Energy

Alaska’s push to drill in the Arctic National Wildlife Refuge backfired. Here’s how.

When Congress passed then-President Donald Trump’s tax reform package in 2017, with provisions to open the Arctic National Wildlife Refuge to oil drilling, Alaska’s congressional delegation said the decision would change the state’s future for the better.

“This is a watershed moment for Alaska and all of America,” Republican U.S. Sen. Lisa Murkowski said in a statement at the time. Murkowski drafted the section of the bill opening the refuge, and hailed the impending arrival of “thousands of jobs” with better pay, as much as $60 billion in oil royalties for the state of Alaska and “renewed hope for growth and prosperity.”

The decision to open the refuge has indeed shaped Alaska’s future — but not in the way its promoters predicted.

With leases suspended by the Biden administration and a federal lawsuit still playing out over environmental reviews, all the private companies that leased refuge land for oil development have now backed out of their deals, leaving an Alaska state agency as the only leaseholder. The final company with drilling rights in the refuge, Knik Arm Services, gave up its lease in August, with its owner saying it was time to move on to “better opportunities.”

Amid the global economy’s transition away from oil and the long timeline for any future development, the industry’s exodus from the refuge makes it unlikely that Alaska will win any significant near-term benefits from the area’s opening, which came after a decades-long political push.

But even more significant is the backlash against Alaska’s broader oil industry, outside the refuge, that was sparked by the push to drill inside it. Now, it’s not just the refuge that’s increasingly out of reach for wildcatters: It’s the entire Alaska portion of the Arctic, the site of nearly all of the industry’s existing and hoped-for projects in the state.

That result stems from a successful campaign by green groups to cut off oil companies’ access to loans and insurance for development in the refuge. The effort was successful not only in convincing big banks and insurers to rule out financing those developments; it also got many of them to swear off deals anywhere in the Arctic.

ADVERTISEMENT

[Geologist whose 2013 discovery ‘revolutionized’ North Slope oil exploration lays plans to drill again this winter]

Activists say that Congress’ decision to open the refuge handed them a potent organizing tool to fight development beyond its boundaries — even in areas closer to existing infrastructure, like the National Petroleum Reserve-Alaska.

“By forcing the refuge, specifically, into the spotlight, that also then forced investors and financial institutions to take a hard look not only at the characteristics of the refuge that make it a really risky and bad investment, but at the same characteristics that apply to the Arctic more broadly,” said Ben Cushing, an organizer with the Sierra Club. “And I think that’s why you saw many of the financial institutions adopted policies that weren’t just for the refuge, specifically.”

There’s still promising news for the industry coming out of Alaska’s oil patch, with big projects on the horizon. Federal permitting reform aimed at speeding up green energy infrastructure could also have the effect of smoothing approvals of oil development.

But with companies fleeing the Arctic National Wildlife Refuge and previously abandoning prospects in federal waters offshore of Alaska, it’s clear that the playing field for the state’s oil industry — and the environmental groups fighting new projects — has sharply narrowed in recent years. The focus from both sides is now on a single area: projects in and around the National Petroleum Reserve-Alaska.

Banks, insurers rule out projects

Banking and insurance company support for Arctic oil projects wasn’t a major point of leverage for green groups before Congress’ 2017 decision to open the refuge. But with the financial industry increasingly focusing on sustainability and the environment, and new public awareness of oil development in Alaska, the campaign started getting traction.

In 2020, as the Trump administration finished environmental reviews of the refuge drilling program, an array of big banks — among them Morgan Stanley, Citigroup and Bank of America — announced that they would refuse to lend money to projects anywhere in the Arctic. Major insurers like Allianz have made similar commitments, too.

Access to financing is more important for the slightly smaller “independent” firms, like Armstrong Oil and Gas, that Alaska policymakers have long tried to lure to the state. Those pledges make less of a difference for major oil companies like ConocoPhillips and ExxonMobil, which can launch new projects without as much dependence on banks for major loans.

