COLUMN-California's new oil rush: John Kemp
By John Kemp
LONDON Jan 2 (Reuters) - California has some of the most stringent environmental regulations in the United States, so it might seem an unlikely place to welcome fracking. On Dec. 18, however, the state Department of Conservation published draft rules that could lead to widespread hydraulic fracturing for oil and gas.
The state is known for tough gasoline standards, an ambitious cap-and-trade scheme to cut carbon emissions and strong interest in developing renewable resources such as wind, solar and geothermal as well as stringent energy efficiency requirements for everything from new buildings to refrigerators.
But it was once the second-largest oil producing state in the union and still ranks fourth behind Texas, North Dakota and Alaska, with output of more than 200 million barrels a year (over 500,000 barrels per day), according to the federal Energy Information Administration (EIA) and state regulators.
Speaking to a conference last year, California Governor Jerry Brown, a Democrat, said he would look into issuing more permits for fracking if it could be done in a safe manner. "I'm an optimist", that environmental concerns can be resolved, he said. "California is the fourth-largest oil-producing state, and we want to continue that."
Issuing draft regulation could be a first step towards a big expansion of the practice.
In 2010, California had more than 51,000 active wells - 41,000 of them in Kern County, which accounted for three quarters of total oil production.
Centred on Bakersfield at the south end of California's Central Valley, Kern is one of the country's biggest producers of grapes, almonds, carrots and citrus fruit. But it also sits atop five of the state's oldest and largest oil fields: Midway-Sunset (discovered in 1894), Belridge (1911), Kern River (1899), Cymric (1909) and Elk Hills (1911).
Like the rest of California's oil industry, Kern has long appeared to be in a state of terminal decline. Statewide output has almost halved since 1985. Production continued to slide even as fracking resulted in sharp increases elsewhere. Output from Kern's big five fell by 68,000 bpd (17 percent) between 2005 and 2009.
California's oil is very heavy. Typically it has a specific gravity of less 20 degrees API compared with almost 40 degrees for benchmark West Texas Intermediate.
Most wells are exhausted "strippers", which now yield less than 10 bpd. Fewer than 300 wells produced more than 100 bpd in 2009.
And California wells produce lots of briny water that must be re-injected or otherwise disposed of safely. The average California well produces eight or nine barrels of undrinkable water for every barrel of crude.
The state long ago had to resort to water flooding (secondary recovery) to maintain output from its aging oil fields. In 2009, California producers injected 1.4 billion barrels of water into oil-bearing formations to drive the remaining crude towards the wells, up from less than 1 billion barrels at the turn of the century.
Much of the oil is so viscous that the state also injected 500 million barrels of hot steam (tertiary recovery) to make it flow better.
Most observers have assumed that California's output will continue to decline because of field depletion and the state's reputation for being anti-oil. But the potential for fracking in the Monterey shale could herald a big jump in the years ahead.
Just like North Dakota's Bakken formation, the Monterey's existence has been known for decades. Like the Bakken, the Monterey shale is probably the original source for the oil in the state's conventional fields.
The Monterey's potential is enormous. It covers 1,750 square miles at an average depth of 11,000 feet below sea level, with an average thickness of almost 2,000 feet and total organic content of 6.5 percent. One study for the EIA estimated 15 billion barrels of oil might be technically recoverable.
By 2010, Occidental Petroleum had leased more than half the area (873,000 acres), and smaller sections were leased by Venoco (158,000 acres) and Plains Exploration (70,000 acres), according to a study by INTEK for the EIA ("Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays" 2010).
Two significant problems inhibit oil production from the Monterey shale. The shale is much more complex and variable than the Bakken, which makes it harder to employ frack factory techniques to cut costs. And oil producers must convince state regulators and the public to permit pressure pumping to fracture the very tight rock formations.
The geological challenges remain formidable. But political opposition may not be as insurmountable as some analysts assume.
Most of the shale lies beneath Kern County, which is already home to most of the state's wells and is therefore used to living with oil production. Oil extraction and related activities provided more than 15,000 high-wage jobs in the county in 2008.
Energy, fossil fuels as well as renewables, was identified as one of six "clusters" for future economic development in a report adopted by the county's Board of Supervisors ("County Economic Development Strategy Update" 2010).
State hostility may also be weaker than expected. The Department of Conservation's Oil and Gas Division conducted a series of seminars and workshops on fracking during 2012, and on Dec. 18 issued a discussion draft of new rules to govern fracked wells ().
If adopted, the draft would provide much more regulatory certainty for the expansion of the industry. Fracking has already been used on more than 600 wells in California, but the technique has existed in a grey area.
State environmental groups remain strongly opposed. Campaigning environmental law firm Earthjustice has sued the Department of Conservation on behalf of various lobbying groups and the Sierra Club, accusing regulators of failing to properly evaluate the risks of fracking. Much of the state's media are also fiercely critical.
But as fracking contributes to prosperity in other states, and the Obama administration cautiously embraces it as part of an "all of the above" energy strategy, the state's political and administrative machinery is gradually moving to allow it.
Three bills supported by environmental groups that would have imposed restrictions on fracking failed to pass the state legislature this year, showing that environmentalists do not currently have the upper hand on this issue. ("Bills to regulate fracking die in Sacramento," Bakersfield Californian, Aug 23)
Some of those requirements have now been incorporated into the Oil and Gas Division's draft rules, however. For example, it mandates disclosure of chemicals to the Frac Focus registry, with exemptions for trade secrets.
The draft largely codifies existing best practices and seems unlikely to constrain the widespread employment of hydraulic fracturing or generate opposition in the industry.
Kern County is also working on new permitting procedures that would attempt to allay concerns, especially among some farmers, about the risks to water quality.
The crucial point, though, is that all these rules assume fracking will be allowed, subject to fairly reasonable conditions.
It remains unclear how quickly fracking could be ramped up in the state, and the geological problems with the Monterey shale are still challenging. But California is definitely not off-limits.
The prospect of fracking has already set off something of a new oil rush in the state as land men and oil companies race to secure mineral rights, assuming that fairly widespread fracking will eventually get the go-ahead.