The Peak Oil Crisis: California’s Bubble Pops

December 11, 2013 5:52 PM33 comments

There was an important study released by the Post Carbon Institute last week that gives us an insight into how long our great shale oil bonanza or more likely bubble is going to last. As you might suspect, the thrust of the new report is bad news so we are unlikely to ever read much about it in the mainstream media which continues to tell us about the bright energy-rich future ahead.

By now we should all know about the technological wonder of “fracking” that has raised America’s oil production by over 2 million barrels a day (b/d) in the last few years and has reversed the decline of our conventional natural gas production. The speed with which this has happened has been amazing and shows that if oil prices get high enough (oil has risen from $20 to $100+ a barrel in the last decade), then we can have all the oil we will ever want.

Rapid increases in production, however, mean that the faster we use up something the sooner will come the day when production starts to decline and that may not be very far away. In the case of North Dakota, new drilling seems to be concentrating in four counties, known as sweet spots, which may be the only places where it is profitable to drill at today’s prices. With new drilling concentrated in a small geographical area it may soon be the case that there are no new places to drill – but since this is probably at least a couple of years off, there is no sense in worrying about it.

While areas in Texas and North Dakota are where spectacular increases in oil production have taken place, less well known is that our energy future really is supposed to rest in California, where the government says some two-thirds of America’s shale oil will be found. Should North Dakota and south Texas ever start running dry, all we will need to do is move the drilling rigs to California and there will be enough new oil to last for many years. Energy independence, millions of jobs and a bonanza of tax revenue will come when California’s oil production revives.

To make sure there was no mistake about the good times ahead, the U.S. Department of Energy hired a contractor to examine America’s shale oil reserves to make sure there really was a bonanza of oil and gas out there that could be accessed by horizontal drilling and fracking. To no one’s surprise, the contractor came back and said “Yes America” there are 24 billion barrels of oil there for the taking.

As the U.S. burns about 7 billion barrels of oil a year we have at least a three-year supply of shale oil – if we can get it out of the ground. Interestingly, the government’s contractor reported that some 15.4 billion barrels of this shale oil were buried under California while only 3.6 billion was in North Dakota and 3.4 billion in south Texas. The rest was sort of scattered around. The report also talked about 750 trillion cubic feet of natural gas buried in the shale, but that is a story for another day.

As we are already extracting roughly a million barrels of shale oil a day from both North Dakota and Texas, the future of the industry was thought to be in California where two-thirds of our shale oil reserves lie.

Of course, anybody with the most rudimentary knowledge of geology should know that the earth under California and under the American Midwest are very different places. Remember the San Francisco earthquake, the San Andreas Fault, and that giant tectonic plate that disappears under California.

To the U.S. Energy Information Administration’s credit it did caveat the introduction to the report noting that: “Because most shale gas and oil wells are only a few years old, their long-term productivity is untested. Consequently, the long-term production profiles of shale wells and their estimated ultimate recovery of oil and natural gas are uncertain.” But, of course, nobody reads caveats. For most, California has 15 billion barrels of oil just waiting to be extracted after North Dakota and Texas start running short so the great shale bonanza can go right on into the future.

We now have a second look at the Monterey shale and things don’t look so rosy. First, the geology of California is similar to a bowl of spaghetti with the earth squeezed into folds and steep inclines, not the 20,000 sq. miles of flat-laying shale deposits found in North Dakota. The Monterey shales are thick and complex, and do not lend themselves to drilling the long horizontal wells that can be fracked so productively in other places. Much of the shale oil in California appears to have drained over the years into conventional oil reservoirs and has already been extracted by many of the 238,000 oil wells that have been drilled in the state during the last century.

Our new study by an experienced Canadian geologist, who has already examined the productivity of other shale oil formations in the US, concludes that the government and its contractor’s study is absurdly optimistic about the prospects for shale oil production in California. Despite the use of all the latest drilling and production techniques, oil production in California has fallen from 1.1 million b/d 30 years ago to 500,000 b/d today. It is highly unlikely that this will be turned around given the geology of the region.

