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California dreaming

California dreaming

Back in 2011, the EIA (US Energy Information Administration) declared that the Monterey shale formation contained over half of the US's recoverable tight oil. These estimates were based on the success of hydraulic fracturing technology used in the North Dakota Bakken shale and Texas Eagle Ford deposit. Since the Monterey formation is twice as large as the Bakken shale and over five times larger than the Eagle Ford deposit, the EIA estimated California's Monterey region contained a stunning 15.4 billion barrels of recoverable oil, potentially boosting California's oil production 7-fold. Energy independence was closer than anyone thought, with expectations that US oil imports could be reduced to zero as early as 2040.

Government officials proudly announced that this energy boom was going to contribute $24.6 billion to state and local taxes and generate about 2.8 million jobs. California's GDP was expected to jump 14% by 2020. This set off a fury of activity from oil producers and environmentalists alike.


"Much like BC, California was banking on future revenue streams from its impending energy boom."


MONTEREY SHARE FORMATION

MONTEREY SHARE FORMATION

The Monterey shale formation covers a 1750 square mile area along California's San Andreas Fault, stretching from Sacramento to Los Angeles, out to the coastal areas and extending offshore. Geologists have long known the existence of this deposit; the 38 billion barrels of oil contained within this formation is nothing new. However, oil extraction was now thought to be more feasible given the higher oil prices and recent advancements in hydraulic fracturing technology.

The problem, however, is that the Monterey formation is thick, deep and highly complex, where the shale layers have been fractured by millions of years of seismic activity. Current hydraulic fracturing and horizontal drilling technology has not been successful in extracting this tight oil. This is in stark contrast to the Bakken or Eagle Ford shales, where the shallow hydrocarbon deposits are neatly layered, and oil production has exploded in the past 5 years. 

The new reality is that oil production in California has been steadily decreasing since the peak of 1985, despite recent increases in producing wells. Oil recovery rates from the Monterey shale are lower than planned and highly unpredictable.

Given this new information, the EIA has slashed California's recoverable oil estimates by a remarkable 95%, from an initial estimate of 15.4 billion barrels to only 600 million barrels, pushing back estimates for US energy independence. California's dreams of economic boom times are on hold for now - or at least unit fracturing technology improves.

How American companies profit by exporting Canadian heavy oil

How American companies profit by exporting Canadian heavy oil

Energy stocks and crude oil prices diverge

Energy stocks and crude oil prices diverge