Order Code RS21030
Updated December 3, 2001
CRS Report for Congress
Received through the CRS Web
ANWR Development: Economic Impacts
Bernard A. Gelb
Specialist in Industry Economics
Resources, Science, and Industry Division1
Summary
Congress is deciding whether to continue to protect the ecosystem on the coastal
plain of the Arctic National Wildlife Refuge (ANWR) or to open it to oil and gas
development – with good prospects of finding economically recoverable amounts of oil.
Less certain are the broad impacts of development on world oil prices and on the U.S.
economy, including employment. This uncertainty has been compounded by the
September 11, 2001 terrorist attacks with their yet to be fully determined consequences.
Tight world oil supplies, crude oil and petroleum product price increases, and the
decline in crude oil production in the “lower 48" states have produced numerous proposals
to expand U.S. oil production or reduce U.S. oil consumption. One of these proposals,
to open the Arctic National Wildlife Refuge to oil and gas development, has generated
considerable controversy.
ANWR: Ecological and Potential Oil Resource
The coastal plain of Alaska just east of present sites of oil production is the virtually
undisturbed home to a wide variety of plants and animals; several species there are
protected by international treaties or agreements. This “1002 Area” is part of the Arctic
National Wildlife Refuge, which was created in 1960. The Refuge was expanded and
made off-limits to oil and gas development in 1980 explicitly to conserve “fish and wildlife
populations and habitats in their natural diversity" and for other purposes. ANWR also
is a promising U.S. oil prospect. Seismic studies and drilling outside the restricted area
have led to estimates of a good chance of finding significant quantities of economically
recoverable oil.2
1 This report benefitted from the petroleum geology and oil industry expertise of Terry Twyman,
Visiting Scholar in Economic Growth and Entrepreneurship, Congressional Research Service.
2 For broader information and discussion concerning ANWR, see CRS Issue Brief IB10073, The
Arctic National Wildlife Refuge: The Next Chapter.
Congressional Research Service ˜ The Library of Congress

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A Contingency Tree
The oil market and economic impacts of ANWR oil development would depend upon
the amount of oil discovered, the sizes of the individual fields, the response of the world
oil market to the discovery, the amount of oil eventually produced, the state of the U.S.
economy, and the effects of additional U.S. oil production and any change in world oil
prices. The response of the world oil market and the economic impact would be
contingent upon the unknown and uncertain outcomes of the above factors.
Possible ANWR Volumes and Development Costs
Major determinants of the cost of developing oil fields in ANWR would be the total
amount of oil discovered that would be economically recovered and the sizes of the
individual discoveries. There are high degrees of uncertainty in both areas. The latest
assessment by the U.S. Geological Survey (USGS)3 estimated that there is a 95% chance
that there are at least 4.3 billion barrels (bbls) and a 5% chance there are at least 11.8
billion bbls of technically recoverable oil (recoverable with current technology, but
ignoring costs) in the restricted area, with a mean estimate of 7.7 billion bbls. Estimated
economically recoverable amounts are considerably smaller. The USGS estimated that,
if the price of crude oil is $24 per barrel (1996 dollars), there is a 95% chance of at least
2.03 billion bbls and a 5% chance of at least 9.37 billion bbls of economically recoverable
oil in the 1002 Area, with a mean estimate of 5.24 billion bbls.4 These estimates rise if a
higher price is assumed and decrease with a lower assumption. In 2001, the price ranged
between $24 and $29 before the September attacks; it has fallen since then.
The USGS estimates also have very wide ranges with respect to oil field sizes.
Among the larger sizes, which oil companies probably would consider first, the estimates
show a 95% chance of three or more fields and a 5% chance of six or more fields with
256-512 million bbls of technically recoverable oil; a 5% chance of one or more fields and
a 95% chance of four or more fields with 512-1,024 million; and a 5% chance of 0.3 of
a field or more and a 95% chance of one and a half fields or more with 1,024-2,048 million
bbls.5 During the exploratory phase, each company would have data, and then would
select the most promising areas based upon its own interpretation of geologic data, its own
resource assessment, and its own financial criteria. As exploration progresses, smaller
fields probably would become attractive if and when infrastructure is in place.
Thus, given that the sizes of a possible overall discovery and of individual fields are
unknown, all estimations of the overall cost of developing ANWR are hypothetical.