The Department of Energy’s report starts with the assumption that California’s shale is much like that in Texas and North Dakota. It posits that the oil industry will only have to drill 28,000 new wells, each yielding ridiculously large 550,000 barrels of oil, to extract California’s shale oil. This is simply not supported by the recent history of drilling in the state and is unlikely to happen. We will be lucky if California’s oil production does not continue to decline, for its geology is simply not the same.

 


Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.

  • mjonesx

    Well, we know the reason for all this, financial markets that garish fees will make a great deal of money raised to support these operations
    Basically, this tight oil and gas is squeezing a wet towel to get a little more liquid out of it.
    Thank you for another excellent article.
    With the dynamic forces in play we will see a dramatic upheaval of the way society is operated. How soon? Hard to say because there is so much waste in the system.
    I’m middle age now, and probably dodged the bullet. Old age, 70 years plus is questionable. The notion we will be cared for in our 80’s and 90’s is a thing of the past.
    With scarce energy and resource base, we are the first to be cast off.
    Coupled with a population expected to reach 10 Billion from what is now around 7 Billion. Well, enough said.

  • Jim Breiling

    The vision of decades awash with petroleum and natural gas seems to be a dream without substance. So, what most needs to be done to best prepare for the new world energy order?

  • Allan Theobald

    Maybe maybe not. As recently as 2008 virtually no one believed in fracking or that the Bakken held significant amounts of recoverable oil. American ingenuity usually finds a way.

    • UniverseWeAre

      Wrong…

      The shale oil in the Bakken was discovered long before 2008 as was the technology to get it out. The only thing new was a high oil price that warranted spending the dough required.

      • Allan Theobald

        No you are wrong. I suggest reading The Frackers Book. As recently as 2008 not one of the major oil companies believed that the Bakken held huge amounts of oil.

        • Jclem1949

          Bakken was first developed in the 1950’s and was always known to hold vast amounts of oil. The USGS estimate missed badly, initially estimating about 40 billion total barrels, with about 3 billion recoverable. The last survey adjusted that number up to about 500 billion, with 20 – 40 billion recoverable.

          Fracking was used when I was in the oil business, and I started out 40 years ago. The new technology has improved the results quite a bit, but it is the price of oil that has been the biggest driver.

          • Allan Theobald

            Comparing fracking from 40 years ago to today is like comparing a biplane with an F-14. As I said as recently as 2008 big oil did not believe large amounts of oil could be obtained from the Bakken. This is a fact but yes it requires oil prices above 60$ to be viable.

    • Lance Sjogren

      American ingenuity has allowed us to pick some of the high-hanging fruit of fossil fuel resources.

      No amount of ingenuity can perpetuate production of a finite resource that is rapidly being consumed. It can, however, buy us a stay of execution.

  • The Truth

    I just read an article about another discovery of oil in the Texas Permian-Delaware basin. Its estimated that could be the second-largest oilfield in the world, behind only Saudi Arabia’s Ghawar field

    For 40 years we’ve been hearing the same old story. Oil was going to run out in the 1980’s, then the 90’s and so on.

    • UniverseWeAre

      Yeah they found a few billion barrels that will take decades to extract from the ground while the US burns 7 billion barrels every year.

      Math don’t add up.

      • The Truth

        Math don’t add up? Come on now. The US has an estimated 2.2 TRILLION barrels in its shale oil deposits. The oil sands in Utah have even more. The US also has massive deposits of natural gas.

        With the exception of Hydro (which the environmentalists want to shut down) There is no other feasible source of power. You can live in an energy utopia but some of us need to deal with reality.

        You can live the way you preach and get all your power from renewable sources. See how long you can afford it (when you have power). I’m living in the real world.

        • UniverseWeAre

          You need to look up the difference between shale oil and oil shale. It is huge.

          Speaking of math, I bet you pulled the 2.2 Trillion number right out of your butt. It is either an example of you lying or being deceived. Either way, it is wrong. :) Show me a credible source and I’ll change my tune.

          • The Truth

            This number came from the Bureau of Land Management which is part of the Dept of the Interior. This is a cabinet post that reports to our savior Barack Obama.

            Time to say you’re sorry while you sing a different tune.

          • UniverseWeAre

            Yeah your numbers are off. You’re probably talking about the “oil” in the Green River Formation in Utah/Wyoming/Colorado which the BLM says MIGHT contain 1.5 trillion barrels of oil equivalent.

