REPOST: California's clash: Shale oil or green energy

California is divided by opinions concerning the economy and the environment. Forbes.com gives the full details.

Image Source: forbes.com

California’s economic predicament and environmental progression have met head on. But the state’s leaders are saying that the two dynamics can be reconciled, all to potentially capture the nation’s richest “tight oil” deposits.

At issue now is the Monterey Shale, a formation holding more shale oil than anywhere else in the country. It could be a potential gold mine if developers could find a way to extract it and if regulators could appease the environmental community there. Governor Jerry Brown, who has the staunch support of green groups, says that California needs that oil wealth and that the state’s regulators could ensure that the drilling techniques meet strict standards.

“We want to get the greenhouse gas emissions down, but we also want to keep our economy going,” says Governor Brown, during a press conference on March 13. “That’s the balance that is required.” Indeed, the Monterey Shale, which stretches from Central California down through Southern California, holds 15.4 billion barrels of recoverable crude oil, says the U.S. Energy Information Administration. By comparison, North Dakota’s Bakken Field has 3.6 billion barrels — a place that now has 3 percent unemployment. Nationally, 25 billion barrels in proved unconventional shale oil exists.

California has a jobless rate of 9.5 percent. Its budget deficit has been as high as $26 billion, although recently approved tax hikes will cut that way down — a move that could cause some of the state’s business to relocate. According to a study done by the University of Southern California, tapping the Monterey Shale would bring in 2.8 million new jobs while raising an additional $25 billion in new revenues by the end of the decade. Interestingly, California now produces nearly 10 percent of the nation’s oil, which is on par with that of Alaska. Among the leading developers there areChevron and Occidental Petroleum, as well as Plains Exploration, Linn and Breitburn. Altogether, at least 32 drilling sites exist both on land and offshore, all places from where those companies are exploring for oil and doing so without incident.

The primary obstacle to increasing that percentage is, ironically, technological — not regulatory, says Rock Zierman, chief executive of the CaliforniaIndependent Petroleum Association, in Sacramento.

He says that the Monterey geological formation is uncommon, and at present, hydraulic fracturing cannot work there. Fracking, of course, is the controversial method by which producers extract tight oil and gas — a process that uses a concoction of water, sand and chemicals to break those deposits free from the rocks where they rest a mile beneath the ground.

“Our geology is totally different here,” says Zierman, in a phone conversation. “We have not found out how to produce the Monterey Shale. Now, there are dozens of bills that have been introduced to try and shut us down — before we would get started. They could become a problem. But, today, they are not.”

The potential for a run-in is real, however. California’s environmental goals are cultivated by a “global warming law” requiring greenhouse gas reductions of 25 percent by 2020. Voters there rejected an effort in 2010 to rollback that statute until unemployment fell, noting that “new energy” jobs there total around 500,000. Billions, meanwhile, are pouring in from venture capitalists.

Governor Brown is taking a pragmatic approach: Developing California’s oil fields would not only alleviate the economic suffrage there, he told reporters, but it could also provide fuel to the state’s 30 million licensed vehicles. Until people stop driving cars that burn gasoline, those vehicles will need to be fed, he says. California can either continue to import that oil from other nations, or it could aid in its recovery by producing much of it, he adds.

But do not exploratory methods require tons of water — a resource that California cannot afford to spare? According to Zierman with the petroleum group, the state’s golf courses combined consume more water in a day than the oil and gas drillers do in a year.

Are oil and gas developers at eternal odds with the environmentalists? Public policy is often reactive, necessitating immediate action after the fact. If things got desperate, more oil drilling would occur to meet demand and to curb prices both in California and elsewhere.

Throughout the country, new areas are opening up to shale development, with restrictions. Industry is complaining that such oversight is burdensome. But environmentalists are dismayed that pristine regions are even accessible.

Therein is the dilemma, which is how to promote economic development while limiting emissions and degradation.

“Wherever there is an environmental consequence, regulators could require developers to offset that with an environmental gain,” says Bob Bellemare, chief operating officer for Mykrobel, an energy consulting firm in New Mexico. “Markets work better when there are regulations on which industry can depend.”

California has reached a crisis point. As such, Governor Brown wants to pursue the idea of increasing oil production there as a way to provide jobs, boost tax revenues and fuel the auto sector. Achieving those goals, however, cannot negate the ongoing environmental achievements — a proposition to which there are many unresolved questions.


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