Will California Be the Next Big Shale Oil Play?

I've spent the last couple of weeks contemplating California's Monterey shale, which has been widely discussed recently as the country's next Bakken-style oil play, or even bigger.   The Bakken shale has turned North Dakota into the second-biggest oil-producing state in the US, at the same time that development of the Eagle Ford shale has been shoring up Texas's claim to the number one spot.  So far, The Golden State has largely missed out on the shale revolution, despite having shale oil resources estimated to exceed the rest of the US combined. The scale of the opportunity makes it an intriguing subject, but I find it particularly interesting, because the Monterey is deeply intertwined with the long history of the California oil industry, in which I spent the first half of my career. 

The Monterey shale is hardly a new prospect.  One of the first documents my search turned up was a 1905 USGS report on its fossil content, noting its oil potential.  First production from this shale apparently occurred a decade earlier.  Moreover, it appears that the Monterey formation, which underlies many of the state's conventional oil fields, is actually the "source rock" for those fields: the zone from which the hydrocarbons trapped in their reservoirs originated.  So the estimated 400 billion barrels or so of original oil in place in the Monterey have presumably already yielded a substantial share of the roughly 29 billion barrels of oil that California's oil fields have produced to date.

Development of this play doesn't just lag shale projects elsewhere because of California's well-known environmental sensitivity.  The geology of this deposit also differs significantly from that of the Bakken and other east-of-Rockies shale plays, partly due to its relative youth, as well as the effects of the Golden State's seismic activity.  Its oil-bearing strata are thick and often jumbled up by past earthquakes. One expert characterized this as signifying that the Monterey wasn't a "resource play" but a "structural play."  So unlike the Bakken or Eagle Ford, individual wells carry higher risks of failing to yield commercially useful output.  It also makes it less likely that steady efforts in the Monterey will result in an easily replicable recipe for unlocking the entire deposit. 

That brings us to fracking, which is surely as controversial in California as anywhere, even though, as in many other locations, it's been done safely and with little fanfare for decades.  The state recently announced preliminary fracking regulations, but this may have less impact on development of the Monterey shale than one might suppose.  That's because this formation seems to be less amenable to fracking, or at least to the combination of horizontal wells and multi-stage fracking that's been a game-changer elsewhere. Other techniques, such as acid injection, may prove more useful.

However it is eventually unlocked, the Monterey shale offers significant benefits to California.  Start with the fact that the state's oil production has been in steady decline since the mid-1980s. Together with the depletion of Alaska's North Slope field, that has meant that the US West Coast, which was once a net exporter of oil, now imports increasing quantities of oil--half of it from OPEC--to meet local demand.  That trend has continued even as the import dependence of the rest of the country has fallen substantially due to higher production and receding demand.  The Monterey could slash California's imports, while adding billions of dollars a year to the local economy and to the shaky state budget, along with lots of good jobs.

It could even provide environmental benefits. Restoring oil self-sufficiency would reduce the risk of spills from the tankers bringing in imports, while refilling existing infrastructure.  And if the Monterey yields oil similar in quality to the light, sweet crude now being produced from the Bakken and Eagle Ford shales, it could actually cut both greenhouse gas emissions and local pollution by reducing the refining intensity required to turn the state's current diet of heavier crudes into ultra-low sulfur gasoline and diesel fuel. 

I suspect from my research in the last few weeks that anyone betting on an imminent explosion of oil output from the Monterey shale is likely to be disappointed.  The process seems likely to be slower than elsewhere, though with a bigger potential payoff.  But that doesn't make it irrelevant to a state that has set its sights on being at the forefront of the transformation to cleaner energy sources.  California still consumes 1.8 million barrels per day of petroleum products, and it will burn many more billions of barrels on its way to its chosen future of electric vehicles running on wind and solar power, and trucks and buses burning compressed or liquefied natural gas. Developing the Monterey shale won't solve all of California's energy challenges and might create a few new ones, yet it could prove another timely contribution from a local oil industry that has been a major driver of the state's economy for well over a century.