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Yukonomist: Willow wow

Wow. That was the reaction, across the spectrum from political economists to climate analysts, when the Biden administration approved Alaska’s massive Willow oil project last week.

Wow. That was the reaction, across the spectrum from political economists to climate analysts, when the Biden administration approved Alaska’s massive Willow oil project last week.

The decision, and the support it got from Alaskan leaders of both parties as well as Alaskan Indigenous groups, highlight two things: how the Ukraine war has shaken up the trade-offs around energy production, and how differently the Yukon and Alaska approach the resource economy.

The project itself is located just south of the Arctic coast, east of the existing oil centre of Barrow and west of the Arctic National Wildlife Refuge. It involves an US$8 billion investment by oil giant ConocoPhillips. It will produce about 180,000 barrels of oil per day. While that’s less than 0.2 percent of global production and much smaller than Canada’s production of almost five million barrels a day, it is a sizable boost for Alaska. While Alaska’s production peaked at two million barrels a day in the 1980s, it has since tapered to less than 500,000 barrels per day.

That leaves the Trans-Alaska Pipeline running three-quarters empty, something budget analysts in Juneau have long pointed to as they debate how to fund Alaska’s schools, roads and ferry system. Alaska gets much less generous federal transfer payments than the Yukon does.

The Biden administration estimates the project will release 9.2 million tonnes of carbon dioxide per year. That’s about 15 times the Yukon’s total emissions from all sectors. Environmentalists and some Alaskan Indigenous groups point out the risks to caribou in particular and wildlife habitat in general.

It’s hard to imagine such a project getting approved in the Yukon. But in Alaska, the project has widespread support. Not only do the state’s Republican senators back the project, but also its newly elected Democratic congressperson Mary Peltola. Progressives across the US (and in the Yukon, too) cheered on U.S. election night as she beat Sarah “Drill baby drill” Palin. Peltola is Yup’ik and grew up in remote Bethel. She served as a judge on the Orutsararmiut Native Council’s Indigenous court and as executive director of the Kuskokwim River Inter-Tribal Fish Commission.

She was not the only Indigenous Alaskan to support the project. The board of Voice of the Arctic Iñupiat, a non-profit group representing 24 Indigenous organizations on the North Slope, voted unanimously “in support of advancing the Willow Project to support the economic well-being of the North Slope Iñupiat.”

The group’s statement says that the Biden administration’s approval is “an important step for Alaska, Alaska Native self-determination, and for America’s energy security. The decision reaffirms the widespread support across Alaska Native communities for the carefully designed resource development project and long-term economic stability it offers for the people of Alaska’s remote North Slope.”

Voice points out the local benefits of the project to its members, including that Willow will pay around US$6 billion in federal, state and local taxes and royalties. That includes more than US$1 billion in local property taxes in Indigenous and non-Indigenous communities plus US$2.5 billion to support the Impact Mitigation Grant Program. This will fund social services and projects in the region.

Yukon First Nations negotiate similar arrangements with mining companies in their traditional territories. The numbers in these agreements, however, have fewer zeros. A big oil project is much more profitable than a small mining project.

Another thing that is different in Alaska is how deeply embedded Indigenous businesses are in the industry’s supply chains. Doyon Drilling Inc is just one example. It is owned by an Alaska Native regional corporation and has been operating since 1982. It now has over 300 employees and owns nine oil and gas rigs specially designed for the North Slope. The company claims to be a leader in industry innovation, operating the first self-propelled, wheel-mounted rig developed for Alaskan conditions. It also was the first on the North Slope to use dual-fuel turbines and high line power.

The Willow project also highlights how the Ukraine war has shifted the international debate over climate and energy. Pre-2022, the focus was on cutting carbon emissions to slow climate change. Now, analysts are framing the issue as how to cut carbon while also supporting affordability and supply security. Spiraling energy costs have caused political upheavals around the world while Russia has used its oil and gas exports as a geopolitical weapon.

After Russia’s invasion, the Biden administration found itself simultaneously announcing historic programs to boost clean energy investment while also asking Venezuela to boost exports of heavy oil.

The real world makes for some difficult trade-offs. But, for the U.S., Canada and our allies, there is also a logic to boosting oil and gas production in secure locations such as Alaska. This logic looks separately at supply and demand.

Traditionally, campaigners have focused on blocking projects that supply new oil and gas. These campaigns primarily happen in democratic countries because of what happens to protesters in Russia and the Middle East.

What, however, if demand for oil and gas is still strong? For example, the Sustainable Development Scenario of the International Energy Agency has oil and gas use falling by half from now to 2050. But that means there is still very large global demand over the next thirty years. Falling production in democratic countries results in an increasing reliance for energy on unsavory foreign states.

In this line of thinking, the best way to cut emissions is to get you to trade in your SUV for an electric vehicle rather than banning oil production in Alaska. Some Alaskans have put it this way: if Americans are going to keep burning lots of oil for the next twenty years, should that oil come from well-regulated Alaskan wells or hostile foreign countries with shaky environmental and social laws?

Environmentalists take a dim view of this argument, since it is used to justify projects such as Willow. The key question is whether the additional supply from Willow suppresses global prices enough to encourage more gasoline use. Given that oil demand is relatively unresponsive to price compared to other products, this effect is probably quite small. The US government has, in effect, decided that any risk on this side is more than made up for by energy security and new jobs in Alaska.

It raises an interesting question. Our Alaskan friends might ask us if, when the Yukon decided not to develop its gas reserves, that reduced global emissions or just created job opportunities in Fort Nelson, Texas or Russia?

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.