Hi all!
Please see below an op-ed in the Houston Chronicle from Kevin Luzak, a member of the
Business Coalition for Conservation and Climate.
If you would like to help promote, here’s suggested social:
Giving up the #ArcticRefuge would get us an almost-immeasurably-small down payment plus a promise of federal revenue that could be zero or minimal, says investor @kevinluzak in @HoustonChron
#ArcticRefuge
The breakeven cost of bringing #ArcticRefuge oil to market could be very high relative to currently productive reserves and future discoveries, says investor @kevinluzak in @HoustonChron
It’s possible that the value of royalties from #ArcticRefuge potential drilling in current dollars is near zero, says investor @kevinluzak in @HoustonChron
Drilling in Arctic refuge makes for a bad deal [Opinion]
By Kevin Luzak
June 7, 2018
The Trump administration likes to evaluate public policy on the basis of whether it’s a “good deal” or a “bad deal.” This transactional approach suggests that good policy creates more
dollars than costs for the federal treasury, and bad policy does the opposite.
How would that apply to the administration’s decision to allow drilling in the Arctic National Wildlife Refuge?
First, let’s look at the costs.
The Arctic refuge in the northeast coast of Alaska was first protected by President Dwight Eisenhower to “to preserve unique wildlife, wilderness, and recreational values” in the area.
This policy decision has enjoyed support from Republicans and Democrats alike for nearly 60 years.
The coastal plain of the refuge, where drilling would occur, is among the most remote places in the United States. Other than a few settlements and a single road, its million acres are
completely untouched by man and civilization. By virtue of this pristine condition, the refuge has become a place of regeneration for hundreds of different species of mammals (including polar bears that den and caribou that calve there) as well as bird species
that migrate there from every state in the union.
On top of that, this place is sacred and essential to the lives of the native Gwich’in people who have lived in that region for more than 10,000 years.
The Trump administration’s plan to begin petroleum exploration and drilling — which means roads, heavy equipment, pipelines and inevitable spills and pollution — would scar this region
forever. The footprint of the drilling operations would be vast, disruptive and destructive. The region’s land, water and social structure would never recover.
Now, let’s look at the benefits of opening the refuge to drilling. How much would the federal government receive?
The U.S. government will receive a royalty of 12.5 percent of the profits generated by oil production in the refuge. The value of the royalty stream is very difficult to quantify because
it is based on several currently unknowable factors: timing of commencement and duration of extraction activities; volume of oil that is technically and economically extractable; cost of extraction and transportation of oil; and market prices for this oil.
We can, however, recognize a few basic facts: Remote reserves are expensive to develop and transport. Future revenues are worth less than revenues today. Even the most aggressive estimates
of reserve volumes in the refuge show less than a one percent increase in global production. It’s likely that the break-even cost of bringing this oil to market is going to be very high relative to currently productive reserves and even future discoveries.
So the federal royalty percentage would be applied to a very thin profit margin, and we would not start seeing any revenues for a decade or more. It’s entirely possible that the value
of the royalties in current dollars is near zero.
The current value of the lease payments the federal government would receive range from $40 million to $100 million. Based on a federal budget of $4.4 trillion, those lease payments would
cover the cost of the running the government for roughly five to 11 minutes. Viewed another way, the lease payments would save each of the 138 million taxpayers in the U.S. between $0.29 and $0.72.
With this backdrop, we can evaluate the basic terms of the deal that the Trump administration proposes.
In a nutshell: We give up the pristine condition of the Arctic National Wildlife Refuge today in exchange for an almost immeasurably small down payment (the leasing fee) plus a promise
of federal revenue that could be zero or minimal, and in any event would not likely materialize for more than a decade.
This deal doesn’t sound good, or even fair. It’s like asking a real estate developer to sell a building for a small down payment and an unsecured and unquantified payment years out. It
wouldn’t happen in Trump’s business world, and it shouldn’t happen on our public lands.
Proponents of drilling also minimize the costs — not just the cost of drilling but the cost to wildlife, to the Gwich’in people and the cost to future generations of Americans.
This deal would be a shameful sell out of the public’s best interests.
America’s wild lands like the Arctic refuge represent an endowment to be managed for both present and future generations. Our stewardship of these lands, which are owned by all Americans,
merits wise management that extends beyond near-term political needs.
Our wild public lands provide clean air, clean water, wildlife habitat and a link to our natural heritage. We cash them out or sell them off at great peril to the lasting, permanent benefits
they can provide.
Luzak is a private investor based in Jackson, Wyo., and a member of the Business Coalition for Conservation
and Climate.