Question

Drilling for oil in the Arctic The chase is now on, as sea channels clear of sea ice, for oil exploration in the Arctic region. There is actually not much care about global warming by major superpower governments, as they see that domination of the world’s oil resources is vital in maintaining both economic and military security. Please discuss this, as far as your knowledge into this difficult issue will allow. The main purpose of Assignment One (A1) is to write a structured essay (i.e. structured with a main title, author (your) name, a few subtitles and at least six references (do not include the course study materials). The title of your structured essay should be ‘Drilling for Oil in the Arctic’. i) Introduction/background - briefly describe the world’s oil market, and the value of this enterprise to the federal and regional economies around the world. Also describe the relevant social and environmental impacts of this business activity (~300 words). ii) Expression of a likely viewpoint of someone employed directly within the industry, or someone in a secondary flow-on industry (~300 words) iii) Expression of a likely viewpoint, from a local ancestral heritage group, a traditional owner, or an environmental lobbyist (~300 words) iv) Expression of a likely viewpoint from a right-wing politician/business person (~300 words) v) Conclusion/overview/recommendations (~300 words)

Answer 1

Economic impact of oil drilling

1. Value to Consumers of Reducing Gasoline Prices

Current high gasoline prices are not a reason to drill for oil. In the best circumstances, it will take 10 years to go from offshore exploratory wells to producing and selling oil produced from those wells. Prices may react before this time, as expectations of future supply increases could depress prices in advance. But this effect is likely to be small because prices are determined on the world oil market and the increase in supply would be small compared to the overall scale of the market. Note that the societal benefit of lower prices and higher consumption is lessened because higher consumption causes more pollution and traffic congestion.

2. Value of the Oil to Producers and Alaska

The fact that oil prices may not change does not mean that the oil would not have economic value. Presumably, because Shell wants to drill, it expects that the value from selling the oil will outweigh the costs. If prices do not change much, oil consumers would not benefit from this production, but stockholders and employees of Shell would. In addition, there will be economic benefits for Alaska, as the increased jobs and incomes from new drilling activity and tax revenues ripple through the local economy.

3. Option Value of the Alaska Pipeline

The Trans-Alaska pipeline is operating at about one-third capacity because of declining production out of Prudhoe Bay—at a rate of about five to six percent per year. This trend will make it physically impossible to continue running the pipeline because the oil will freeze. Even before that occurs, however, it will be uneconomic to run the pipeline. More importantly for society, the contract for running the pipeline between the government and the pipeline owners requires that the pipeline be dismantled if it is shut down. Consequently, shutting down the pipeline would eliminate the value of the pipeline assets. However, the establishment of production wells in the Beaufort Sea or on the North Slope would increase oil use of the pipeline and therefore make it economically feasible to run the pipeline in the future. There is therefore an option value associated with continued use of the pipeline. Most of the option value is internalized by the owners of the pipeline and the companies developing the oil fields, although there are also energy security benefits that need to be taken into account.

4. Energy Security Benefits

Economists in general are skeptical of big energy security benefits. The best argument for the link between oil production and energy security is probably that importing oil limits U.S. foreign policy options. Beaufort Sea reserves hold perhaps oil enough for one year of U.S. consumption. Adding the Chukchi Sea, which is farther from the North Slope, possibly would add another two years. But a more appropriate perspective is that the production from a well typically spans 20 to 30 years. This would imply an average production of about 320 million barrels per year from the Beaufort Sea, or five percent of annual U.S. consumption. The effect on the trade balance would be smaller than this, however, because one barrel of domestic production typically displaces less than a barrel of imported oil.

Environmental Impact of oil drilling

The Arctic Ocean is one of the most pristine and fragile places left on the planet—and it’s in trouble.

In January, the Trump administration called for the removal of crucial Arctic protections in a new draft proposal of where oil and gas companies can purchase leases for offshore drilling.

A previous plan omitted the Arctic to protect marine mammals, seabirds, and other wildlife that live there, along with migratory paths and sensitive habitats. Native communities in Alaska continue to depend on the health of these subsistence resources for survival.

The vast size, remote location, and extreme weather conditions—combined with the complete lack of infrastructure for responding to oil spills—make drilling in the Arctic Ocean extremely dangerous. Our ability to respond to emergencies and oil spills is severely limited. Broken ice and other severe weather conditions in the Arctic make any large oil spill or well blowout catastrophic for the amazing life in the area. Opening the Arctic up for drilling would needlessly place the entire region at risk.

Take a look at how a handful of the Arctic’s abundant wildlife would be impacted by offshore drilling and a potential oil spill in the Arctic.

Arctic foxes

Arctic foxes traverse great lengths in the Arctic, spending time both on shore and far at sea on winter pack ice. They primarily nosh on smaller animals—most often lemmings when on land—and hunt for sea birds, fish, and other marine life when rodent populations become slim pickings. Foxes also often tag along with polar bears to take advantage of the bears’ hunting success. Should an oil spill take place, many of those essential prey populations could become contaminated. Arctic foxes risk ingesting oil during eating or grooming.

Beluga whales

Belugas, the bright white whales of the Arctic, sit at the top of the food chain and play a crucial role in the overall health of the ocean. They’re a sociable bunch, too, traveling in pods and communicating through a series of chirps, clicks, whistles, and squeals. This chatter gave rise to their nickname—the “canaries of the sea.” And oil and gas development in their sensitive environment could prove deeply problematic to their ability to communicate. The rise of the industry would involve an increase in the number of shipping vessels in Arctic waters, and that, in turn, would dramatically heighten noise levels underwater, masking communication among belugas and other species.

Seals

Ringed, ribbon, spotted, and bearded seals are collectively known as the “ice seals” and live on sea ice in the Arctic for at least part of the year. They’re considered vital resources for northern coastal Alaska Native communities and essential species in the Arctic marine ecosystem. Ringed and bearded seals serve as primary prey for polar bears, which need substantial amounts of fat to survive. Exposure to oil could injure or kill seals, and that would impact the polar bear population that relies on them for survival.

Political view

President Donald Trump said Thursday he “really didn’t care” about opening a portion of Alaska’s Arctic National Wildlife Refuge to oil drilling but insisted it be included in tax legislation at the urging of others.

Addressing fellow Republicans at the House and Senate Republican Member Conference in White Sulphur Springs, West Virginia, mentioned the wildlife refuge known as ANWR in Alaska’s northeast corner as he recounted accomplishments in the last year, including the tax bill passed by Congress in December.

Trump said he “never appreciated ANWR so much” but was told of its importance by others.

“A friend of mine called up, who’s in that world and in that business, and said, ‘Is it true that you’re thinking about ANWR?’ I said, ‘Yeah, I think we’re going to get it, but you know.’ He said, ‘Are you kidding? That’s the biggest thing, by itself.’ He said, ‘Ronald Reagan and every president has wanted to get ANWR approved.”

The comment had a major impact, Trump said.

“I really didn’t care about it, and then when I heard that everybody wanted it — for 40 years, they’ve been trying to get it approved, and I said, ‘Make sure you don’t lose ANWR,'” Trump said.

Oil in the refuge, Trump said, is one of the great potential fields anywhere in the world.

“That by itself is a big bill,” he said.