As President Joe Biden orders a ban on American imports of Russian crude oil, elected officials and experts in the petroleum industry say Alaskans can anticipate higher gasoline and heating fuel prices, but it isn’t realistic to expect a surge in crude oil production from Alaska’s North Slope to compensate.
Oil development in Alaska is expensive, and production can’t increase as quickly as it can in the Lower 48. But if prices stay high, there will be an increased incentive to drill here and elsewhere.
Republican officials in Alaska who have criticized the president for his administration’s decisions to restrict oil and gas drilling on federal land have intensified that criticism in the wake of the war in Ukraine.
“People make the claim — and they’re right — that you can’t turn the spigot on right now,” Gov. Mike Dunleavy said Tuesday, snapping his fingers for emphasis. “But we’re going to have issues like this going into the future. And the question we all have to ask ourselves is, do we want to be behind the eight ball all the time, talking about what we should do?”
But in Alaska, national investment firms’ reluctance to finance North Slope oil and gas drilling is proving a bigger hurdle.
Nikos Tsafos, an energy expert at the Center for Strategic and International Studies, said domestic oil production is likely part of the solution to rising oil prices but Alaska is not well-placed to provide immediate relief.
“Alaska is at a structural disadvantage compared to the Lower 48,” Tsafos said, noting that oil extraction projects in the state tend to be bigger and take longer to develop, compared to projects in states like Texas. “It’s quite clear that the U.S. oil industry can be a big part of the solution to what’s happening in Russia. I’m not sure how big of a solution the Alaska oil industry is going to be.”
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Last year, roughly 8% of U.S. imports of oil and petroleum products came from Russia, The Associated Press reported. Imports from Russia totaled 245 million barrels in 2021, but they had been declining rapidly even before the ban was announced.
In comparison, Canada supplied 52% of imported crude and Mexico supplied 11% in 2020.
In 2020, Alaska produced the sixth-most oil among U.S. states, behind Texas, North Dakota, New Mexico, Oklahoma and Colorado. Globally, the U.S. produced more crude oil than any other country, but it still imported some crude for various reasons.
“Alaska can’t respond quite as quickly as other parts of the country, unfortunately, because of the way our industry is made up,” said Kara Moriarty, president and CEO of the Alaska Oil and Gas Association.
She said that if prices remain high for months, “there is potential to change the middle- to long-term,” but it’s too soon to tell.
Information published by the U.S. Energy Information Administration shows the Tesoro refinery near Nikiski has imported Russian crude oil as recently as November. In total, the refinery imported about 1 million barrels of Russian crude in 2021 and 2019. It wasn’t immediately clear whether the refinery has imported any Russian oil this year.
Oil is traded globally, and Russian crude imports frequently go to refineries near the Gulf of Mexico. Those refineries must now search for new sources of crude.
“Those barrels will largely be made up from other sources, but it will take time to do that. Gasoline and diesel fuels will reflect that with price increases,” said Corri Feige, commissioner of the Alaska Department of Natural Resources.
Price increases will have side effects throughout the state. As the cost of aviation gasoline and jet fuel rises, plane tickets will become more expensive.
In Alaska, spring is when rural towns and villages buy fuel in bulk for shipment by barge. Prices at local fuel pumps are set by the cost of those shipments — high prices in the spring may mean high prices for the rest of the year.
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“When the barges arrive, it will generally be good news, but fuel prices this spring will be a shock to the system,” said Mike Poston, director of sales for Vitus Energy, a fuel supplier to Western Alaska.
“Higher crude oil costs mean higher prices for gasoline and diesel fuel and higher fuel cost surcharges as well. High inflation rates put pressure on all the other costs of doing business. The market should plan for increases in energy prices well over $1.50 per gallon higher than last fall,” he said.
Feige is attending a national energy conference in Houston this week and said Russia-related issues have “dominated” the conversation.
“Alaska crude will be in high demand, and there is certainly a possibility that some will be exported to other places in the world to make up for volumes not coming out of Russia,” she said.
For Republican lawmakers, the war in Ukraine has provided an opportunity to double down on calls for increased oil production that began long before the crisis. Now, they are asking for domestic oil extraction to ramp up rather than the U.S. turning to rogue countries like Venezuela or Iran to replace the modest oil imports from Russia.
U.S. Sen. Lisa Murkowski said she recognized that dialing up production in Alaska cannot happen immediately, but with an uncertain time frame for the war in Ukraine, she said there is a possibility for Alaska oil to figure prominently in the country’s energy strategy in the future.
“We need to look long-term. This is where Alaska plays a key role, because we have that capacity to bring online so much more,” she said in an interview.
Murkowski joined Democratic Sen. Joe Manchin of West Virginia last week to introduce a bill that would prohibit imports of Russia crude oil and petroleum. Now that the Biden administration has taken the step to ban Russian oil, she said the administration should take further action to encourage oil producers to ramp up activity, including by providing financial institutions with the assurances they need to invest in Alaska oil.
“What financial institutions want is certainty,” Murkowski said. “This administration needs to send that signal.”
U.S. Sen. Dan Sullivan wrote a letter to Biden last week calling on him to encourage financial institutions to invest in domestic energy production and fast-track oil extraction from the Alaska’s Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska, among other steps.
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Tsafos expressed cynicism about comments like those.
“It’s just like, ‘We have a list of things that we think we should be doing anyway. And oh, by the way, there’s a crisis. So we’re just going to resurface the list,’ ” he said.
On Wednesday, U.S. Energy Secretary Jennifer Granholm spoke to energy executives in Houston and said the world is in an “emergency.”
“That means releases from the strategic reserves all around the world. And that means you producing more right now if and when you can. I hope your investors are saying this to you as well. In this moment of crisis, we need more supply,” Granholm said.
Many banks and investment firms have enacted environmental policies that prohibit them from financing oil and gas projects on the North Slope.
Alaska state officials met with investment banks last week in New York City, urging them to change policies that prevent them from financing oil and gas projects north of the Arctic Circle.
“Everything I’ve been told by the capital providers and banks — other than the big institutions like Goldman Sachs or Morgan Stanley or JP Morgan — is that they’re looking for good project financials, good compliance records in the companies and projects and locations with good (environmental and social) track records,” Feige said. “That’s Alaska in spades.”
The Dunleavy administration is taking a hard line on the topic. Dunleavy said Tuesday that he intends to introduce legislation that will require the state to end business dealings with companies that refuse to invest in Arctic oil drilling. That legislation will be introduced next week, according to an official with the governor’s office.
“We feel that this has reached the point where we can no longer have a relationship with some of them, that their mission is to stop Alaska,” Dunleavy said.
For conservationists that have fought oil drilling projects in Alaska, increasing extraction is “a big part of the problem, not the solution,” according to Vicki Clark, director of Trustees for Alaska, an environmental law firm.
By using this moment to increase drilling in Alaska, oil companies would be “capitalizing on an invasion and war to say we need to do more to increase their bottom line,” Clark said. Instead, the crisis should drive a move away from fossil fuels amid the ongoing climate crisis, she said.
”Right now we’ve got refugees fleeing Ukraine, but we’ll have refugees fleeing a lot of places with the climate crisis continuing,” she said.
Bernadette Demientieff is the executive director of the Gwich’in Steering Committee, a voice for 15 Gwich’in communities in Alaska and Canada, which has filed several lawsuits to stop drilling projects in the Arctic.
”We stand firm in protecting sacred lands in the Arctic Refuge and the Porcupine caribou herd essential to our identity and way of life,” Demientieff said in a statement. “Extracting more oil and gas in Alaska would only continue to drive the climate crisis and further threaten our food and communities.”