Rocky Mountain Institute/volume xvii #1/spring 2001 RMISolutions newsletter F ROZEN ASSETS? ALASKAN OIL’S THREAT TO NATIONAL NERGY ECURITY E S by Amory B. Lovins and L. Hunter Lovins “We must continue, I believe, to safeguard the Arctic National Wildlife Refuge, one of the last truly wild places on Earth—the Serengeti of the Americas.” —PRESIDENT CLINTON, JANUARY 17, 2001 The Arctic National Wildlife Refuge. photo: Galen Rowell S YOU READ THIS ISSUE OF RMI improve but compromise national energy Solutions, Congress is debating security and economic vitality, especially CONTENTS whether the oil potential when compared with alternatives that ben- A HYPERCAR MAKES ITS MOVE ... page 4 beneath the Arctic National Wildlife Refuge efit both and improve the environment. (ANWR) in Alaska is worth the environ- THE NATCAP CONSUMER ..... page 6 mental damage caused by extracting and FOLLOW THE MONEY burning it. Largely unexamined so far are First, the economics of drilling for Refuge A LETTER FROM OZ ....... page 8 more basic questions: Is it profitable? Is it oil look as unrewarding as its politics. For GDS IN EUROPE ........ page 10 necessary? Is drilling a good idea? Is there a the oil industry to invest, the Refuge must better way? hold a lot of oil, and the oil must sell for a BILL BROWNING,HONORARY AIA . page 11 The rationale for drilling in the Refuge is to high enough price for long enough to DEAR ROCKY .......... page 12 find a domestic oil supply, income for recover costs and earn profits. When JOHN TODD—WATER DOCTOR .. page 14 Alaska, and profit for private firms. The drilling was last proposed in the Refuge, in debate focuses on the environmental cost, 1987, the Interior Department tried to DONOR SPOT—THE FRANTZES.. page 16 the human rights of the threatened boost its case by assuming tax breaks that RMI NEWS........... page 18 Gwich‘in people, and opposition from no longer existed, twice actual oil prices, Canada, which shares the migratory and twice the likelihood of finding twice BOARD SPOT—MICHAEL EDESESS page 25 wildlife. Yet that energy-vs.-environment the oil that Alaska’s state geologist forecast THANK YOU,DONORS ...... page 26 debate overlooks important reasons why from more complete data. drilling in the Arctic Refuge would not DAVID BROWER,1912–2000 .. page 34 continued on next page continued from 2000, the Department projected a steady look in one of the most hostile and remote previous page decline in the L.A. price of Alaskan crude places on earth? Practically anywhere else Despite this generous handicapping, oil to less than $13 a barrel in 2009. The would be cheaper. Interior had to admit (in the fine print) that latest Federal forecast calls for oil to stay During 1998–99, while oil prices soared the odds were 5:1 against finding any eco- below $22 until nearly 2020; when Alaska from $10 to $25 a barrel, the big U.S. nomically recoverable oil, 15:1 against last published such a forecast in 1998, it energy companies slashed their exploration finding as much as six months’ national was only $18. That means less economi- budgets by 38% worldwide, 66% in supply, and over 100:1 against another cally recoverable oil. Indeed, the USGS says onshore America. They see technology huge Prudhoe Bay-sized find. Independent that below $16 (plus any lease fee paid to becoming ever more powerful, oil more analysts using realistic assumptions later the Treasury), no economically recoverable abundant, and long-term prices ever lower, found that the expected reserves would be oil is likely to be found. Alaska now fore- so only the lowest-cost provinces can com- closer to six days’ national supply and that casts prices below $16 throughout pete—not drilling above the Arctic Circle. the producers would lose money. The only 2005–10, so why drill? If oil companies believed in high long-term point of agreement was that the Refuge’s Of course, any forecast of oil prices can be oil prices, they’d be drilling everywhere. wrong, and most are. They’re not. Oil prices have fluctu- “Efficiency doesn’t risk dry ated randomly for at DEPENDENCE ON OPEC OIL? holes. It improves the envi- least 115 years. Oil The second rationale for drilling in the companies routinely Refuge—relieving dependence on OPEC ronment. It will never suffer assess that risk— oil—has also waned. OPEC’s percentage of a terrorist attack. It stays though in the Refuge, the oil the U.S. imports has dropped by a it’s not simply a busi- third since the high-water-mark of imports profitable regardless of what ness decision but also in 1977. Only one-fourth of U.S. oil now oil prices are doing.” a choice about such comes from OPEC. Most imports come public goods as envi- from more stable Western sources, and are