3 U.S. Geological Survey. The Oil and Gas Potential of the Arctic National Wildlife Refuge 1002
Area, Alaska, 1999. Chapter EA. USGS Open File Report 98-34. USGS prepared many
estimates made under different definitions of recoverability and different oil price assumptions.
4 In comparison, the original estimate of economically recoverable oil at Prudhoe Bay was slightly
under 10 billion bbls. E&G Idaho, Inc. Alaska Oil and Gas: Energy Wealth or Vanishing
Opportunity? Final. Prepared for the U.S. Department of Energy. January 1991. p. 2-8. More
oil has been found; 3 billion bbls are still to be recovered beyond 10 billion already produced.
5 USGS. op. cit. These are arithmetic means of distributions of estimated field sizes; results can
have numbers with fractions. The numbers of fields used in the text are rounded.

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Two illustrative hypothetical cases might be as follows: (1) A discovery of 2.40
billion bbls of economically recoverable oil in four 100-million bbl fields, three 200-million-
bbl fields, two 400-million-bbl fields, and one 800-million-bbl field. (2) 5.24 billion bbls
of economically recoverable oil in six 200-million-bbl fields, four 400-million-bbl fields,
two 800-million-bbl fields, and one 1,200-million-bbl field.6
Advances in Arctic oil development technology, equipment, and configuration of
facilities reduce both the surface footprint and the development cost per barrel of
discovery.7 These advances have made development more capital intensive onsite but
more labor intensive offsite, mainly performing data analysis. A very crude benchmark to
use for estimating the outlays that would be entailed could be the $1 billion reported to be
the cost of constructing the Alpine field, which has about 430 million bbls of reserves.8
Alpine is a recently developed field on the Alaskan North Slope that employs advanced
Arctic technologies. However, Alpine is appropriate as a cost benchmark only to the
extent that the geological conditions, accessibility of the hypothetically discovered fields,
and a variety of other factors in the Refuge are similar to those at Alpine, all of which adds
another dimension of uncertainty to this hypothetical formulation.
If, hypothetically, the fields associated with an overall 2.40-billion-bbl discovery of
economically recoverable oil are of the same nature and degree of difficulty to develop as
Alpine, and if, as is unlikely, development costs are proportional to field size (using Alpine
as the benchmark), and if it is assumed that the Alpine development cost was $1 billion,
total development cost of a 2.4 billion bbl discovery would approximate $6.5 billion. If,
hypothetically, fields associated with a 5.24-billion-bbl overall discovery are of the same
nature and degree of difficulty to develop as Alpine, and if, as is unlikely, development
costs are proportional to field size, total development cost of that overall discovery would
approximate $14.0 billion.9
At roughly $2.70 per barrel of discovery, the Alpine $1 billion and the hypothetical
estimate totals, which exclude exploration costs, appear low for Arctic conditions, and low
even compared with overall U.S. averages. In recent years, major oil companies have
experienced U.S. onshore finding costs of about $5.25 per barrel (with exploration costs
accounting for about one-third), based upon Energy Information Administration (EIA)
surveys,10 but such costs have been declining over time. However, because the extent to
which the developer of Alpine may have included exploration costs in the $1 billion is not
known (cost accounting differs by company), that figure may be an understatement for the
present purpose of estimating hypothetical ANWR development outlays. Moreover,
6 The hypothetical distributions of field sizes are based upon Figure EA2 in: USGS. The Oil and
Gas Potential of the Arctic National Wildlife Refuge 1002 Area, Alaska, 1999. Chapter EA.
7 For more detailed treatment of petroleum development technology in the Arctic, see CRS Report
RL31022, Arctic Petroleum Development: Implications of Advances in Technology.
8 Phillips Alaska, Inc. Fact Sheet. January 1, 2001.
9 Using a ratio of $1 billion per 400-million-bbl field, the arithmetic is as follows. For the smaller
overall discovery: (4 x $250 million) + (3 x $500 million) + (2 x $1,000 million) + (1 x $2,000)
= $6.5 billion. For the larger overall discovery: (6 x $500 million) + (4 x $1,000 million) + (2 x
$2,000 million) + (1 x $3,000 million) = $14.0 billion.
