New USGS Report on ANWR Released
The United States Geological Survey (USGS) this week released an update to the important 1998 USGS study on the potential oil reserves in ANWR’s 1002 Area. Alaskan geologist Ken Boyd, also former Director of Alaska Division of Oil and Gas, reviews the paper and gives his perspective on its conclusions in regard to the potential ANWR 1002 Area reserves.
The 1998 study has been instrumental in the ANWR debate as it is the largest most comprehensive study conducted on the ANWR coastal plain. The 1998 report findings are used by Congress to debate ANWR. Despite its scientific and political weight both the 1998 study and this weeks update have set and limited criteria and factors put in place that restrict the comprehensiveness of their bottom line conclusions. It is important to understand these limitations. Ken Boyd discusses the new report and how we should regard the two papers when debating ANWR’s oil potential.
September 2005 USGS ANWR Update Report Review by Ken Boyd.
The United States Geological Survey (USGS) has issued an update of its 1999 economic assessment of the 1002 area of ANWR. Like the original economic report, the update only considers the Federal portion of the area. In contrast, the 1998 USGS geologic assessment evaluated the Native inholding, the adjacent State waters as well as the Federal lands. Because a smaller area is being considered, there are fewer barrels being analyzed in this report.
It is important to understand that this update contains NO additional geologic information from the 1002 area. This report is based solely on the geologic information contained in the 1998 assessment and is ONLY for the Federal portion.
Despite the lengthy, often acrimonious, debates over ANWR very little is actually known about the subsurface. Only two seismic surveys, covering about 1500 linear miles of the 1002 area, have been recorded. These surveys are now over twenty years old and utilized a technology that is archaic by modern standards. One need only consider computer technology of 1984 compared to today to get an idea of the magnitude of the change.
The report recognizes this problem, and others as well. In the "Conclusions and Limitations" section the report provides a fair summary of itself:
"It is important to keep in mind that until a systematic subsurface evaluation is accomplished, uncertainty about the size and nature of the resource will remain significant. Along with geologic uncertainty, there are also important sources of uncertainty attached to the economic evaluation of the resources by virtue of the many assumptions that were required. Furthermore, wide variations in world oil prices over time increase the risk of investing in high-cost areas such as the North Slope, a factor that is beyond the scope of this analysis to capture."
Taken together, these are the most important issues in oil exploration: The nature of the subsurface (the rocks), the economics of exploration and production and the price of oil. Since all of these points are virtually unknown in ANWR, a detailed prognosis is clearly an academic exercise at this point.
While the bulk of the report is aimed more at specialists, there are some conclusions that should be of interest to policy makers and the public. Improvements in technology have helped reduce costs and lowered the impact on the environment. Consider these quotes from the report:
". . . improvements in productivity, such as those brought about by horizontal drilling, have largely offset increased costs. . . "
"Recent technological advances have reduced costs of monitoring and transporting multiphase (mixture of water, oil and gas) fluids longer distances than in the past.
"Greater well productivity reduces the required number of wells for field development and also reduces the size and (or) number of drilling pads."
The report is based on data available in 2003 (their "base year"). The average price of crude in 2003 was $27/barrel. The report used a ceiling (high) price of twice the base so the highest price considered was $54/barrel. Prices now exceed $60/barrel. The report recognizes this higher price trend and states:
"If such prices are sustained over the long-term new technologies would emerge that would vitiate the geologic estimate of technically recoverable resources by increasing the play recovery factors assumed by the geologists and also permitting commercial development of smaller accumulations that occur but that were not assessed by the geologists."
Like all reports that attempt to predict future outcomes this one will, in whole or part, be proved wrong. This is not a criticism; it's just the nature of the exercise. All crystal balls have flaws. Importantly, the report shows that higher oil prices will mean increased productivity and that improved technology improves not just economics, it also decreases environmental impacts.