© Ken MADSEN / WWF-Canada

The numbers do not add up for new Arctic oil and gas

15 October 2021

United States Pan-Arctic Oil and gas

This past week, we have heard multiple voices about the ever-increasing bad business of investing in fossil fuels. If we are to limit the global temperature rise and halt the already devastating effects of climate change, a complete global energy system overhaul is required: away from fossil fuels and towards renewable energy. This is especially relevant in the Arctic.

Many countries are moving in that direction by shifting to low-carbon pathways and plotting out a course towards net zero emissions by 2050. Renewable energy such as wind and solar are growing rapidly and at a decreasing cost. But the path to limiting global warming to 1.5°C is a rocky one, as countries have leaned on fossil fuels in the Covid-19 recovery.

World Energy Outlook calls for an energy system transformation

The IEA released the Net Zero by 2050 Roadmap in May of this year, emphasizing the actions needed by the energy sector to reach net zero emissions by 2050. The milestones include no investment in new fossil fuel supply projects, echoing what many scientists and experts have been saying for years.

The IEA has now gone a step further and brought the 1.5° C global warming scenario onboard their annual World Energy Outlook (WEO) report released on 13 October. The 2021 Outlook highlights the steps needed to reach the transformational change of the global energy system. More investments in clean energy are essential and over the next years, these will translate into lower prices for oil and gas, exposing further its volatility. To decrease this volatility, governments must be decisive in their policies and plans, showing leadership in the transition, making it just and absolute. Investors, concerned over climate risk based on the crisis, do not like uncertainty.

The destructive consequences of the runaway-train-warming in the Arctic are clear: an obliteration of ecosystems, wildlife and communities who call the Arctic their home. In addition to these known environmental concerns, drilling for oil and gas in this vulnerable region does not make financial sense either.

The Alaska Arctic National Wildlife Refuge – drilling will not profit

A WWF analysis released this past week reverberates this. The Economics of Oil Development in the Arctic National Wildlife Refuge report looks at future oil developments within the Arctic Refuge given the context of the global economy shift to renewable energy.

The Arctic National Wildlife Refuge in Northern Alaska is a breeding ground for the Porcupine Caribou Herd, polar bears as well as important habitat for more than 200 other species. The productivity and biodiversity of this region has helped to sustain Gwich’in and Iñupiat communities and their traditional ways of life.

The Refuge has also been the center of a hard-fought 40-year long debate over oil drilling. Drilling would bring roads, airstrips, heavy machinery, noise and pollution. This would damage fragile ecosystems and destroy wildlife habitats, as well as the impact subsistence activities of local Indigenous communities.

In the report, we look at three global oil price scenarios to understand the profitability of drilling for oil here. In all scenarios, the analysis concluded that Arctic Refuge leases are unlikely to be economic to produce oil, and that the United States will not, therefore, obtain significant revenue from a new Arctic Refuge oil and gas leasing program. By the time oil production starts around 2040, the price of oil will most likely be too low to make any profit.

But major oil companies may have already known this, as they were a no-show in the 2021 Arctic Refuge oil drilling lease sale.

Drilling for oil in the Arctic Refuge can also mean further economic uncertainty. Warming temperatures, which in the Arctic are almost three times greater than the global average, exacerbates permafrost thaw, causing infrastructure damage on scales we are only beginning to understand. Permafrost thaw is not only happening in Alaska but all over the Arctic, especially in Russia, where infrastructure damage related to permafrost degradation and subsequent infrastructure damage could cost up to $100 billion by mid-century. The risks of disruption of infrastructure and who would be accountable for those are making the economy of Arctic drilling even more dubious.

The findings are timely as lawmakers in Congress consider reversing a tax bill that opened up for oil drilling lease sales in the Arctic National Wildlife Refuge. WWF has called on lawmakers to do just that.

WWF is against new exploration and production of oil and gas in the Arctic and globally. This is now underpinned by the IEA’s Outlook, and there are many other initiatives to stop Arctic drilling for oil and gas – such as from the European Union’s new Arctic strategy which came out the same day.

Mindful of the trade-offs between financial stability and halting the climate crisis, governments and financial institutions have been dragging their feet in transitioning to clean energy. But we are now finding that continued investments in Arctic oil and gas exploration and production are not economically viable. As COP26 soon kicks off, preventing new drilling in the Arctic Refuge would be an important signal that ambition is increasing to keep global warming within the 1.5° C limit, for the benefit of the Arctic, its people, and our planet.

For more information:
Andrea Norgren | Sr. Manager Communications, Arctic Programme | andrea.norgren@wwf.se