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California Water Crisis May Head off Potential Oil Boom

By Nick Cunningham | Thu, 16 January 2014 23:19 | 0

Drilling for oil in California dates back to the late 19th Century, allowing it to become the country’s top producer by the beginning of the 20th. One hundred years later, California still ranks third, but its aging fields have been in decline for decades.

Yet the state is sitting atop the largest tight oil formation in the United States. The Bakken in North Dakota and the Eagle Ford in Texas may be leading the resurgence in U.S. oil production, but the reserves sitting in California’s Monterey Shale dwarf those of its more notable counterparts. The interest in the Monterey Shale is heating up, with the legislature passing a controversial law last year to put in place the state’s first regulations over hydraulic fracturing. The Director of the California Department of Conservation claims the “regulations include the strongest and most comprehensive public protections of any oil- and gas- producing state,” while still allowing the industry to move forward with drilling.

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The Monterey Shale holds an estimated 13.7 billion barrels of unproven technically recoverable oil resources – about three times the reserves believed to be in the Bakken formation in North Dakota. Despite these prodigious resources, safely tapping them will be incredibly difficult. Deborah Gordon at the Carnegie Endowment for International Peace outlines in an important new report several significant obstacles that may prevent a Bakken-like bonanza in California.

Chief among them is water scarcity. California suffered its driest year ever in 2013, with recordkeeping dating back to 1895. 2014 will mark the third consecutive year of severe drought. Hydraulic fracturing requires a lot of water, and as California’s water crisis worsens, a dearth of water along with state-mandated water restrictions will hamper oil and gas production.

To make matters worse, much of the oil and gas reserves in the Monterey Shale are situated in the Central Valley, a huge agricultural region that grows much of the nation’s fruits and vegetables. Farmers are already feeling the bite of water limits, and the state is no stranger to fights over water between farmers, landowners, industry, and even neighboring states. A rise in oil and gas drilling will only exacerbate this conflict. Much will hinge on the confusing and overlapping authorities on water governance in California, as Gordon points out.

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Another problem is the Monterey Shale’s location along several fault lines. Wastewater reinjection wells can contribute to seismic activity, which in turn could contaminate aquifers. The industry could expect some serious blowback should drilling activity be linked to a California earthquake.

Still, despite the laundry list of problems outlined by Gordon, the most important is probably the tough geology that could make oil and gas recovery difficult even for the most technically-proficient drillers. Throughout the formation, the structure varies, with folds that make the geology much more complex than that of North Dakota or Texas. Add to that the fact that oil and gas production rates in the Monterey Shale may actually be vastly overstated, and there are many reasons to believe that California is no North Dakota.

By. Nick Cunningham

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Nick Cunningham
Company: Oilprice.com

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