            That’s assuming that the majority of the formation is the 15 barrels/ton quality rock which is doubtful.

            My tune ain’t changed but I am sorry you’ve been so deceived.

          • The Truth

            They aren’t my numbers. You don’t believe the numbers from the Obama administration? Maybe your savior is lying again.

            I know your tune isn’t changing. If you’re still a liberal after you reach your thirties its a good indication that you aren’t open to any new ideas.

            Trust me. I used to be a liberal but I grew out of it.

          • UniverseWeAre

            I don’t trust the government further than I can spit them.

          • The Truth

            We finally found a topic we can agree upon

          • UniverseWeAre

            Fiscally I’m probably more conservative than most conservatives you know.

            The conservative in me desires to know as much about economics as possible.

            The most advanced field of economic study is the biophysical. Unfortunately it has confirmed all sorts of things that most conservatives really dislike.

            One of the most important confirmations is that fossil fuels are finite and there will not be enough energy to maintain business as usual.

            Peaks in oil production have been successfully linked to all sorts of economic downturns and it is only going to get worse.

        • Lance Sjogren

          Truth: You are wrong that fossil fuel resources are abundant, but you are right that alternative energy won’t save us.

          So what is going to happen is that so long as the fossil fuels that can be produced at an affordable price hold out, the human race continues, and when the fossil fuels run out, most of the human population dies off.

  • Jclem1949

    As you well know, the smart people know that peak oil was reached about 25 years ago. All they had to do to figure that out, was to use the estimates of total oil available, calculate the existing recovery rates, figure in the price of oil, and there you have. The current claims about “new peak oil” are the same logic as before.

    ll you have to do is look at the oil forecasts, over the decades, and you will see they are always ultra conservative. In fact, if you look at the USGS surveys, over this time, you will see they generally miss the prediction, quite badly. When I say badly, I am talking about 300% -1000%. In 1973, the estimate for total world oil reserves was 1 trillion barrels. Since then we have consumed more than a trillion barrels, yet reserves are noy estimated at 3 trillion barrels!

    Here is an absolute fact – and it is undeniable. Oil will be produced, in large quantities, from places now considered “dry”, as long as the price of oil rises high enough, and it will rise. Have some faith in technology, human genius and capitalism. These things will solve almost any problem.

    • Lance Sjogren

      Once the prices get too high, it will be non-economic to produce it. A fossil fuel-based economy can only handle energy prices at a level where energy is a small fraction of the GDP. If fossil fuel prices were high enough that to fuel the economy we would have to spend 80% of the GDP on fossil fuels, prosperity is incompatible with those prices.

      • mlebauer

        “Once the prices get too high, it will be non-economic to produce it.”

        That is a nonsensical statement. As prices rise, marginal (high cost) resources become economic to produce.

        Currently natural gas consumption is about 1% of US GDP, oil about 4%, and all other energy sources about 2.5%. For that total 7.5% to reach 80% would require an 11x price increase (not counting GDP growth), which would mean oil prices over $1000/bbl. We’re a long way from that.

        Should such a scenario play out, there would be rapid adoption of alternatives, which would warm your heart, but also rapid growth in even more marginal non-conventional fossil fuels, including more oil sands development, coal to liquids, oil shale kerogen (synfuels, see the Green River formation in Colorado), methane hydrates (see developments in Japan). Lots of other countries have these resources, and there would be a push for production opportunities world wide.

        http://www.eia.gov/forecasts/aeo/MT_economic.cfm

  • Jclem1949

    In reading some of these comments, I have to laugh. I was in the oil exploration business in the 1970’s and they were talking about running out back then. The entire world runs on oil. It has lifted many billions of people out of poverty and saved more lives than anything else. Just look at China. They have lifted a half billion people out of poverty and could not have done it without oil.

    The world economy runs on oil, gas and coal and we have enough of them for hundreds of years. It took us a long time to move from wood burning, to coal and another long transition from coal to oil. The move to whatever will replace oil, will take about a century, but we don’t yet know what the next thing is.