ronment and national so diversified that a full-scale war in the biological core, its small but critical Coastal energy security. But some fundamentals Persian Gulf in 1991 caused no gas lines at Plain, would be trashed. can cut through the forecasting fog. home. We’re not as dependent on OPEC as In 1998, the U.S. Geological Survey did an Astounding advances continue in the tech- some imply. honest and modern update. It found worse nology of finding and extracting oil—super- Nor are we short of fuels. A White House geology, offset by new, fourfold cheaper computer visualization like X-ray eyes, and aide on January 21 provoked merriment in production technologies. The 1987 esti- precision-guided drilling to snake between energy circles by claiming that Arctic mated average reserve of 3.2 billion barrels pockets of oil. Oil resources, both domestic Refuge drilling was urgent because, as of oil could probably still be profitably and global, have therefore stopped California’s electricity crisis showed, the recovered—if, for decades to come, it declining and started expanding markedly, nation “desperately needs more fuel.” How fetched an average price of at least $22 a halving Federal forecasts of 2020 oil much of California’s electricity is in fact barrel (in December 2000 dollars, delivered prices—now only two-fifths of what made from oil? One percent. Of the to Los Angeles). Historic world oil prices Interior assumed in 1987. nation’s electricity? Two to three percent. FOB Saudi Arabia have broken the $22 Could that new technology tip the eco- How much of the nation’s oil makes elec- mark only a few times in the past three nomics back in favor of Refuge oil? Most tricity? Two percent. California isn’t short decades, and tend toward the teens. industry experts think not. The more they of fuel. What California is short of is cheap Sustaining $22+ a barrel for decades would look at their proprietary Refuge data, the electricity. contradict practically every industry and more it seems a multi-billion-dollar gamble If oil-import dependence or oil shortages government forecast—and the forecasts are not worth taking. That’s because the same were a serious problem, though, would the trending down, not up. technological advances that might make solution to domestic depletion be to deplete The Alaska Department of Revenue Refuge oil worth seeking can also be faster? Or might other solutions arrive earnestly hopes for Refuge drilling so its cit- applied elsewhere. Oil exploration is a sooner and cost less? If Arctic Refuge oil izens will keep getting rebates instead of global business. With oil everywhere get- isn’t the cheapest way to provide the ser- paying income taxes. Yet in December ting rapidly cheaper to find and lift, why vices now provided by imported oil, then page 2 Spring break-up, ANWR. photo: Galen Rowell drilling in the Refuge will make the oil- expect a result different from the past import problem worse than it could have couple of times we’ve tried the same been. That’s because each dollar spent on recipe. The light at the end of the energy the costly option could have bought more tunnel is an oncoming train. The resulting of the cheap option instead. Choosing the wreck will not be healthy for the domestic costlier option therefore results in using energy industries, whose financial stability and importing more oil than if we’d bought is an important element of national energy the best buys first. security. As in the early 1980s, supply expansions EFFICIENCY: will be far less prompt and effective than ENERGY WITHOUT RISK energy efficiency. This is especially true for Better buys aren’t hard to find. In fact, Refuge oil, which can produce nothing for we’ve already bought a lot of them, though nearly a decade anyway, and then, briefly, far more remain untapped. Specifically, the about one percent of the world’s oil. past quarter-century’s efficiency revolution Efficiency, however, is such a vast resource is now “producing” over four times as that capturing just a few percent of it could much energy as the entire domestic oil GDP rose by 20 percent while the nation’s crash the oil price and displace any oil that industry (and ten times the oil the U.S. total energy use fell by 51⁄2 percent. This might lurk beneath the Refuge. imports from the Persian Gulf) simply by stuck the suppliers with costly new sup- using less energy to do more work in plies without the revenue to pay for them. AUTOMOBILE POTENTIAL smarter ways. More than half the nation’s The resulting energy glut crashed energy Let’s suppose that a compliant Congress, energy services now come from efficient prices in 1986, sending many producers steady high oil prices, and successful explo- use.