Though it’s one of the top four oil-producing states in the U.S., most folks don’t tend to think “California” when it comes to oil and gas production. It hasn’t been a spotlighted hotbed of oil and gas boom activity like Texas, North Dakota and Pennsylvania, despite the fact that its reserves far outstrip those of any state in the nation.
California’s Monterey shale is estimated by the U.S. Energy Information Administration to hold 15.4 billion barrels of recoverable crude oil – as compared to the North Dakota Bakken shale’s 3.6 billion barrels. The state currently produces around 10 percent of the nation’s oil, about the same as Alaska. California’s total reserves, however, are thought to amount to more than 400 billion barrels of oil, representing a whopping two-thirds of the total shale oil reserves in the entire U.S. and about half of the conventional oil in Saudi Arabia.
California, as usual, presents unique challenges
So why isn’t California enjoying an oil boom blowout that would make the others look puny in comparison?
Well, when it comes to geology, not all states were created equal. California’s shale isn’t as old as other areas in the U.S., and because of the seismic activity along the San Andreas Fault, the shale layers are thicker and crumpled together. Monterey shale doesn’t lend itself to the same hydraulic fracturing techniques that have unlocked shale reserves across the nation.
Though the younger age of the Monterey shale means that it’s at its peak for oil generation, the thicker, less “frackable” formation carries a higher risk that it won’t yield enough commercially useful product. It’s also likely that different methods will be required for different sections of the shale, raising risk and costs as producers cannot use the same approach from one site to the next. This has slowed exploration and production in the state as even the big players have been reluctant to pour investment dollars into these potentially difficult plays.
There are some companies taking the gamble, of course. California-based Occidental Petroleum has been testing deep acid injection with some success, and has partnered with Venoco in a 3D seismic survey and other exploration projects. Leading developers in California include Chevron, Plains Exploration and Linn and Breitburn. New York-based Hess has also set up shop in California, bringing its Bakken shale experience to bear on Monterey shale.
Fracking foiled by Monterey shale
Deep acid injection holds more promise for the Monterey shale than the type of fracking used in other plays. Large-volume hydrofluoric acid has been used to increase well flow volume and production by breaking down limestone, sandstone, drilling mud and other elements. It’s cheaper, doesn’t use as much pressure and requires lower volumes than fracking, making it potentially less controversial.
Whatever the technology that opens up production of the Monterey shale, the stakes are high. Development of the 1,750-mile formation could generate a half million new jobs by 2015 and nearly three million by 2020, according to a study by the University of Southern California and a Los Angeles think tank, the Communications Institute. Under this forecast, California stands to reap $4.5 billion in oil-related tax revenues by 2015 and nearly $25 billion by 2020. In a state where unemployment still hovers just over 9 percent, the 3 percent unemployment rate of other boom states like North Dakota looks like mighty strong incentive. Governor Jerry Brown has clearly indicated a keen interest in increasing the state’s wealth by encouraging oil and gas production in California. “We want to get the greenhouse emissions down, but we also want to keep our economy going,” he said during a March 13 press conference.
While fracking is not looking like the key to unlocking California’s reserves, there is nonetheless plenty of anti-fracking fomenting going on in California. As a result, the State Department of Conservation released a new draft set of fracking rules at the end of 2012, which could take a year to establish as regulations. This despite the fact that fracking has been used for decades in California without a single incident.
It seems likely that the huge energy and wealth potential of the Monterey shale will overcome the objections of environmentalists, but development and output will still be a slow process due to the technological challenges. As producers continue exploring better ways to extract oil and gas from California’s Monterey shale, however, that state could one day become synonymous with oil.