Posted: 01/31/2006 | Author: Max Borders
2006: The Year of ANWR
Drilling in ANWR Is About Diversification, Not Just Energy Independence
"I'm going to stay and get ANWR, there's no question about that. It's going to happen ... If they want to get rid of me, they're going to pass ANWR."-Alaska Sen. Ted Stevens
Ted Stevens is angry, and he should be. In 2005, the Senate folded on a plan to open the Arctic Wildlife Refuge (ANWR) to oil drilling. In 2006, they must do better.
Energy independence, the reason most often cited in favor of drilling in ANWR, is vague and unrealistic. The term arose primarily from concerns that too much of US oil comes from Middle Eastern states that either fund terrorism or are potential enemies. But critics rightly point out that an energy policy centered on ANWR would do little to wean us from oil-rich terror nations. Thus, perhaps it's more appropriate to focus on energy diversification.
Consider a stock portfolio. Most people aren't high-stakes Wall Street traders, so they spread their risk around on a number of picks -- e.g. in a mutual fund -- in order to help ensure modest returns and less volatility. Source diversification keeps gas prices from fluctuating too wildly, while still encouraging supply.
There are four very good reasons why the US's primary sources of oil just aren't diverse enough-the Middle East, Russia, Venezuela, and Nigeria.
The Middle East is a hotbed of terrorism, corruption, and instability. The region is also cartelized, so the price of oil is as much the province of whim as actual supply. The fact that most oil comes from the Middle East brings perennial uncertainty to oil markets.
Through his willingness to nationalize a private oil company and arbitrarily to hike the price of natural gas fourfold during winter months in order to teach the Ukraine a political lesson, Vladimir Putin has shown that he will use Russia's oil resources for foreign policy maneuvers which doesn't exactly inspire faith in markets.
In Venezuela, Socialist dictator Hugo Chavez sits atop a vast supply of crude oil himself. He shows that he too will use his resources in international relations games.
And Nigeria serves as a good example of the "resource curse," or the fact that the presence of resources often makes a country poorer. The Nigerian people see little of the oil wealth, but the government retains a stranglehold of corruption. Still, when the government loses that hold, it sometimes means instability as rebel groups disrupt oil supplies-all of which does little for confidence in Nigeria's ability to meet output expectations.
Depending on these regions for our gasoline is like putting all our investments into tech stocks circa January 2000. When illiberal governments sit atop much of the world's oil supply, it's time to consider exploiting domestic sources. ANWR is a good start. And opposition to opening ANWR should strike us as absurd for a number of reasons.
Much of the outcry comes from environmental groups for whom ANWR is the crisis du jour. Crises like protecting ANWR's chastity from "Big Oil" keep donations up, so don't expect their characterizations of the environmental impact to be based in reality. Consider this from the NRDC:
The so-called 2,000-acre limitation would have allowed oil development to take up as much area as the following items, which could be connected by a network of pipelines and roads: 1,500 football fields; 20 Mall of Americas; or 52 airport runways, 50 more than the number at Columbus International Airport.
Notice the "or" there. If you didn't, you might think that acreage limitation included all in the above list. But if one imagines just 20 malls (2000 acres) dotted around 1.5 million acres the impact seems a little less horrifying. Still, these non-governmental organizations worry about roads "fracturing" the fragile ecosystem, which I can only guess means we should buy expensive oil from the Saudis so that Caribou don't have to cross a dirt road. In any case, environmental lobbyists have done a good job of protecting their interests by characterizing ANWR as a lush, pristine landscape that will be left as a sullied carcass by industry vampires. But a little perspective might help assuage our fears.
Consider highlights from these facts from the Department of the Interior:
- President Carter set aside 1.5 million acres - the Coastal Plain -- of ANWR's 19-million acre landmass for potential exploration and drilling.
- Based on US Fish and Wildlife Service models, there is a 95 percent chance that impact on Caribou calf survival will be negligible.
- The 2000 acre area represents only .01 percent of ANWR's total acreage.
The irony in all this is that many of the same people in Congress who opposed drilling in ANWR, also demanded that oil companies stop so-called "price gouging."
In 2005 it looked as if many politicians were more interested in oiling the squeakiest wheels (environmental lobbyists) than diversifying our sources of oil for the sake of national security. Hopefully, in 2006, Congress will see to it that ANWR becomes another source in our energy portfolio. Otherwise, we'll see more price volatility, and thus more calls by politicians for windfall taxes, price caps, and other industry burdens that will keep investors away from energy and drive prices even higher.
So Sen. Stevens, we're counting on you to act as America's financial advisor.