A Solution In Alaska

Forbes
Sep. 07, 2005

NEW YORK - Hurricane Katrina may have blown open the door to oil drilling in previously forbidden territory.

The deadly storm last week not only destroyed the historic city of New Orleans and important port towns in Mississippi and Alabama, it took direct aim at the heart of the U.S. refining and oil industry. With refineries and pipelines struggling to come back, and some 58 offshore drilling rigs either missing or damaged, talk has turned to diversifying where the U.S. drills for oil.

This plays right into the hands of those who have been pushing for exploration and drilling in Alaska's Arctic National Wildlife Refuge--19 million acres of wilderness in the northeastern reaches of Alaska, bounded by the Arctic Ocean to the north and the Canadian border to the east. It is often called the American Serengeti by environmental groups that are intent on preserving it.

There is also talk of allowing drilling off the coast of Virginia and the Carolinas, and possibly along the West Coast, in areas previously guarded by a moratorium. Florida has already rejected the idea, but a lifting of that ban could force the state to reconsider. And it's clear the stress on the energy market caused by Katrina could embolden the oil industry to press for more freedom to explore.

Katrina's timing couldn't have been better for proponents of drilling--and worse for those opposed to it. Congress is expected to take a vote this fall on a budget reconciliation bill that would open the Alaska refuge to drilling after a 25 year battle. (Congress approved exploration in the refuge in 1995 only to meet with President Bill Clinton's veto.)

"I don't want to look like it's exploiting the situation, but I think that America is seeing what disruption of these supplies does," said Jerry Hood, the coordinator in Washington for Arctic Power, an industry lobby that is pushing for drilling on a portion of the reserve known as the Coastal Plain.

William Kovacs, an environment, technology and regulatory affairs expert at the U.S. Chamber of Commerce, says there is mounting pressure to open more sites for drilling and exploration, and Katrina's aftermath "will help the cause and speed it up."

Kovacs added that the devastation that Katrina had on the nation's oil infrastructure forced Americans to "wake up to the fact that everything runs on energy."

Indeed, the Senate Committee on Energy and Natural Resources moved up its scheduled hearing on the conditions in the energy market from Thursday to Tuesday. The committee said it would explore several issues, including high retail gas prices, refining capacity and the need to diversify both refining and production capacity.

Gasoline and crude oil prices were already at highs before the hurricane hit, with U.S. refineries pumping out gas at near peak capacity. Katrina knocked out several major refineries and production platforms along the Gulf Coast.

Gulf oil production dropped by 1.5 million barrels per day, according to Hood, about the amount that is estimated will be produced per day in the Alaska refuge region. Had drilling there already been in place, Katrina's "disruption wouldn't have been as bad," Hood argues.

Things are slowly coming back online in the Gulf. The Coast Guard noted on Tuesday that the Louisiana Offshore Oil Port, or LOOP, a major station for offloading crude oil from tankers that are too big for most U.S. ports, is operating at 75% capacity.

Drilling advocates are pushing for Congress to approve oil and gas exploration on 1.5 million acres of the Alaska refuge, though they say a compromise could be reached that would confine any physical plant to roughly 2,000 acres. Both sides of the table are set to meet to draft the language for the budget reconciliation bill in the coming week. The House is seen pressing for a vote later this month, while things could get pushed into October in the Senate, which is also dealing with confirmation hearings for Supreme Court nominee John Roberts.

Unlike an energy bill, which is frequently the source of much debate and filibustering, the budget bill is a simple majority vote. There is no debating, making its passage more likely, not to mention its signing by President George W. Bush, who is in favor of drilling in the Alaska refuge area.

The budget bill doesn't specifically name the Alaska wildlife refuge, but it does provide for a $2.4 billion reduction in energy spending over five years. That is precisely the same amount as the federal portion of the estimated value of revenue from leasing rights on the Coastal Plain.

Opponents of drilling Alaska argue that its production potential is limited and not worth the damaging environmental effects it could cause and the danger to the lives of the animals and other wildlife in the region.

"We're surprised that the focus is on more drilling when drilling has shown itself to be a vulnerability," said Sierra Club lobbyist Melinda Pierce. "It's misguided to focus on drilling."

Pierce noted that though the budget reconciliation bill makes drilling on the Alaska refuge more immediately likely, there are some factors that could postpone it or force lawmakers back to the drawing board. For starters, congressional leaders may want to take the budget back and make room for special proposals tied to relief of hurricane-stricken areas. There may also be more pressure to find more money than the $2.4 billion assumed from leasing sales in Alaska. "That $2.4 billion is pure speculation," Pierce said.