Questionable Financial Analysis Of The Willow Project

by | Apr 27, 2023 | Environmental Impact Assessment

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Introduction

ConocoPhillips’ Willow project is a drilling operation for oil that is situated in Alaska’s National Petroleum Reserve on the plain of the North Slope. Two hundred fifty oil wells were to be built and operated as part of the initial concept, which called for up to five drill pads. The associated infrastructure includes access and infield roads, airstrips, pipelines, a gravel mine, and a temporary island. These features allow module delivery via sealift barges on permafrost and between Alaska-controlled waters.

Financial Analysis of the Willow Project

ConocoPhillips, the project’s owner, predicted that the $6 billion Willow Project would bring in up to $17 billion in revenue for the local, state, and federal governments and 2,500 new jobs. ConocoPhillips estimates that the Willow project will produce 180,000 barrels of oil per day at peak production, or around 1.6% of the United States’ current oil production from only one location. The area is thought to contain an enormous 600 million barrels of oil. But all of this oil may be an actual climate bomb. The project, Willow, is expected to last 30 years and produce 278 million tonnes of carbon gas emissions, the same as driving 2 million cars for 30 years. Willow may be a significant step backwards, given how quickly the world needs to transition away from oil and gas and the need to stop all new fossil fuel development immediately.

Questionable financial analysis of the Willow Project

According to a state Department of Revenue analysis, the Willow project, which is expected to contain 600 million barrels of recoverable oil, would result in a cumulative loss of more than $1 billion in oil-production tax revenue over nearly ten years. This is because, by the study published on February 28, the billions of dollars ConocoPhillips is anticipated to invest in developing Willow will be used to offset the tax obligations from output elsewhere on the North Slope.

According to the estimate, Willow would earn $5.4 billion in state income during its lifetime, turning cash positive for the state in fiscal 2035 and continuing to do so through the 2050s.

If developed, Willow would be the most westerly producing North Slope oil field and is situated on federal land in Alaska’s National Petroleum Reserve. It has significant effects on anticipated state revenue. Royalties from oil production within NPR-A are shared between the federal government and the nearby municipalities on the North Slope. Still, royalties from oil production on state territory create cash that goes into the state’s general treasury. The state-run National Petroleum Reserve-Alaska Impact Mitigation Grant Program receives royalties for local communities and distributes them for particular projects. Communities on the North Slope stand to benefit financially from Willow through that program and other channels, crucial money, according to Nagruk Harcharek, head of the Voice of the Arctic Inupiat.

This group generally supports oil development. Harcharek referred to Willow as “a fresh opportunity to assure a viable future for our towns, providing generational economic stability for our people, and furthering our self-determination” in a statement issued after the Biden administration announced its approval.

Willow Project: Profit or Loss

According to Harcharek, Willow is anticipated to generate more than $1 billion in property tax revenue for the North Slope Borough and $2.5 billion for the NPR-A Impact Mitigation Grant Program, which will be used to “support social services, youth programs, civic facilities, and more throughout our communities.”

Legislators were aware of the anticipated loss of state tax income during Willow’s first few years of life. The administration of former Governor Bill Walker provided lawmakers with a report in November 2018 that estimated that the state would lose more than $1.64 billion over ten years due to Willow and other projects in Alaska’s National Petroleum Reserve. A few different assumptions and parameters were used in the 2018 study. It considered the effects of two smaller oil projects, Greater Mooses Tooth 1, which began production that year, and Greater Mooses Tooth 2, which began production in late 2021, and the projected benefits of Willow development on state revenue. Although other prices were considered, oil was expected to cost $75 per barrel.

It also presupposed that Willow manufacturing would begin in 2024, far sooner than anticipated. Despite Willow’s initial unfavourable fiscal effects on the state, Alaskan politicians have since stated that the project will have other sound economic effects.

Why is the Willow Project important for Alaska?

The project is crucial to Alaska’s political officials, who hope it would counteract declining oil production in a state where the drilling sector plays a significant economic role. There may be 600 million more barrels of oil in the Willow project region than in the U.S. Strategic Petroleum Reserve, which serves as the nation’s emergency supply. According to ConocoPhillips, the project could generate up to $17 billion in revenue for Alaska’s federal, state, and local communities. To assist in controlling consumer energy prices, the Biden administration has also been pressing American oil firms to invest in increasing output.

Supporters of the proposal have primarily claimed economic advantages. According to them, it will benefit local communities by generating temporary and permanent jobs. They continue by saying that the project will bring in money for the state and federal governments through increased taxes and royalties from oil and petrol production. Additionally, supporters claim the project will lessen America’s reliance on foreign oil.

Conclusion

The analysis illustrates one potential scenario out of a spectrum of possible outcomes because there are many unknowns. Yet, the development of the projected Willow project is anticipated to provide sizable state income, with positive net present value and overall cash flow for the state. For the state, the North Slope Borough, the affected towns, the producer, and the federal government, the project is worth billions of dollars, as modelled. The project’s advantages include immediate financial effects, cost savings, and improved economics across the board for all products due to increased volumes entering the Trans-Alaska Pipeline and feeder pipelines. Aside from the Willow development’s indirect economic and employment effects, further gains from it have yet to be considered in this analysis. The additional economic consequences would be substantial and material for the state, much as the direct budget impacts.

Also Read: Biogas

Author

  • Dr. Tanushree Kain

    Tanushree is a passionate Environmentalist with a Doctorate in Environmental Sciences. She is also a Gold medalist in Master of Science (M.Sc), Environmental Sciences. She has 6 years of experience as a guest faculty in Environmental Sciences. With her combination of technical knowledge and research expertise, she can create clear, accurate, and engaging content that helps users get the maximum information regarding environmental topics.

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