By Liam Denning / Bloomberg Opinion
President Biden’s Alaskan oil policy can be summed up as: One if by land, none if by sea. Monday’s approval of ConocoPhillips’s Willow project in northern Alaska was twinned with new restrictions on drilling in the Beaufort Sea off the coast.
On one side of Biden stand his own party’s environmental priorities, exemplified in his presidential campaign pledge to end drilling on federal land and last summer’s passage of the green-tinged Inflation Reduction Act. On the other lie the demands of energy security, sharpened by the fallout from Russia’s ongoing invasion of Ukraine and last summer’s peak in pump prices.
Approving Willow is intended to address the latter, indicating pragmatism in the face of a crisis. It helps that Alaska’s sole House representative, Mary Peltola, is a Democrat, a Native Alaskan and onboard with the project as a source of economic development in a state that needs it. It is no accident that, when you click on Conoco’s website for Willow, the first thing that flashes up is a supportive quote from Peltola.
Yet it is clear that the administration’s instincts remained skewed to restriction rather than expansion of fossil fuel production. The press release announcing Willow’s approval was headlined “Interior Department Substantially Reduces Scope of Willow Project,” highlighting two proposed well sites foregone rather than the three that will be drilled. The new restrictions on 2.8 million near-shore acres of the Beaufort Sea, pointedly announced a day before Willow’s approval, build on an earlier ban affecting more than 100 million acres of Arctic waters imposed by Biden’s former boss, President Barack Obama. Similarly, Biden intends to place additional restrictions on 13 million acres within the National Petroleum Reserve-Alaska — the onshore region where Willow is located — already designated as “Special Areas” for the protection of wildlife and subsistence hunting.
In a sense, therefore, Biden’s restrictions come with a hefty dose of symbolism over practical impact. That seems especially so in the case of the offshore ban. As it is, short drilling seasons during warmer months mean a 10-year lease in Arctic waters equates to only three to four years of actual working time, slowing development. And time does awful things to returns on investment, especially as the hurdle rates on that investment have risen due in part to climate-related risks to long-term oil demand. A generic greenfield offshore Alaska project begun today likely wouldn’t reach first production until sometime between 2040 and 2060, based on an assessment published by the National Petroleum Council in 2019. (See “Supplemental Assessment to the 2015 Report: Arctic Potential, Realizing the Promise of U.S. Arctic Oil and Gas Resources”; page 26.) Moreover, the Western oil majors most likely to do so aren’t in a spending mood, regardless of high oil prices.
Besides pleasing Peltola, Biden’s Willow approval won a tweet of thanks from Republican Sen. Lisa Murkowski of Alaska, who chairs the chamber’s Energy and Natural Resources Committee and is friendly with Sen. Joe Manchin, D-W.Va. The latter extracted concessions for fossil fuels in return for his crucial vote for IRA, including forcing the administration to conduct lease auctions for drilling in federal waters as a prerequisite for leasing them for offshore wind-power projects, another Biden priority.
That part of the IRA perfectly captured the tension between Biden’s long-term green project and immediate energy security necessities. Manchin has been frustrated by the Interior Department’s slow-rolling of congressionally mandated leasing rounds for oil and gas drilling. As much as he shares Murkowski’s enthusiasm for Willow’s go-ahead, Biden’s added restrictions around the project, symbolism or no, suggest the administration will continue to run out the clock as much as possible when it comes to putting blocks up for bidding in the Gulf of Mexico.
That leaves Biden exposed. The surest path to achieving the energy transition he favors lies in reducing demand for fossil fuels via the expansion of such technologies as electric vehicles and renewable power. The IRA’s subsidies are designed to spur that. But, as with Arctic drilling, these things take time. Even assuming mass uptake, the sheer inertia of the installed energy system means they aren’t likely to result in pronounced declines in fossil-fuel demand until well into a second Biden administration or even beyond it.
Of course, there’s no guarantee of that second term. Which is why Biden had to approve Willow and why his attempt to balance that with restrictions on other development, explicit or no, is a fraught strategy. With Russia still rampant in Ukraine, the risk of further crises in global energy markets between now and November 2024 remains elevated. Moreover, climate politics in the U.S. are toxic enough that trying to tread a middle path will anger purists left and right. Picture Biden walking gingerly along a cliff edge on the North Slope and that would sum up his position.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.
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