The Peak Oil Crisis: The Monterrey Shale Debacle

May 27, 2014 4:13 PM17 comments

Last week the LA Times ran a story saying that the U.S. Energy Information Administration (EIA) is about to reduce “its” estimate of the amount of shale oil that can be recovered from the Monterrey Shale under California by 96 percent. This reduction cuts the estimate of producible shale oil in the U.S. by 60 percent.

This development, of course, came as no surprise to those of us who have been watching the Monterrey Shale situation closely. To begin with, anyone with the most rudimentary knowledge of geology knows that California is where great tectonic plates have been banging together for millions of years turning the earth below the surface into an incredible jumble. To produce shale oil one needs nice flat strata of oil bearing rock that run on for miles.

Then of course we have the issue of Chevron which has been drilling in California since 1879, and if one believes there really are 15 billion barrels of shale oil under the state, then why isn’t Chevron pumping it out by the tanker load?

Thus the interesting part of this story is who said there were 15.4 billion barrels of shale oil under California in the first place; and how did the Department of Energy come to accept such an obviously flawed estimate; trumpet the story far and wide so that many investors and policy makers in California and Washington fell for it; and then why did it come to such a screeching halt leaving the country’s prospects for “energy independence” a dubious proposition.

Moreover, the government’s retraction of its estimate of shale oil prospects in California raises issues about just how good are its forecasts that North Dakota and Texas will continue producing large amounts of shale oil into the next decade.

The great Monterrey Shale oil myth got its start back in July 2011 when the EIA stapled a cover on a contractor-produced “study” that it paid for entitled Review of Emerging Resources: U.S. Shale Gas and Oil Plays. In the fine print of the cover pages, however, the EIA did note that the “views in this report should not be construed as representing those of the Department of Energy.”

The underlying study, which was prepared by a small consulting company, INTEK, Inc., in Arlington, Virginia, purports to have been based on a wide range of sources and methods. However when it came to California the report’s author, Hitesh Mohan, said the California portion was primarily based on technical reports and presentations from oil companies. Presentations from oil companies are prepared to raise money from investors and can be expected to lay out the most optimistic view possible.

The methodology that produced the mythical estimate seems to have been something like this: take the 1,700 square miles of the Monterrey Shale, drill 28,000 wells in it at the rate of 16 wells per square mile, wait until each well produces 550,000 barrels of oil and you have your 15.4 billion barrels. Later research showed that only a handful of California oil wells ever produced 550,000 barrels of oil or anything close.

The California story only gets worse. The California oil industry funded a joint industry – University of Southern California study concluding that exploiting the supposed 15 billion barrels of shale oil would result in from 512,000 to 2.8 million new jobs in the state; would increase per capita GDP by $11,000 and boost government revenue by up to $24.6 billion per year. All the politicians had to do was get out of the way, stop all this environmental nonsense over fracking and more regulations, and the state would be rich.

The writing on the wall came last year when thorough and independent studies by the Post Carbon Institute pointed out first that very little oil was coming out of California due to fracking of shale deposits as compared to those in North Dakota and Texas. In December of last year, a second more detailed well-by-well study of what was actually happening in California blew the ridiculous INTEK/EIA conclusion out of the water. Although the Post Carbon Institute studies got little nationwide attention, several California newspapers and TV stations, which are much closer to the state’s well being, did in-depth stories concluding that the 15 billion number and the ensuing riches were unlikely eventualities.

It is obvious that the new studies brought pressure on the Department on Energy to take a second look at what they were saying about shale oil in California. When it became obvious that were endorsing nothing but industry hype, they did an about face and lowered the estimate to 600 million barrels, which in itself may be high.
The EIA’s reaction to questions about one of the biggest blunders in its history is interesting. EIA Director Adam Sieminski told the Wall Street Journal that the oil bearing rocks are still under California, but the technology to extract the oil has not yet been developed. Industry spokesmen are more upbeat, saying that hundreds of smart engineers are working on the problem of producing California’s shale oil and that someday, if not sooner, they will be successful.

The California shale story raises once again questions about just where America’s shale oil and gas production is going and along with it the future of industrial society. Naturally, none of us want to hear that hard times, lower economic growth, and fewer jobs lie ahead. The Department of Energy clearly is trying to draw a fine line between the gross over-optimism exhibited in the Monterrey shale incident and an energy apocalypse. But, do we really have to wait until the evidence of over-optimism is so overwhelming that it has to be admitted? There are several other “Monterrey Shales” out there well-understood in the peak oil community where the Department of Energy continues to make overly optimistic estimates which will one day rebound to the detriment of us all.

  • Agritech Media

    They’ll never admit it. Even when it becomes painfully obvious which by our estimates should be within the next 5 years max possibly as early as 2015.

    • stopthesocialism

      Peak Oil is ALWAYS just 5 years away.

      • mjonesx

        It’s ALREADY HERE…We reached peak years ago and in spite TRILLIONS invested in capex, nothing to show increases in overall liquid fuels. The majors are now cutting capex because of rapidly rising costs that have not been covered.

        • stopthesocialism

          If we reached Peak Oil years ago, then it was a non-event. Yawn.

