Will the shale oil boom go bust in California?

April 3, 2013
Obsession
Energy Shocks
April 3, 2013

You might expect California, home to vast, untapped reserves of shale oil and a powerful environmental movement, to watch closely every move by its oil and gas industry. But when it comes to the controversial technique of hydraulic fracturing (fracking) used to extract oil and gas from shale, regulators have remarkably little idea what is going on.

This Friday, April 5, air quality regulators in southern California will consider approving a rule requiring oil and gas companies to notify authorities before drilling and report air pollutants emitted during extraction. Drillers must also disclose the chemicals used in fracking fluid, which is injected into wells at high pressure to break up rock formations that contain oil and natural gas.

“Communities will start to get a sense of what type of impacts these operations are having on folks who live near drilling and fracking,” says Damon Nagami, a senior attorney with the Natural Resources Defense Council in Santa Monica, California. “This is information we just don’t have right now.”

The California Department of Conservation, the state agency that regulates the oil and gas industry, is also set to begin drafting regulations that would impose similar, if weaker, disclosure requirements on drillers, though companies could claim trade secret protection for fracking fluids. And at last count, half a dozen bills have been introduced in the California legislature to impose restrictions on fracking.

California has a well-deserved reputation for setting the pace for environmental regulation. The Obama administration’s proposal last week to slash vehicle tailpipe emissions, for instance, mirrors California’s standards. But in fracking it has lagged. Though California is the country’s fourth-largest oil producer, and its Monterey Shale formation holds an estimated 15.4 billion barrels of oil or 64% of the nation’s shale oil reserves, the oil industry has not been in a rush to head west. It has focused instead on more geologically accessible shale formations like the Marcellus in the Northeast of the US, Eagle Ford in the Southeast and the Bakken in the Rocky Mountains. While some exploratory wells have been drilled in the Monterey formation, the oil is harder to reach.

Still, a study released in March by the University of Southern California concluded that a Monterey Shale oil boom could create 512,000 to 2.8 million jobs between 2015 and 2020 and add $25 billion to the coffers of a state still reeling from the economic downturn. And the governor, Jerry Brown appears to have those numbers in mind: He has said the state needs to balance oil production and the jobs and revenues it generates with environmental protection.

The oil industry itself has so far kept a relatively low profile in the fracking debate. It no doubt remembers the shellacking it took in the 2010 elections, when Texas petroleum companies tried to prevent sharp cuts to greenhouse gas emissions by bankrolling a ballot measure, and California voters overwhelmingly rejected it.

Oil trade groups have urged the air-quality regulators to forgo new rules and work collaboratively with the industry to collect fracking data instead. But with a gusher of regulations in the works, that strategy is likely to hit a dry well.

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