An Alaska Business Magazine article examines federal energy policy in Alaska:
New Administration, New Agenda
Mixed messaging from Biden Administration spells uncertainty for oil and gas investment
By Linda F. Hersey
Alaska Business Magazine
President Joe Biden sent a clear message early this summer about his position on oil and gas development in Alaska.
The president set parameters for future energy development in Alaska, in what at first appeared to be contradictory back-to-back actions on exploration and drilling. Upon closer look, the pair of decisions underscored the president’s recognition that the US economy depends on fossil fuels in its energy portfolio.
Biden signaled that Alaska oil and gas development will continue in areas long used for that purpose.
The back-to-back decisions illustrate the balancing act faced by the Biden administration as it proceeds on a campaign promise to move the nation toward less dependence on fossil fuels for renewable energy sources.Several Interventions
The Biden administration intervened in an environmental lawsuit to support ConocoPhillips’ Willow Project, located in America’s northernmost National Petroleum Reserve.
The vast tract of public land on Alaska’s North Slope is owned by the federal government and spans more than 20 million acres, which were originally set aside a century ago for oil production.
The Willow Project would be one of the first new major Alaska gas and oil projects in several years. It is projected to provide up to 2,000 temporary construction jobs during development and 300 permanent jobs.
The Biden administration followed that court action with a decision to temporarily halt oil and gas lease sales in the Arctic National Wildlife Refuge.
Biden also signed an executive order right after taking office to put a moratorium on new gas and oil activities on public lands and offshore waters, an action that is now being litigated.
The opposing messages—to allow oil and gas production in one area of Alaska, while denying it in another—vexed advocates and stakeholders in the oil and gas industry, the state’s largest taxpayer.
“The Biden administration’s energy policies have been a mixed bag for Alaska’s oil and gas industry,” says Alaska litigator Lee Baxter, who works closely with Alaska Native corporations, tribal and state governments, public entities, and companies throughout Alaska.
“On one hand, the Department of Justice is currently defending the NPR-A Willow Project in Alaska federal court,” says Baxter, who specializes in natural resources at Schwabe Williamson & Wyatt. “But, significantly, on the other hand, President Biden has imposed a temporary moratorium on oil and gas lease activities, and his Interior Department suspended leases” in the Arctic National Wildlife Refuge.
E. Colleen Bryan, communications director for the Alaska Industry Development & Export Authority (AIDEA), notes that the oil and gas industry supports up to a quarter of the Alaska workforce through direct employment and support industries.
AIDEA, the state development finance agency, purchased leases in the wildlife refuge in the days before Biden took office.
“It’s our hope that President Biden will choose to spotlight Alaska as the leader it is for responsible resource development and lift the suspension of these leases out of respect for Alaska’s local communities’ right for responsible economic development,” Bryan says.Following Through—For Better or Worse
Yet the Biden administration’s actions in Alaska come as little surprise to political observers. Biden’s suspension of new oil and gas lease activities upheld his promises in a detailed climate action plan that served as the centerpiece of his presidential campaign.
The Biden plan called for permanently protecting the Arctic National Wildlife Refuge and ending new oil and gas permitting on public lands and waters in favor of a new focus on solar, hydroelectric, and wind power, among other renewable resources.
Biden’s long-term energy goals are to lower greenhouse emissions and transition the nation to sustainable energy sources. But he also maintained that he will not sharply reduce oil and gas production or fracking, reflected in the legal brief filed by his administration on the Willow Project.
The president’s endorsement of ConocoPhillips’ Willow Project was the most visible demonstration yet that the president recognizes the need for a robust domestic fossil fuel supply and that Alaska production will be focused on the designated expanse of the National Petroleum Reserve.
Kara Moriarty, president and CEO of the Alaska Oil & Gas Association (AOGA), says the decisions by the Biden administration to set limits on oil and gas leases has fueled an environment of uncertainty for companies considering long-term investments in Alaska’s oil and gas industry.
With any new administration, there is a “political whiplash effect” for stakeholders as they seek to understand and respond to the new permitting and regulatory environment. The Biden administration is no different.
But Biden’s suspension of new oil and gas leases, followed by a halt to all leasing in the coastal plain of the Arctic National Wildlife Refuge, has had “material impacts on Alaska” that extend beyond any transition period from one administration to the next.
Biden’s actions represent “very real concerns for future jobs, long-term revenue streams, and economic activity in Alaska,” says Moriarty.
Oil and gas stakeholders should pay close attention to environmental permitting and regulations as they are developed and implemented under the new administration, Moriarty and advocates say. As Biden articulates policy goals, they become reflected in regulatory changes that are just getting underway.
“We are only five months into the Biden Administration, and it often takes much longer for new presidential policies to achieve all of the intended—or unintended—impacts,” Moriarty adds.