    • Lance Sjogren

      Whether it’s decades as I believe or a few centuries as you believe, eventually they do run out and then, unless there are huge technological breakthroughs in not only alternative energy but also alternative hydrocarbon sources (for all those essential materials based on fossil fuels- ag chemicals, asphalt, plastics, etc) then at that point the human race is screwed. The only diagreement we have is the timetable. If we develop techniques to squeeze a lot more of the currently unproducible fossil fuels out of the deposits, then you might be right.

      But eventually the day of reckoning will come.

      • mlebauer

        Human ingenuity is profit driven. When the price of currently dominant energy sources rises, new means of producing marginal current energy sources will emerge AND alternatives will be leveraged and improved. It’s not an either/or proposition. That’s basic economics, ideology can’t change it.

      • Jclem1949

        By way of disclosure, I worked in the oil business, overseas, in drilling and exploration. Every oil field geologist told me there is so much more oil than most people know.

        I often asked the question: forgetting political obstacles, assume technical hurdles are overcome and assume the price goes very high, how much oil is there? The answer, from every one of them, was 25 – 50 trillion barrels.

        If you are right, and we have about 20 years, we will be totally screwed. That is not enough time to make a transition. We need , at least 50 and more likely 75 – 100 years to make the transition. The markets will figure it out.

  • http://westernhero.blogspot.com/ Silverfiddle

    “the faster we use up something the sooner will come the day when
    production starts to decline and that may not be very far away.”

    Why eat? You’ll just get hungry again?

    We’re all going to die, so why not just kill ourselves now?

    • Lance Sjogren

      Especially since many of us are old enough that we won’t still be around when the peak oil apocalypse comes.

      • http://westernhero.blogspot.com/ Silverfiddle

        a few centuries, back, were people wringing their hands over the peak whale blubber apocalypse?

        • mlebauer

          While I don’t know about whale blubber (side note, JD Rockefeller and Standard Oil are the true saviors of the whales) they were wringing their hands about peak food. See T Malthus, 1798. That was with a population of 1B. Now over 7B, we’ve managed to feed a whole lot more without creating more earth.

          • http://westernhero.blogspot.com/ Silverfiddle

            mlebauer: Amen, and thanks for the assist!

  • Wayne Lusvardi

    California doesn’t “frack” – it “acidizes” and uses old fashioned steam extraction

    Since 2011, Occidental has not enjoyed similar success in the Golden State with its development of the Monterey Shale Formation as it has with the Permian Basin in Texas. Oxy has suffered tough permitting delays,environmental opposition, threats of a permanent fracking ban and a lengthy 10-month delay in passing the SB4 fracking law.

    Oxy reports that its Monterey Shale production of a piddling 370 barrels of oil per day can’t compare to its 45,000 barrels per day from other shale oil fields in California.

    A big boost to drilling in California is that many wells can be drilled vertically and stimulated with cheaper hydrofluoric acid, rather than by the horizontal drilling and hydraulic fracturing of rock. This is why SB4 specifically regulates hydrofluoric acid flushing. Technically, matrix hydrofluoric acid stimulation is not fracking, but fracture acidizing is. Occidental found that fracking was not economic in the Monterey Shale several years ago.

    Both state and local politics aren’t the only impediments to Occidental and other oil producers in California. Those holding shallower deposits have lower costs and potentially higher profits, according to Mike Edwards of Venoco Oil.

    An Oct. 28 Bloomberg story, “Occidental Plan to Split Off California Seen as Early,” reports that Venoco has drilled 29 wells in the Monterey Shale Formation from 2010 to 2012. Of these 29 wells, Venoco did not realize any oil or gas production through June 2013. According to Bloomberg, Venoco is presently reducing spending in California.

    Santa Maria Energy has recently obtained approvals from Santa Barbara County to drill 136 new wells in its Orcutt Field, which is inland from the coast. They will use conventional steam injection to extract oil and gas and use reclaimed sewer water from a 10-mile pipeline. So no fracking or local water would be used in the new Orcutt Field oil and gas play. The Orcutt Field is where the Monterey Formation was first discovered.

  • Mobius007

    The article left out a small detail. The same EIA data that is referenced shows that in 2016 US oil production growth will effectively end, enter into a short plateau, and then begin long-term decline starting in 2019.

    http://www.eia.gov/oiaf/aeo/tablebrowser/

    It’s just a minor detail, so I can understand why it got left out.

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