It has been a good month for American energy development. The tax reform signed by President Trump contained a provision allowing for oil exploration in the Arctic National Wildlife Refuge. Last week the Interior Department proposed opening up wide swaths of territory offshore.
This is good policy for a lot of reasons, but the least obvious is that it will help the environment. Despite howls from the green lobby, the truth is that it’s less hazardous to drill for oil on land and in shallow waters using conventional rigs.
BP’s Deepwater Horizon was drilling in about 5,000 feet of water when it exploded in 2010. If the accident had occurred on land or in shallow seas, the spill could have been contained in three days instead of three months.
The company took the blame for the disaster, paying $19 billion, but I blame U.S. environmental policy for chasing oil producers further and further out on the risk curve. For more than 40 years, the U.S. government has had a moratorium on drilling in shallow water, putting nearly 100 billion barrels out of reach.
This overregulation has been neither prudent nor partisan. President George H.W. Bush, a former oilman, enacted a separate and redundant moratorium in 1990; Bill Clinton extended it in 1998. And approval rates for drilling permits on federal lands plummeted during the Obama administration.
The ANWR is thought to hold at least 10 billion barrels of crude oil, according to the U.S. Geological Survey. The actual number is likely greater. The nearby Trans-Alaska Pipeline is ready to go, with the capacity to move ANWR oil 800 miles to the Port of Valdez. That pipeline operates at 25% of capacity and could use the extra flow for efficiency’s sake.
Drilling in the ANWR poses less risk to the environment than fracking. It would also be cheaper. Fracking was invented in response to drilling restrictions, as a way to produce oil from shale formations on private land, where government restrictions don’t apply.
But fracking is no walk in the park. A fracked well consumes an average of 4.2 million pounds of sand and between two million and nine million gallons of water. The sludge created as a byproduct requires careful handling and underground disposal. From an environmental standpoint, drilling in the ANWR ought to be attractive by comparison.
Environmentalists have long believed that high oil prices drive down demand, so restricting drilling will reduce overall energy consumption. This view would be realistic in a free market. But the global oil market is not free. Asian nations have responded to rising oil prices by subsidizing consumption. Even while gasoline prices in the U.S. went from $1.35 a gallon in 2002 to more than $3.50 a gallon from 2011-13, Asian consumption surged.
As long as the global economy demands hydrocarbons, companies will produce them, even if they must go to great lengths to do so. Scarcity leads to high prices, which makes fracking and high-risk deep-water drilling possible. Boosting the supply of oil from land and shallow-water rigs would reduce these hazards.
Deregulating government-controlled territories like the ANWR and the U.S. Outer Continental Shelf is a step in the right direction. If a freer market can prevent another tragedy like Deepwater Horizon, environmentalists should see it as a win.
Mr. Landstreet is founding partner of N3L Capital Management and founder of Standard Research.