10 EIA. Performance Profiles of Major Energy Producers, 1999. Table 20, Table B14.

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additional costs for infrastructure would be required if fields are distant from existing
staging areas, including the cost of a pipeline to the Trans Alaska Pipeline System.
Oil Market Response
Other things being equal, an increase in supply would be expected to result in a price
decline (or a lower price than would occur otherwise). The size of price decrease would
depend to some extent upon how close world oil output would be in relation to world
production capacity and upon the reaction of other suppliers to the world oil market.
CRS estimates – again, based on hypothetical and uncertain scenarios – that peak
plateau production from economically recoverable volumes of 2.03 billion and 9.37 billion
bbls at $24 per barrel11 would range from roughly 0.3 million to 1.4 million bbls per day,
assuming pipeline capacity imposes no constraints. Production could begin within 10
years, and could last at least 30 years, declining from the peak. If exploration starts in
2002, peak production levels probably would be reached in about 2020. EIA projects
world oil production to total 119.3 million bbls per day in 2020.12 On the basis of the
aforementioned scenarios, ANWR production (from the respective discovery volumes) at
their peaks around 2020 would range from about 0.25% to 1.17% of world output
projected by EIA.
If supply in the world oil market is tight in 2020 and the market reasonably
competitive, 1.4 million bbls per day of ANWR production could result in lower world oil
prices in the short run. OPEC and other producers, however, may cut output sooner or
later to offset the supply effect, as has occurred before. For example, OPEC has reduced
production volumes three times in 2001.
U.S. Economic Effects
Development of ANWR for oil production could affect the U.S. economy directly
through new economic activity generated by the development and production itself,
indirectly through the ripple effect of such activity, indirectly through the effects of any
change in oil prices, and indirectly through any effects on the amount spent to import oil.
A key factor would be the unpredictable state of the economy.
Hypothetical outlays of $6.5 billion and $14.0 billion with an income multiplier of
two13 applying to both would come to roughly 0.12% and 0.26% of projected Gross
Domestic Product (GDP) in current dollars for the year 2002, assuming for simplicity that
all the outlays occur in one year. If the outlays are spread over more than one year, the
11 EIA projects the average price of landed oil imports at $22.41 in 2020 (1999 dollars).
International Energy Outlook 2001. March 2001, p. 41. EIA’s oil price, oil production, oil
imports, and economic growth projections used in this report are its best-guess “reference case.”
12 International Energy Outlook 2001. p. 42.
13 Changes in investment spending have a magnified impact on the economy as a result of the
ripple effects on the income and spending of other businesses and of households. Income multiplier
is the term used to denote the total impact of the initial spending. Such multipliers differ depending
upon the sector of the economy in which the investment takes place. A multiplier of two is
reasonable for the type of spending discussed here.

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impact in each year would be less, but the total effect would be about the same.14 If there
is some spare capacity, the oil and gas producing industry and its suppliers would benefit.
However, if the economy is at full employment, the multiplier effect would be transitory.
Outlays of similar magnitudes in 2015 or 2020, when the economy is projected to be
45%-70% larger,15 would have much smaller relative effects. Impacts on some geographic
regions and industrial sectors – e.g., Alaska, oil producers, and manufacturers of drill pipe
– would be greater, or smaller.
In analyzing the impact of changes in energy costs on the economy as a whole or on
individual sectors, it is worth noting that the relative price of oil has decreased since the
oil price spikes of the 1970s and early 1980s, and energy use per unit of output has fallen
as well. The proportions of production costs accounted for by energy have dropped
across the economy; and energy costs as a share of GDP have declined.
It appears also that any price effect would have to be considerable and sustained for
the effects to be significant on a macroeconomic scale. The Organization for Economic
Cooperation and Development (OECD) estimated that an increase in oil prices of $10 per
barrel above its baseline scenario would result in U.S. GDP being 0.2% lower one year and
two years after the shock.16 Also, the price effect of a 1.17% addition to world oil supply
resulting from ANWR production probably would be modest and temporary, although the
macroeconomic result of a price drop may well not be proportional.
Employment Effects. Oil and gas development in ANWR would generate
additional jobs in the national economy to the extent that development results directly and
indirectly in a net economic stimulus. A key factor is whether the economy is at less than
full employment. The direct effects are less uncertain than the indirect, given the
uncertainty of the effects of ANWR oil on world oil prices and any consequent beneficial
effects of lower energy prices on the economy as a whole.
