California’s Black Gold

Joel Fox
Editor of Fox & Hounds and President of the Small Business Action Committee

Shale oil reserves in California may not only set the state on the path to a strong economic recovery and lower unemployment, but also could have the effect of solving the state’s “Wall of Debt” crisis and bring peace between labor and business interests.

That is a lot to ask from a natural resource that may not even be fully developed because of the strong environmental lobby. Reaching shale oil often occurs with the use of hydofacturing technology, known as “fracking,” which raises opposition from environmentalist and some residents in the neighborhood of the drilling.  

Potentially, however, the fight over this new California gold rush could divide the Democratic Party and put labor unions on the side of the drillers.  If “fracking” can produce massive revenue to the state’s coffers, it will be easier to cover pension and health care obligations run-up for state workers.

California’s Monterey Shale field running up the central part of the state is estimated to contain at least 64% of all America’s shale-oil reserves, perhaps even more. North Dakota is enjoying Boom Town effects from its oil shale development. California could be next.

Mark Mills, senior fellow at the Manhattan Institute, wrote in yesterday’s Wall Street Journal:

California has Saudi Arabia-scale oil resources … New technologies, especially smart, horizontal drilling and hydrofracturing, aka “fracking,” make that oil accessible, and cleanly. The U.S. Energy Information Administration estimates that the Monterey shale field alone holds 15.4 billion barrels of oil, rivaling America’s total conventional reserves.

California collects about $15 billion in tax revenues for every billion barrels of state oil production, according to research conducted last year by the University of Wyoming’s Timothy Considine and Edward Manderson. If that is accurate, then simply by opening up Monterey oil development—no incentives, grants or state funds required—tax receipts could total $250 billion over the coming two decades. Economists Robert Hahn and Peter Passell, at the American Enterprise and Milken Institutes respectively, point to another $30 billion to $80 billion in broad economic and social benefits that ripple through an economy for every billion barrels of oil production.

Do the math: The overall economic benefits of opening up the Monterey shale field could reach $1 trillion. One can only imagine the impact on California’s education system, social programs, infrastructure, and even energy-tech R&D. Moreover, with that kind of revenue, Sacramento tax collections could wipe out debt and deficits.

Governor Jerry Brown surely sees the benefit to the state’s economy from this production, arguing he always wants to get the maximum revenue out of California’s oil fields.

A new California (black) gold rush could patch a lot of the state’s problems.

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