Climate change activists and environmentalists were outraged by President Joseph Biden’s approval of the mammoth Willow oil project earlier this week, while Alaskan politicians and members of the oil business applauded it.
For the previous year, while the Biden administration considered the project’s advantages and disadvantages, the latter group contended that the project would assist replace Russian oil supply and benefit Alaskans’ economy.
In light of Russia’s invasion of Ukraine, supporters of The Willow Project have emphasized how important it is for the United States to attain energy independence.
Mary Peltola, an Alaska Native representative who was elected to Congress last year, said just last week that the project could “make us all safer in a world that has grown more unpredictable after Russia invaded Ukraine.” Senator Lisa Murkowski, a Republican from Alaska, said last month that Willow could “reduce our energy imports from some of the worst regimes in the world.”
Without a question, the ConocoPhillips-led Willow Project is the biggest new oil project to be announced in Alaska in many years. While operating at maximum efficiency, it may more than triple the state’s overall oil production. Nevertheless, analysts told Grist that the project’s energy and economic benefits are less definite and smaller than its proponents have claimed.
The Willow Project won’t just be insufficient as a replacement for Russian oil; it will also bring an unclear combination of costs and advantages to Alaska’s state coffers, which have long depended on fossil fuel revenue that is becoming increasingly scarce, even with new Arctic drilling.
The Willow Project’s potential contribution to the replacement of Russian oil supply is unclear. First, there is the issue of scheduling. The project won’t start delivering barrels until 2028 or 2029, and it will take even longer for all three well pads that the Biden administration approved to begin producing at their maximum levels.
By that time, it’s likely that the world’s oil supply situation will be drastically different: Western nations might have access to new oil sources, such as recent offshore projects in locations like Guyana, and it’s impossible to predict what the price of crude oil will be.
Second, the type of oil that Willow will produce isn’t a perfect replacement for the oil that the United States formerly purchased from Russia. Since the oil from Alaska’s North Slope has a different chemistry than both light shale oil and the heavier oil that typically comes from countries like Russia and Venezuela, it must be blended with other oils in order to enter domestic refineries, which are typically built to refine particular types of crude.
That is why a large portion of the oil produced by Willow wouldn’t be able to replace imports from other nations and why the United States continued to import oil even after the fracking boom started.
In fact, according to the federal Bureau of Land Management’s own research, Willow won’t have a significant impact on the world energy market or the nation’s energy security.
Just about half of the oil produced from the project will replace foreign imports from tankers and pipelines, and only about 30% will replace other oil extracted in the United States, according to the Bureau’s final environmental impact statement.
Also, the project’s location on Alaska’s North Slope will limit possible demand for the new crude from US refineries. since it would have to cross the Panama Canal to get there, the Gulf Coast. The three states of California, Oregon, and Washington, which are all actively promoting electric vehicles and making the switch away from fossil fuels, will be the major domestic consumers for the oil.
It’s difficult to predict how much demand there will be for Willow’s oil on the West Coast in the coming decades given that some projections indicate electric vehicles may account for the bulk of U.S. passenger car sales by 2030.
Alaska, behind North Dakota and Wyoming, is the third-most dependent on oil in the US. Almost 85% of the state budget, in the state’s estimation, comes from oil income. Oil-related taxes have paid for the construction of new buildings and hospitals, and oil prices have an impact on the amount of financing provided to public schools.
Alaskans receive an annual check from the Permanent Fund Dividend, a fund financed by oil royalties, even though they don’t pay income or sales taxes. (Last year, each cheque exceeded $3,000, the greatest sum ever given to residents.)
According to some projections, the Willow Project might bring Alaska $6 billion in revenue, but that payment is still years away. The state may actually experience a short-term decline in revenue. The state can only collect production taxes on the project because it is located on federal land; royalties on the oil produced there cannot be collected.
More significantly, ConocoPhillips may deduct the costs of this project from the taxes it pays on its other oil ventures in the state because to a provision in the state’s tax code. According to one study done by the governor’s office in 2018, the Willow Project wouldn’t have a beneficial economic impact on the state until 2026 and might result in up to $1.6 billion in lost revenue by 2025, a 6 percent drop in the state’s overall revenue. According to a department of revenue estimate from this year, the project wouldn’t start to “cash flow positive” for the state until 2035.
In the long term, the project sends a message to oil firms, Alaskans, and the rest of the globe that the United States thinks there will be a need for Conoco’s oil in three decades. But by then, governments all across the world ought to have finished switching over to clean energy. In fact, President Biden recently approved a bill that will put the country on track to reduce emissions by 50% by 2030. How is that the same planet that need 600 million additional Willow oil barrels?