Order of magnitude estimates can be made for jobs generated by the hypothetical
development outlays by using the national averages of 3.89 jobs directly and indirectly
“required” per $1 million of sales by oil and gas producers and 16.53 jobs per $1 million
of sales by oil and gas field service companies, as estimated by the Bureau of Labor
Statistics (BLS).17 Adjusting for price increases since 1992 and assuming that each of the
above groups accounts for half of the outlays, it can be estimated that $6.5 billion would
lead to about hypothetical 60,000 jobs, and that $14.0 billion would lead to hypothetically
about 130,000 jobs.18
14 GDP projection by DRI-WEFA in U.S. Economic Outlook. August 2001. p. 9.
15 EIA. Annual Energy Outlook 2001. p. 152.
16 OECD. Economic Outlook. December 1999. p. 9. Macroeconomic simulations by other
organizations have had comparable results.
17 U.S. Bureau of Labor Statistics web site: stats.bls.gov:80/datahome.htm. While in terms of sales
in 1992 dollars, the ratios are based upon 1998 productivity relationships.
18 CRS could not locate data that would indicate the proportions. Hypothetical lower scenario:
$3.25 billion by oil producing companies ÷ 1.097 (deflator) x 3.89 (jobs per million $) = 11,525
jobs; $3.25 billion by oil field service companies ÷ 1.097 (deflator) x 16.53 (jobs per million $) =
(continued...)

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In contrast, a 1990 report by The WEFA Group estimated that the economic impact
of oil development in ANWR would result in a net gain in employment of 735,000 in the
peak year of job creation.19 The major portion of the gain results from estimated large
beneficial macroeconomic effects of lower world oil prices caused by an increase in world
oil supply attributable to ANWR, based upon an oil discovery near the high end of 1987
ANWR resource estimates. These differences in estimates of job generation illustrate the
importance of the role played by macroeconomic relationships and other assumptions used
in making such estimates.20
The impact of ANWR development on employment would be affected by the
continually changing overall state of the economy. In the aftermath of the September 11
attacks, there is considerable uncertainty about near term full employment, and estimates
are problematic. In the long run, the unemployment rate is determined by the structure of
the labor market; and, at full employment, any jobs generated by ANWR development
would come at the expense of an equal number of jobs lost in the rest of the economy.
Even without the impact of recent events, the effect of ANWR oil on world oil prices
would be uncertain, and any price drop would have to be considerable and sustained for
the macroeconomic effects to be reasonably noticeable, and the job effects would be highly
uncertain. Any employment gain from beneficial macroeconomic effects of a drop in oil
prices may be offset by harm to oil producers that do not participate in ANWR
development, who may reduce their operations and workforce, other things being equal;
their suppliers and local economies may be affected as well.
Import Effect. As the U.S. marginal source of petroleum, net imports would be
reduced by virtually one barrel for every barrel of ANWR output. The economy would
benefit temporarily through a reduction in its oil import bill and in the income transferred
overseas to pay for the oil. Using EIA’s projection for 2020 of refiners’ acquisition cost
of foreign crude oil of about $22.40 per barrel (footnote 12) and 12.14 billion bbls per day
in net imports,21 the oil import bill would be cut by $2.5 billion to $11.4 billion in that year,
improving the U.S. merchandise trade balance in the short run. The relative fall in dollars
flowing abroad, however, could cause the dollar to appreciate. This would tend to reduce
exports and expand imports to some extent, reversing the initial improvement. A possibly
greater increase in demand for imports of other goods and services could result from a
higher level of economic activity caused by lower oil prices. The trade deficit basically
reflects the desire of Americans to borrow abroad versus the desire of foreigners to invest
or borrow in the United States.
18 (...continued)
48,975 jobs. Hypothetical higher scenario: $7.0 billion by oil producing companies ÷ 1.097
(deflator) x 3.89 (jobs per million $) = 24,825 jobs; $7.0 billion by oil field service companies ÷
1.097 (deflator) x 16.53 (jobs per million $) = 105,475.
19 The Economic Impact of ANWR Development. Bala Cynwyd, PA: May 1990.
20 CRS Report 92-169, ANWR Development: Analyzing Its Economic Impact also comments on
the WEFA report.
21 Annual Energy Outlook. p. 143.

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