May 25, 2014

EIA Reduces California Shale Estimates by 96%

Visions of US energy independence have been widely adopted over the last several years, with a major contribution expected from the development of the Monterey Shale deposits in central California. But according to this report from the Los Angeles Times, the U.S. Energy Information Administration will be reducing estimates of the recoverable oil by 96%, from 13.7 billion barrels to 600 million barrels.

The significance of this dramatic revision is shown by the effusive estimates that had previously gained wide acceptance. In May 2013, National Geographic wrote: “According to U.S. government estimates, as much as 15.4 billion barrels of oil could be locked within the Monterey shale. That would be more than double the amount of oil reckoned to lie within the Bakken shale, the booming play that has made North Dakota the nation's number 2 oil-producing state behind Texas. It's more than five times the oil of Texas' thriving Eagle Ford shale. Indeed, Monterey holds more than half of the undeveloped, technically recoverable shale oil resources believed to exist in the continental United States.”

It seems reasonable to conclude from this that the new estimate for the Monterey Shale reduces U.S. recoverable shale oil resources by 50%. Poof!
Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits, deflating its potential as a national "black gold mine" of petroleum.
Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.
The new estimate, expected to be released publicly next month, is a blow to the nation's oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.
The Monterey Shale formation contains about two-thirds of the nation's shale oil reserves. It had been seen as an enormous bonanza, reducing the nation's need for foreign oil imports through the use of the latest in extraction techniques, including acid treatments, horizontal drilling and fracking.
The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.
The estimate touched off a speculation boom among oil companies. The new findings seem certain to dampen that enthusiasm.
Kern County in particular has seen a flurry of oil activity since 2011, with most of the test wells drilled by independent exploratory companies. Major oil companies have expressed doubts for years about recovering much of the oil.
The problem lies with the geology of the Monterey Shale, a 1,750-mile formation running down the center of California roughly from Sacramento to the Los Angeles basin and including some coastal regions.
Unlike heavily fracked shale deposits in North Dakota and Texas, which are relatively even and layered like a cake, Monterey Shale has been folded and shattered by seismic activity, with the oil found at deeper strata.
Geologists have long known that the rich deposits existed but they were not thought recoverable until the price of oil rose and the industry developed acidization, which eats away rocks, and fracking, the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations.
The new analysis from the Energy Information Administration was based, in part, on a review of the output from wells where the new techniques were used.
"From the information we've been able to gather, we've not seen evidence that oil extraction in this area is very productive using techniques like fracking," said John Staub, a petroleum exploration and production analyst who led the energy agency's research.
"Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates," Staub said.
Compared with oil production from the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas, "the Monterey formation is stagnant," Staub said. He added that the potential for recovering the oil could rise if new technology is developed.
A spokesman for the oil industry expressed optimism that new techniques will eventually open up the Monterey formation.
"We have a lot of confidence in the intelligence and skill of our engineers and geologists to find ways to adapt," said Tupper Hull, spokesman for the Western States Petroleum Assn. "As the technologies change, the production rates could also change dramatically."
Rock Zierman, chief executive of the trade group California Independent Petroleum Assn., which represents many independent exploration companies, also sounded hopeful.
"The smart money is still investing in California oil and gas," Zierman said.
"The oil is there," Zierman said. "But this is a tough business."
Environmental organizations welcomed the news as a turning point in what had been a rush to frack for oil in the Monterey formation.
"The narrative of fracking in the Monterey Shale as necessary for energy independence just had a big hole blown in it," said Seth B. Shonkoff, executive director of the nonprofit Physicians Scientists & Engineers for Healthy Energy.
J. David Hughes, a geoscientist and spokesman for the nonprofit Post Carbon Institute, said the Monterey formation "was always mythical mother lode puffed up by the oil industry — it never existed."
Hughes wrote in a report last year that "California should consider its economic and energy future in the absence of an oil production boom from the Monterey Shale."
The 2011 estimate was done by the Virginia engineering firm Intek Inc.
Christopher Dean, senior associate at Intek, said Tuesday that the firm's work "was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate."
For California, the analysis throws cold water on economic projections built upon Intek's projections.
In 2013, a USC analysis, funded in part by the Western States Petroleum Assn., predicted that the Monterey Shale formation could, by 2020, boost California's gross domestic product by 14%, add $24.6 billion per year in tax revenue and generate 2.8 million new jobs.  

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Louis Sahagun, “U.S. officials cut estimate of recoverable Monterey Shale oil by 96%,” Los Angeles Times, May 20, 2014.

See also Josie Garthwaite, “Monterey Shale Shakes Up California's Energy Future,” National Geographic, May 27, 2013.

For an extensive report by J. David Hughes of the Post Carbon Institute, see Drilling California: A Reality Check on the Monterey Shale, December 2013. And see here for an earlier report by Hughes on the extravagant projections for the recovery of oil from shale deposits.

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