THE END OF one of the greatest environmental battles in modern American history is near—and it could go either way.

On one side is the oil-friendly Trump Administration and the state of Alaska, which, along with a few native corporations on the North Slope, are heavily dependent on oil tax revenue. On the other are nearly all the major national environmental organizations, the Gwich’in people of Alaska and Canada, and, according to recent polls, the majority of Americans. At stake is nothing less than the crown jewel of American wilderness.

On January 6, 2021, the U.S. Bureau of Land Management plans to auction off leases for oil and gas development on more than one million acres of the Arctic National Wildlife Refuge (ANWR), in the northeast corner of Alaska. That same day, Congress will meet to confirm the election of Joe Biden as president. Biden opposes drilling in the refuge.

Created in 1960 by President Dwight D. Eisenhower and expanded in 1980 by President Jimmy Carter, ANWR is the largest intact wilderness ecosystem in the United States. The 40-year battle is over its coastal plain, which may conceal billions of barrels of oil—but is also what environmental advocates call the refuge’s “biological heart,” a breeding ground for caribou and polar bears, as well as important habitat for more than 200 other species, including snow geese and many other migratory birds. 

As one of its final acts, the Trump Administration is trying to lock in a future of oil drilling on the coastal plain just weeks before President-elect Biden takes office on January 20. Seismic testing may begin the day after Biden’s inauguration—in the midst of denning season for the most threatened population of polar bears in the Arctic. The testing involves a fleet of heavy thumper trucks that will crisscross the fragile tundra, shaking the ground to create seismic waves that can show the presence of oil.

Yet there is good reason to doubt that oil drilling in ANWR will take place anytime soon. Four lawsuits challenging the lease sale are pending in federal court in Anchorage; the judge has promised to rule today on a motion to halt the sale. If the judge allows the sale to go through, any company that acquired a lease would still need numerous permits from the Biden Administration before drilling could begin.

More importantly, the economic winds are blowing against Arctic drilling. Oil prices are low, the cost of drilling in the Arctic is high, and after a year of devastating fires, floods, heat waves, and hurricanes around the world, concern over climate risk is surging among investors. All of which may have changed the calculus for oil companies.

“What we do here has a global impact,” says Brook Brisson, an attorney representing the Gwich’in Steering Committee in the current lawsuits. “Birds, weather patterns, coastlines. No one has been untouched by climate change in the last four years. Ecosystem protection now has real value, especially as climate protection.”

Alaska’s industrial development authority is so concerned about the industry’s lack of interest in ANWR that just before Christmas it authorized its director to spend $20 million on any unleased tracts to secure them until a drilling partner could be found. In an op-ed in the Anchorage Daily News, former governor and senator Frank Murkowski had argued that it might be the state’s last chance to open the refuge to drilling.

Politics, meet economics

For decades, Murkowski and other Alaska politicians have seen the refuge as an extension of Prudhoe Bay, the nation’s largest oil field and the state’s aging cash cow, which has been in steady decline since 1988. In 2017, Murkowski’s daughter, Senator Lisa Murkowski (R-AK), managed to slip a provision mandating two ANWR lease sales of at least 400,000 acres each into the massive federal tax cut bill. She and the Trump Administration estimated that the oil field might ultimately generate $100 billion in revenue for the federal treasury.

Those calculations assumed at least seven billion barrels of oil in ANWR, at a price of more than $78 per barrel. The current price is $47, and no one really knows how much oil lies beneath that coastal plain.

Based on a single seismic survey done in the mid-1980s, and the results from wells drilled outside the refuge, the U.S. Geological Survey estimates the refuge may hold between 4.3 billion and 11.8 billion barrels of “technically recoverable” oil. How much of it is economically recoverable is another matter.

At the annual Alaska Resource Conference held online in November, Joe Marushack, President of ConocoPhillips Alaska, informed the virtual crowd that there were no rigs drilling on the North Slope for the first time in the 60-year history of the field. ConocoPhillips is the largest producer in Alaska, with extensive holdings in Prudhoe and in the National Petroleum Reserve-Alaska (NPR-A). During the Q&A, someone asked Marushack about his company’s interest in ANWR leases.

“We really like what we are doing right now in NPR-A,” he replied. “We’ll probably focus on that area.”

“There will continue to be the need to explore and develop oil and gas on the North Slope,” ExxonMobil Alaska’s CEO, Darlene Gates reassured the virtual crowd. “It’s important not to give up on a growth mindset.” But then she showed a chart comparing estimated returns on investment at oil fields around the world, from the Gulf of Mexico to the North Sea to Angola to the North Slope. Alaska oil was by far the least profitable due to its high cost of production.

“Looking as an investor,” Gates said, “where would you put your money?”

BP answered that question last summer by selling all its assets in Alaska—after 60 years in the state—to Houston-based Hilcorp, Inc., a privately held company specializing in squeezing the last drop out of dying oil fields. Among those assets were leases on lands that lie within ANWR but are indigenous-owned by the Kaktovik Inupiat Corporation.

The only test well ever drilled in the refuge, in the early 1980s, was on one of those leases, and the results of that test is one of the most tightly guarded secrets in the oil industry. A 2006 National Geographic investigation reported the well was a “dry hole,” based on numerous sources that had access to the well data. BP executives certainly knew what was down that hole, and were on the cusp of being able to develop their leases there for the first time in 40 years, thanks to the Trump Administration—and they walked away.

