Monterey Shale and the Future of California

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

As the debate over the practice of hydraulic fracturing to reach deeply embedded oil heats up, listening to a discussion on the topic sponsored by Los Angeles’ BizFed Institute last week, I have the feeling we will see it happen. Or should I say continue to happen since fracking, as it is called, has been going on in California for 60 years.

What has pushed the debate to the forefront is the recent estimate that California’s Monterey Shale formation could be home to 15 billion barrels of crude, about two-thirds of all the shale oil in the United States.

To allow the process to be used effectively, the legislature has struggled to find middle ground between oil producers and environmentalists. The debate has joined around Senator Fran Pavley’s SB 4.

Governor Jerry Brown has signaled that he would like to enhance California’s oil production as long as the environment is safeguarded. He has asked the question: Do we want to get oil from Venezuela or from 100 miles away?

While some environmental groups are pushing for an outright ban or at least a moratorium on fracking, not all are in that camp.  Bill Allayaud, California Director of Governmental Affairs for the Environmental Working Group told the conference attendees that while not supporting a ban his group wants regulations in place dealing with the chemicals used in the process.

On the oil producer’s side, the president of the Western States Petroleum Association, Catherine Reheis-Boyd told the gathering that the producers understand that regulation is coming. Whether they agree with it or not, they will have to follow regulations that make environmentalists and regulators comfortable or they will not get to drill.

From the positions laid out at the conference, you would think that a compromise is attainable. The overriding issue is the chemicals used in the process. Reheis-Boyd said the chemicals are all known, however, the mixture of the chemicals is a trade secret that the companies involved do not want to reveal.

Fracking pumps a combination of 90% water, 9.5% sand, .5% chemicals into the ground to push oil from the shale. All fluid comes back to surface and is disposed of properly, said Reheis-Boyd.

Mark Nechodom, Director of the California Department of Conservation, told the audience the “days of the gushers are gone.” To reach the harder to get oil in the shale more complex methods must are employed.

Fracking and horizontal drilling might be used to retrieve the oil. California shale is what was referred to a couple of times at the conference as “twisted” rock making it more difficult to retrieve the oil than in other shale formations around the country currently being exploited.

Kevin Hopkins, Director of Research for the Communications Institute, presented findings from a study he authored, co-sponsored by the University of Southern California. Hopkins’ study, “Powering California: The Monterey Shale & California’s Economic Future,” conjectured that the Monterey Shale could have dramatic economic effects for California including up to $24.6 billion in new state revenue, 2.8 million new jobs, and a 14.3% increase in the state’s Gross Domestic Product.

All the economic positive potential is a major reason that California officials hope to find a way to make drilling the shale oil a reality.

Susan Kennedy, former top administration official for both Governors Davis and Schwarzenegger, moderated a panel discussion. She challenged the panel not to focus on the economic impact of drilling the shale but rather whether California needs the oil.

Reheis-Boyd said only 38% of the state’s oil demands are met by current California oil production.

In addition, Hopkins reported that California energy production declined by about half since 1985 and that crude oil imports are up 71% since 1985. While renewable energy accounts for 27% of the state’s energy needs, half of that is from hydropower. Wind and solar make up 6% of the state’s energy but hardly any goes for transportation, in which oil plays a huge role.

My take away from the meeting: If California needs the oil, which it apparently does, then the governor’s question on where we want to get it is relevant. Throw in the predictions about jobs and revenue and the willingness of the petroleum industry to go along with reasonable environmental regulations and there appears a path to explore the Monterey Shale.

One obstacle that a number of speakers brought up at the meeting just might be the name of the rock formation.

Tim Kustic, of the California Division of Oil, Gas, and Geothermal Resources, said rock formations were named by early geologists who studied them and that the Monterey Shale had outcroppings near the coast, which accounts for the name.

As a number of speakers remarked, the environmental question over the formation might not be so contentious if it bore a name other than Monterey.

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