The world will continue to need liquid fuels refined from crude oil for decades. But it likely will need less in the decades ahead as it transitions to renewable energy sources in hopes of stemming the damages caused by a warming planet. Which means oil companies generally are looking for the least risky projects, the environmentally smartest ones, the ones with the quickest payback to recover their investment.
No producer wants to sink billions into a new development, only to find that delays, cost overruns and political or permitting problems turn the good prospect into a bad investment just as demand for their product is in decline.
Which is some of the reasoning behind the fact that no major oil producer, not even a small oil producer, bid on the 2021 federal lease sale for exploration acreage in the Alaska National Wildlife Refuge.
But that didn’t stop the Alaska Industrial Development and Export Authority from writing a check for millions of dollars to lease a few hundred thousand acres. Not that the state agency itself plans to explore for oil. AIDEA figured it would spend the public’s money in the hope that someday, someone somehow somewhere might come along to take the expensive risk to drill on the state’s acreage. Then the state could make some money.
It’s an investment that makes cryptocurrency look good.
No surprise, but no one has appeared to bail out the state investment. Besides, a new federal environmental review of oil drilling in ANWR has been delayed half a year, into spring 2003. Any work is stalled until the review is completed and then until litigation plays out.
All the while, the world will continue its long-term energy transition. And all the while, the state will keep making annual lease payments on oil leases that at best could not produce any crude until the 2030s, if then. That’s not a gamble, it’s a sucker’s bet to make a political point that Alaska wants to remain an oil state.
Alaska will remain an oil state for a long time. ConocoPhillips and Oil Search are spending serious money on their respective North Slope projects, both of which could add substantial flow to the trans-Alaska oil pipeline this decade. The key point being this decade, not maybe sometime in the 2030s.
State leaders would be smarter to look ahead to the 2030s, 2040s and beyond, thinking what Alaska can do to become a player in the energy transition rather than putting millions of dollars of chips on the ANWR square at the roulette table. Hydrogen production, carbon sequestration, tidal power come to mind. Spending money on any of those could produce better returns than paying more in annual lease fees on ANWR acreage no one wants.
The best thing AIDEA could do now to recover its investment would be to offer to sell back its loser leases to the federal government and put the money into something real that would help Alaskans, not a dream. At least then, in the 2030s, we would have something to show for the millions. Not just a stack of leases of no value.
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