The Biden administration’s decision to approve the controversial Willow project on Alaska’s North Slope is a sign of the times: governments are struggling to balance the dueling priorities of energy security and the journey to a cleaner future.
That’s what Rystad Energy Vice President Radhika Bansal said in a new market note sent to Rigzone this week, adding that a seamless transition requires policies that use a mix of all energy sources, “with continued efforts to decarbonize existing operations while accelerating investments for a cleaner product and a greener future.”
“ConocoPhillips’ approval of the three-pad development is seen by some as a prudent balancing act at a time when energy security during the bridging years of the transition becomes paramount,” Bansal said.
“ConocoPhillips has had leasehold rights in the region since the 1990s, which are extremely difficult to overturn in court, and the administration can use that as justification for approving the project,” added the vice president from Rystad.
Bansal said in the note that Willow’s estimated 600 million barrels of crude will help fill storage and meet domestic demand, but stressed that the asset will not start production until 2028.
“Approval of the project also ensures the continued operation of the Trans-Alaska Pipeline System (TAPS), which requires a regular supply of oil to run smoothly and efficiently,” Bansal said.
Rystad Energy estimates that the project will have a competitive oil price of less than $30 per Brent barrel, Bansal revealed, adding that the project is expected to attract investments of $7.4 billion and have a net present value of almost $3 billion.
“The revenue generated by Willow will increase ConocoPhillips’ bottom line, but will also benefit the state of Alaska by generating jobs and federal revenue,” Bansal said.
“At full production capacity, the asset will account for 10 percent of ConocoPhillips’ net crude oil production globally by 2030. Taking into account all ConocoPhillips projects expected to start up between this year and the end of decade, Willow will contribute 55 percent share of cumulative volumes by 2030,” added Bansal.
In the memo, Rystad’s vice president stated that Alaska’s oil production has been declining since the 1980s after it peaked at more than two million barrels per day. In 2010, it was barely 600,000 barrels per day, Bansal said, adding that the company’s estimates show 2022 production falling to 430,000 barrels per day.
Bansal also noted in the memo that the administration “tried to appease environmentalists and critics by negotiating with ConocoPhillips to give up oil rights to 68,000 acres of its existing leases in the National Petroleum Reserve, including about 60,000 in the area Teshekpuk Lake Special”.
“They also announced the protection of nearly 16 million acres of Alaskan land and water from any future oil and gas leasing. Still, continued controversy and pushback is expected,” Bansal added.
According to Bansal, there are legal challenges that, according to Rystad’s vice president, could delay or jeopardize the future of the project.
“Still, if the Biden administration remains fully committed to the project, Willow’s crude production could be a major boost to U.S. supplies, helping to ease some of the strain on global markets such as Western nations away from Russian energy volumes,” Bansal said.
On March 13, the US Department of the Interior (DOI) announced that it had issued a record of decision (ROD) on the proposed Willow development plan in the Alaska National Petroleum Reserve (NPR-A ). The DOI said it is “substantially reducing the size of the project by denying two of the five drilling sites proposed by ConocoPhillips.”
In a statement posted on its site the same day, ConocoPhillips welcomed the DOI’s ROD to Willow. The company added that it continues to review the ROD and said it will advance internal approval processes toward a final investment decision.
In its statement, ConocoPhillips noted that the Willow project is estimated to produce 180,000 barrels of oil per day at its peak and is expected to generate $8 billion to $17 billion in new revenue for the federal government, the state of Alaska and the communities of North Slope Borough. . The company said Willow has the potential to create more than 2,500 construction jobs and approximately 300 long-term jobs.
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Photo Credit – iStock.com/Sward85