          • kjmclark

            Peak light, sweet crude was around 2005. Maybe you didn’t notice the ensuing spike in oil prices that started the crash of the world economy, and maybe you haven’t noticed that gas prices at the pump are around triple what they were a decade ago, and maybe you haven’t noticed that world oil prices are stuck higher than $100 per barrel.

            And who, exactly, said peak oil is five years away? As long as people are willing to pay ever higher prices for oil products, there’s always the tar sands. Good luck paying for that expansion.

          • stopthesocialism

            Sure, I’ve also noticed the increase in prices for food, electricity, water, and a host of other commodities. That’s what happens when you print trillions of dollars out of thin air.

            With regards to the real estate crash of 2007 – 2008, that was caused by easy lending policies, and rampant speculation in the real estate market. Those kinds of pyramid schemes always collapse.

          • g0nzilla

            I am sorry but increased prices re not the result of money printing. That money has been used to offset the massive losses incurred by the banks. i.e. the money was willed into existence to cover the loses of the previous batch of cash loaned into existence.

            The sub-prime housing bubble blew-up in the ex-urbs of the mid-west. The very places were over stretched home owners were tipped over the edge by fuel costs.

            But sure keep dreaming buddy.

          • stopthesocialism

            Fuel costs? Many of those buyers flipping houses didn’t even have jobs! They were just living off the appreciation.

            And yeah I’ve heard the theory of printed money not getting into the economy. Leftist propaganda. The US Government hands out 4 trillion/yr to lazy employees, welfare deadbeats, and cheating contractors. Those handouts bid up prices, without providing any useful goods or services. And the amount handed out increases every year. So inflation will not only continue, but get worse.

          • g0nzilla

            Whatever you say buddy.

          • Sevull

            I wonder if folks espousing such dogma will be whipping the same old scapegoats, well into a low net energy induced economic decline? There will likely be frenzied gauntlet with a long conveyor belt of scapegoats to choose from, though I doubt there will be anything representing Natural Limits on it; and certainly no mirrors to reflect the ultimate underlying cause. :-P

          • g0nzilla

            >>>>>insert minority here<<<<<

            Individuals can be smart, society however, is always dumb.

          • Sevull

            Except that, at least from what I’ve read, most of that money has not circulated into the real, physical economy, rather it has poured into the “financial industry”, serving to inflate investment bubbles… :-P

          • Sevull

            Except that since there currently exists no resource equivalent to conventional crude oil on the basis of energy density, energy per unit volume, or net benefits, then Peak Oil is in fact catching everyone off guard and totally unprepared for the protracted economic decline that appears to be underway. Until something equivalent or better is both found and implemented, say hello to the end of economic growth. Qualitative growth, on the other hand, by way of a “steady state” involving a slower and simpler economy may be possible, but there aren’t enough rational people to consider that option at present. :-P

        • Sevull

          Possibly true… The fact that oil companies are
          scrambling to produce expensive “tight oil” is one of many
          examples that serve as evidence that Peak Oil is already upon us.
          Another example: The U.S. Energy Information Agency has re-defined
          “oil” to include all manner of fossil carbon derived liquids in
          their statistics that weren’t previously considered along with
          “conventional”, sweet crude oil. Included in the new metric are
          expensive non-liquid resoruces that are converted to liquids at a
          very high cost. That shale oil should be included is not debatable,
          rather, government agencies and oil companies have adroitly skirted
          the issue of cost, shale oil and other unconventional oils yielding
          relatively low net energy and thus being quite expensive to produce.
          According to geologists and petroleum engineers, we are currently on
          an “undulating plateau” for oil production, with the
          specter of net energy hanging over the oil industry like a predator
          waiting to pounce. Topping out and entering the downward slope of oil
          production will come soon enough. Optimistic projections have the
          peak occurring within three or four decades, where as there are more
          dire predictions, based on hard data, predicting an aggregate decline
          in world production within the next decade. The reason so many people
          have been warning of Peak Oil is to allow time for preemtive action,
          for mitigation. The idea was to develop more efficient use of energy,
          along with alternative and more sustainable energy infrastructures to
          insure that the transition away from cheap fossil fuels would be as
          smooth as possible. Using cheap fossil fuels to “boot strap”
          ourselves into an alternative energy economy does not appear to be
          happening though. I am aware of many who are now of the mind that
          austerity and social turbulence lie ahead after all. :-P

  • http://CAFrackFacts.org/ CAFrackFacts

    It’s spelled ‘Monterey Shale.’

  • Tom Street

    This overstatement is criminal. Where are the Republican congressional hearings on this outrage? And, frankly, it should be investigated to determine why our EIA is such a joke. People should be fired en masse as it seems clear they are in bed with the oil industry. How many of those employees are former employees of the oil industry?

    Yawn. Instead, they will spend the next two years investigating Benghazi.

    One thing we know for sure without doing any actual drilling. The potential power of the sun and the wind.

    • g0nzilla

      Simple really. They already know what is coming. The wealthy and connected have no doubt been planning for what is coming for some time. The goal is not to solve an unsolvable problem, the goal is to buy time for the establishment.

Facebook Iconfacebook like buttonTwitter Icontwitter follow buttonGoogle+Google+