“If someone is voting with their feet and dollars, you have to wonder what is there,” says Mouhcine Guettabi, associate professor of economics at the University of Alaska, Anchorage. “There’s a lot of uncertainty about the amount of oil.”

Even more uncertain is how oil companies would finance a multi-billion-dollar development in ANWR, which has no infrastructure or pipeline to carry oil out of the refuge. More than 60 financial institutions around the world have pledged to restrict or stop financing Arctic oil exploration, including all five major U.S. banks. One of those is Goldman-Sachs, whose senior energy analyst told CNBC in 2017, “We think there is almost no rationale for Arctic exploration.”

Thawing permafrost, melting dollars

The financial challenges to drilling anywhere in the Arctic stem from the physical challenges—and those are increasing, thanks to fossil fuels themselves. The Arctic is warming twice as fast as the rest of the planet, turning rock-hard frozen permafrost into a land of lakes, sinkholes, and boggy peat in the summer. Last June, after weeks of record high temperatures that hit over 100 degrees Fahrenheit, a giant diesel fuel tank in the Siberian city of Norilsk sank into the tundra and ruptured, spilling 21,000 metric tons (157,500 barrels) of fuel—nearly half the amount spilled by the Exxon Valdez tanker off Alaska in 1989—and creating the largest spill in modern Russian history.

Most of the oil and gas infrastructure in the Russian Arctic, such as the giant Bovanenkova gas field on the Yamal Peninsula is built atop permafrost, just as it is on Alaska’s North Slope. “If this ice melts the landscape changes dramatically,” says Vladimir Romanovsky, a permafrost researcher at the University of Alaska Fairbanks. “You get massive subsidence, ten meters or more on the Yamal Peninsula.

“All the big buildings at Bovanenkova are built on a refrigerated system of horizontal pipes that keep the ground frozen,” he goes on. “That’s really expensive to do. ANWR has the same geology.”

A few years ago a group of climate researchers tried to model how much of the world’s fossil fuel reserves must go unburned if we are to keep global warming below 2°C (3.6°F), the widely accepted threshold of dangerous climate change. They concluded that 80 percent of the world’s remaining coal, half the natural gas, and a third of current oil reserves must stay in the ground. In the economically optimum solution, that would include all the super-expensive oil and gas in the Arctic. Most of the world’s largest consumers of fossil fuels have committed to deep cuts in their use under the Paris Agreement, throwing long-term demand for oil in doubt.

Russia, however, which gets a sizable fraction of its GDP and international clout from Arctic energy resources, is going in the opposite direction.

“In the new climate era, more and more nations are setting goals for going off oil and gas,” says Sherri Goodman, a former senior defense official in the Obama Administration, now a senior fellow at the Wilson Center’s Polar Institute. “If you are a Russian energy planner looking at the prospect of less demand in the coming decades, you may want to step on the gas to produce as much as possible so you won’t have a stranded asset in the Arctic.”

The 50th state has the same problem.

Stranded in Alaska

In Alaska, the only state with neither an income nor a sales tax, the state budget depends heavily on oil industry taxes. When oil prices began their initial slide in 2014, Alaska plunged into what has become the longest recession in its history, according to UAA’s Guettabi. Over the last six years the state has nearly drained its “rainy day fund,” stashed away for such oil busts. It has been forced to slash government services and trim the annual checks Alaskans receive from the state’s $71-billion Permanent Fund, also fueled by oil money.

Meanwhile, oil companies have cut their workforce in Alaska by more than half, from 15,000 in 2015 to 6,900 in 2019. And that was before the pandemic hit, pushing 40,000 more Alaskans out of work. Despite enduring numerous booms and busts since oil began flowing down the Trans-Alaska Pipeline in 1977, the state has yet to wean itself off oil.

If the state does spend $20 million acquiring ANWR leases—essentially going into the oil business itself—it would be a spectacularly poor investment, according to Tim Buckley, a former Citigroup director now with the Institute for Energy Economics and Financial Analysis.

Buckley has been tracking the financial and investment firms that have pledged to no longer invest in Arctic oil and gas projects. In one recent report, he calculated that Blackrock, the world’s largest fund manager with more than $7 trillion in assets, lost $90 billion from its oil and gas investments. In November, Blackrock CEO Larry Fink predicted a “tsunami of change” in asset reallocation, as investors flee fossil fuels.

“The economics are making the case,” says Buckley. “Exxon stock prices are down 40 percent when the market as a whole is up 15 percent, and renewables are up eight percent. When oil prices hit zero in April, they lost half of their market capitalization in just four months. And it wasn’t just Exxon. It was BP, Total, Chevron. Profitability just evaporated in huge swaths of the energy market.”

Some of that demand will return after the pandemic, he says. But he believes the writing is on the wall for fossil fuels—and Arctic oil and gas in particular. In yet another blow, Lloyd’s, the world’s largest insurance market, pledged last month to stop insuring any new energy projects in the Arctic by January 2022, and to end all such policies by 2030. That will make financing such undertakings even harder.

“Financial markets are very good at assessing risk,” Buckley says. “And what they are telling us is that you lose money investing in fossil fuels. You lose huge amounts of money. So why as a rational investor would you do it? We are in the endgame of fossil fuels.”