gas than they need. For a century, people have spent trillions on petroleum, not because we want to, but because we had no choice.
When I drive my Chevy Bolt, I do not miss visiting the gas station. As electric vehicles gain wider acceptance, and governments take stronger action on climate change, fewer people will have to buy oil. So now, lobbyists argue politicians must support the industry to preserve jobs and boost the economy.
“The Texas oil and natural gas industry continues to contribute tremendously to state and local tax coffers, while fortifying our energy security and leading the way in innovation and investment that is advancing environmental progress,” Texas Oil and Gas Association President Todd Staples declared Monday. “The ongoing recovery of the oil and natural gas industry is essential to the state’s continuing economic improvement.”
The COVID-19 oil price collapse presages a dark future for oil and gas. The Petroleum Equipment & Services Association, citing federal data, reports oilfield services shed 14 percent of its workforce, or 55,710 jobs, when the economy shutdown.
“The jobs lost represent annual wages of approximately $10.6 billion,” the group’s report said. “Job losses were heaviest among companies providing support services for oil and gas extraction.”
The appeal to place jobs over the environment is an old one.
I remember timber groups arguing we needed to cut old-growth forests in the 1990s to keep lumberjacks in the Pacific-Northwest working. Others say we need to build coal-fired powerplants to keep miners earning wages.
The shift in messaging reflects growing desperation, but it’s also a betrayal of working-class men and women who should be looking for jobs in the industries of the future, not of the past.
As we step up efforts to mitigate climate change, we cannot forget the 638,732 people who provide oil field services.
If we do not help them make the energy transition, they will do everything possible to stop it.