Economic Snapshot | Inequality and Poverty

Increasing Alaskan oil just a drop in bucket

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Snapshot for August 29, 2001.

Increasing Alaskan oil just a drop in bucket
As the debate around energy policy heats up in Washington this summer, much has been said about the costs and benefits of opening the restricted areas of the Arctic National Wildlife Refuge (ANWR) for oil exploration and extraction. One argument commonly made in favor of drilling is that it would help protect our national security. Increasing domestic oil production, the argument goes, would reduce the United States’ exposure to international oil markets and would make the U.S. less susceptible to wild price swings and manipulation by OPEC or Saddam Hussein.

Growth in hours, output, and productivity

However, drilling in ANWR will do little help us achieve oil independence. The above graph shows daily consumption and imports of crude oil and petroleum products over the next 20 years. As many have noted, the US now imports more than half of its petroleum needs, and this is projected to increase over time, with imports rising to just over 75% of consumption by 2020. If Congress approved drilling today, it would take seven to 12 years before production could occur. So if production could get underway in nine years – and assuming that US oil consumption would not increase as a result of ANWR production and that ANWR production would not offset production elsewhere in the US — then drilling in ANWR would lower US import dependence by less than two percentage points, from about 76% to about 74%. Even if the oil were extracted at a rapid rate (which would deplete it more quickly), imports might fall to just over 73%.

These facts, together with the fact that oil prices will continue to be set on a world market dominated by OPEC (and thus largely unaffected by ANWR production), mean that, whatever the costs of opening ANWR to drilling may be, the benefits in terms of national security and energy stability are largely nonexistent.

This week’s Snapshot by EPI economist James P. Barrett.

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