For the smaller companies, the commitments from the banks and insurers have made it harder and more expensive to secure financing for Alaska oil development, industry players said in interviews — a dynamic that disadvantages the state’s projects compared to those in other parts of the U.S. and world.

The industry’s tepid interest in drilling in the refuge was obvious long before the companies’ recent decisions to give up their leases; there were clear signs from the lease sale itself.

Half of the parcels offered by the federal government attracted no bids, and only two small companies bought acreage. No major oil companies — or even mid-sized independent firms — participated.

Murkowski, in a phone interview, acknowledged that the industry’s interest in projects in the Arctic refuge is “perhaps somewhat diminished.”

But she wouldn’t concede that her work to open the refuge fueled the broader anti-Arctic backlash and a successful campaign by conservation groups. Alaska’s congressional delegation, she added, had to take the opportunity it had with a Republican president and GOP control of Congress.

“We’ve been pushing this rock uphill for 40 years. And so, making sure that we could finally get this enacted into law — timing was important,” she said. “It’s not like we could hold back and say, ‘We’re going to wait until prices look better.’ We needed to seize the moment.”

Alaska’s post-refuge future

Even without drilling in the refuge for now, there’s still plenty of action in Alaska’s oil patch. From the industry’s original big find at Prudhoe Bay, development has gradually expanded west toward the National Petroleum Reserve, which is named for its oil potential but is also treasured by conservation groups and Indigenous residents for its fish and wildlife.

[Alaska congressional delegation pushes for quick approval of big North Slope drilling project]

In August, Australian company Santos and Spanish company Repsol announced they’d made a final decision to build the $2.6 billion Pikka project on state land near the National Petroleum Reserve, which could boost the daily flow of oil down the trans-Alaska pipeline by 15% in its initial phase alone.

ADVERTISEMENT

And ConocoPhillips’ proposed Willow development, which is inside the petroleum reserve, could produce twice the volume of oil as the Pikka project.

But Willow — and the legal and political fight that’s erupted over its approval — has turned into a symbol of the post-refuge future for Alaska’s oil industry.

With companies seeing new potential in previously passed-over rock formations in the petroleum reserve, they’ve simultaneously abandoned farther-flung, riskier projects in unproven Alaska basins. Those include in the refuge as well as in the offshore waters of the Chukchi Sea, where Shell drilled for oil in a costly and ultimately unsuccessful venture nearly a decade ago that saw aggressive opposition from conservation groups.

And with no risk of imminent development in the refuge and offshore, those groups can now put the full muscle of their advocacy into their fight against more conventional, onshore projects like Willow.

The Biden administration had to redraft the environmental reviews for that project after environmental groups won a lawsuit challenging them. And just weeks ago, the Sierra Club, Friends of the Earth and Greenpeace filed a federal lawsuit to block another development in the reserve, Peregrine, that had previously received little attention from activists.

There’s still plenty of oil, though, under the tundra on Alaska’s North Slope, and the state’s politicians continue to push for its production.

Its two U.S. senators have made Willow a major priority, and the Biden administration, in spite of its climate agenda, has ignored requests to slow down the development’s approval process.

Executives and policymakers also note Alaska could see more interest amid the recent sharp increase in global oil prices. And they say there’s potential for quicker government approval of oil developments stemming from federal permitting reform — even though that reform is intended to expedite renewable energy projects.

“This resource is under the ground; it’s not like it’s evaporating. It’s going to be there for us for Alaska’s future,” Murkowski said. “And I think the more expeditiously we can work to access these resources and do it in a good, safe, responsible manner, the better off for us. And you know my pitch: I think it’s better for the country long-term.”

• • •

Nathaniel Herz

Nathaniel Herz is an Anchorage-based journalist and a former reporter for the Anchorage Daily News. He’s been a reporter in Alaska for nearly a decade, with stints at ADN and Alaska Public Media, and has written for FasterSkier.com, The Washington Post and others. Read his newsletter, Northern Journal, at natherz.substack.com

Sponsored