For example, the Biden administration has made it clear that it will be changing several policies and regulations by the Trump administration that relate to environmental permitting. But the policy changes take time to implement fully, which can delay projects as agencies “are noticeably slower to act when they are unsure of what policies to apply,” Moriarty says.Navigating Uncertainty
Stakeholders in the gas and oil industry need to be prepared for delays.
Federal permitting for oil and gas drilling already involves a complex maze of permitting requirements by key federal agencies, including the Bureau of Land Management, the US Fish and Wildlife Service, and the US Army Corps of Engineers, in addition to a deep understanding of statutes.A North Slope worker at Prudhoe Bay.
Hilcorp’s central gas facility at Prudhoe Bay.
“The preparation of an environmental impact statement, for example, can be time-consuming and complicated because of the number of agencies typically involved and the numerous draft iterations,” she notes. “A change in presidential administrations makes the permitting process even more complex.”
Bryan of AIDEA says that the oil and gas industry is trying to navigate the new landscape. “It’s unclear at this time what new regulatory or permitting challenges the oil and gas industry can expect with the Biden administration, especially due to the administration’s confusing and inconsistent industry actions within the state,” Bryan says.
Alaska Senator Dan Sullivan is advocating in Congress for reforming and streamlining the federal permitting process, which has not been substantially updated in fifty years. “If the president really wants a bipartisan [infrastructure] bill,” Sullivan recently stated, he “needs to address permitting reform. I know that sounds very boring, but it’s very bipartisan.”
Threats and legal actions by environmental activists, emboldened by the new, pro-environment Democratic administration, also can create volatility.
Environmental advocacy groups are rarely satisfied with any Alaska oil permitting decisions, no matter how comprehensive the process, Moriarty explains. At the same time, “litigation filed by those groups adds yet another process layer and potential source of delay to getting projects developed.”
Biden’s orders “obviously hurt Alaska’s oil and gas industry,” adds Baxter, noting that energy lawyers are challenging orders in court.
“Oil and gas development requires significant capital investment. Any time the president is using executive orders to halt, suspend, or temporarily pause oil and gas exploration or extraction, it makes investment in Alaska’s oil and gas less attractive and hurts the industry.”
Despite the backdrop of uncertainty, Hilcorp, ConocoPhillips, and other energy companies are continuing to invest in legacy oil fields with new technologies that expand their lifespan.
ConocoPhillips officials have said there is a greater recognition globally that the world needs oil and gas for critical infrastructure, including transportation, heating, and electricity generation, even as renewables outpace fossil fuels in 2020 across the European Union.Oil to Be Had
The potential for significant amounts of new oil in Alaska is real—billions of barrels of oil remain to be produced in Alaska, but it is critical for Alaska to remain a stable and competitive place to do business, Moriarty says.
“As Alaska continues to navigate this new economic landscape created by the COVID-19 pandemic, it’s crucial that AIDEA, as an economic development corporation, has as many tools as possible to promote Alaska’s economic interests,” Bryan adds.
Before the pandemic, Alaska officials reported that North Slope oil and gas was at peak activity, the highest production in twenty years.
The Willow Project has the potential to add 100,000 barrels per day in new production, with the Oil Search and Repsol Pikka Project on the North Slope expected to produce about the same amount of oil.
The Alaska Arctic also is increasingly seen as an abundant energy source that holds an estimated 15 percent of the world’s undiscovered petroleum and 30 percent of the world’s undiscovered natural gas, according to ConocoPhillips.
New technologies and innovation are lowering the costs of doing business for global giants like ConocoPhillips in extreme and remote environments and lessening the environmental impact of drilling and production.
In the ‘70s, an oil pad covered about 65 acres, and underground drilling extended only 3 miles. Today surface areas are 12 to 14 acres, with underground drilling extending to 55 miles, with many of the techniques pioneered in Alaska.
Alaska is home to the largest extended-reach drilling rig in North America, nicknamed the Beast. Doyon Drilling’s Rig 26 sets the record for a total of 154 square miles underground extended reach drilling.
“That extended reach will allow ConocoPhillips to reach pockets of oil that previously would have required substantial new infrastructure from existing pads,” Moriarty says, thus reducing footprint, development cost, and timelines.
The Beast also has a lower carbon footprint, burning a mix of processed field gas and diesel. This has a potential to displace about 50 percent of the diesel needed to operate the rig, reducing emissions substantially.
In addition, the Pikka Project, as currently designed, aligns with criteria in the Paris Agreement for reducing greenhouse gas emissions through several actions, including distributing power from gas-fired equipment to satellite facilities, instead of producing power at multiple locations.
So what does the future hold for gas and oil employment in Alaska, where fossil fuel development is a driving force for the economy?
“Given the fluidity of the market and workforce recalibration in post-COVID America, it is impossible to predict,” Moriarty says.
“What is certain, however, is that a stable fiscal regime, along with increased certainty in federal leasing and permitting, will be critical to maintain and grow the Alaska workforce.”