US Interior approves reduced ConocoPhillips Willow oil project in Alaska

The US Interior Department March 13 approved ConocoPhillips' Willow oil and gas project in the National Petroleum Reserve-Alaska, allowing the company to proceed with its $8 billion plan to boost oil output by an estimated 180,000 b/d.

The decision came one day after President Joe Biden announced new restrictions on oil and natural gas exploration off Alaska's Arctic Coast, along with new protections in ecologically sensitive onshore areas in the NPR-A, the large federal enclave west of the producing oil fields on the Alaska North Slope. The new restrictions may have been intended to soften criticism of the controversial Willow project.

Interior said it "substantially" reduced the size of the project by denying two of five proposed drill sites, or pads. It added that ConocoPhillips would also relinquish rights to about 68,000 acres of existing leases in the NPR-A.

However, the ConocoPhillips had said that a minimum of three pads was required for the project to be economically feasible.

"The company continues to review the [Record of Decision] and will advance internal approval processes towards a Final Investment Decision," the company said in a press release.

The approval may also reflect a shift in Biden's energy policy.

"President Biden ran on a platform to move away from fossil fuels and we have seen over the past couple of years that any approval process related to fossil fuel development or federal land leases was attained via court mandates or congressional law," said S&P Global Commodity Insights analyst Sami Yahya. "While the Biden administration approved Willow with limitations (only three of the five drilling sites were approved), this marks an inflection point where the administration approved the project without the interference of courts, which may signal that the Biden administration is easing its opposition to fossil fuel development in order to bolster future energy security."

The Willow approval "would appear to reflect the significant changes in US and global energy security that resulted from the Feb. 24, 2022 Russian invasion of Ukraine," said ClearView Energy Partners in a report. "Notwithstanding howls from environmentalists, the greenlighting of Willow would appear to suggest the Administration has not yet abandoned its wartime fossil fuel pragmatism."

The project's supporters, including Alaska's two US senators, have argued that Willow met the four criteria, including national energy security, the Biden White House wants to see in new fossil fuels projects.

Willow is important for sustaining future Alaska production. North Slope field operators are now producing about 500,000 b/d. Willow and Pikka, another new project already in construction, will increase production and offset the natural decline of existing fields.

ConocoPhillips has said first oil from Willow will come six years after the investment decision, or about 2029.

Pikka, being developed by Australia-based Santos and Spain's Repsol, is to see production from its first phase starting in 2026 at about 80,000 b/d.

Willow is a few miles west of two smaller ConocoPhillips projects now producing in the NPR-A: GMT-1 and GMT-2. Willow is larger and will also have its own stand-alone processing facilities, while GMT-1 and GMT-2 have no on-site processing and ship a mixture of crude oil, gas and water by pipeline to processing plants in ConocoPhillips' Alpine Field on state lands a few miles east.

Having processing facilities at Willow is important, along with the new pipeline infrastructure that will be built, because it will help make other nearby deposits economic to develop. ConocoPhillips has already made a discovery nearby it calls "Willow West."

Other supporters of the project have argued that Willow would benefit communities in the state. For instance, the Iñupiat Community of the Arctic Slope, North Slope Borough, and Arctic Slope Regional Corporation said in a joint statement March 13 Willow would "provide a generational investment in our people and communities, expected to generate $1.25 billion for the North Slope Borough and $2.5 billion to the NPR-A Impact Mitigation Grant Program—funding that will provide basic services like education, fire protection, law enforcement, subsistence wildlife research, and more."

Critics of the decision argued the environmental impacts outweigh any benefits.

"Willow will be one of the largest oil and gas operations on federal public lands in the country, and the carbon pollution it will spew into the air will have devastating effects for our communities, wildlife, and the climate," said Sierra Club Executive Director Ben Jealous in a press release. "We will suffer the consequences of this for decades to come."

New restrictions

Biden's restrictions announced March 12 will result in new protections to 16 million acres of offshore and onshore acreage including permanently withdrawing 2.8 million acres of the Alaskan Beaufort Sea north of the NPR-A as off-limits for future oil and gas leasing.

There will be additional restrictions around Teshekpuk Lake, an ecologically sensitive wetlands area near the Willow development.

New regulations are also planned to protect other areas in the northeast NPR-A near Willow such as the Utkok Uplands, Colville River corridor, Kasegaluk Lagoon and Peard Bay, all which are habitat for caribou, bears and migratory wildlife, the Interior Department said in its announcement.

Although the new restrictions seek permanent protection of offshore areas north of the NPR-A, a strip of submerged lands along the coast out to the three-mile territorial limit remain under state of Alaska ownership.

Alaska has issued oil and gas leases in much of this area and oil discoveries have been made, such as one in Smith Bay, northwest of the Willow project.

The Smith Bay find, by US independent Caelus Energy, is considered promising, but requires more drilling to determine the extent of resources.

Although the area is state-owned, the new Biden order will also complicate and perhaps prohibit building a pipeline to shore or through the federal reserve to reach existing infrastructure.