About Monterey Shale … Don’t Bet Against Innovation

Mark Green
Posted May 23, 2014

There have been some really interesting reactions to this week’s Los Angeles Times story on an upcoming federal report that the Times said will significantly lower the estimated amount of recoverable oil in California’s vast Monterey Shale play, believed to be the nation’s largest shale play.

Opponents of domestic oil production, which is helping drive an energy renaissance in the United States, rejoiced. One group said billions of barrels of oil just went poof! – like some sleight-of-hand trick. Someone else posted a fairly tone-deaf tweet, that California’s economic boom from shale production was being crushed. (“Let’s hear it for lost economic opportunity!”)

Others – folks who know the oil and natural gas industry and who understand how “recoverable” reserves are calculated – had different takes. You have to, especially when you think about all that’s been learned over the history of U.S. oil and natural gas development.

First, the oil didn’t go poof! That’s not what the U.S. Energy Information Administration (EIA) is saying. The oil’s still there. The EIA estimate cited by the LA Times reflects how much oil the agency calculates is recoverable given existing technology and economics. That's why, when the Times story appeared, the Wall Street Journal's Russell Gold, author of "The Boom: How Fracking Ignited the American Energy Revolution and Changed the World," tweeted that recoverable reserves don't equal actual oil in place. Gold also posted on the newspaper's blog:

Does that mean the oil has disappeared? Not at all. The 600 million barrel figure is the government's estimate of how much oil drillers can get out of the earth with existing technology and at current prices. ... Calculating these reserves is a very imprecise science. But this doesn't mean the shale boom isn't for real.

The Times interviewed John Staub, an EIA petroleum exploration and production analyst:

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. (Emphasis added)

The Monterey shale still holds billions of barrels of oil – that may be developed with new technologies. This has happened in the past. It’s a foolish bet to say that it won’t happen in the future. Dave Quast has a post on Energy In Depth noting that estimates of recoverable reserves of oil and natural gas almost always are leapfrogged by industry innovation and technological advances:

• A 1995 federal estimate said the Bakken formation in North Dakota contained 151 million barrels of recoverable oil. That estimate was increased 40-fold in 2008 to between 3 million and 4 million barrels – which was then doubled last year. Today the Bakken is producing nearly 1 million barrels of oil per day, and some in industry believe that amount could double.
• A number of experts thought oilman George Mitchell was wasting his time trying to unlock natural gas in the Barnett Shale in Texas. Yet, Mitchell worked through the 1980s and 1990s, developing advanced hydraulic fracturing and horizontal drilling that launched America’s ongoing shale energy revolution. Today the Barnett produces 500 billion cubic feet of natural gas a year, and Mitchell’s fracking innovation has spread to a number of other states.
• One of those, the Marcellus Shale in Pennsylvania, was estimated to hold 2 trillion cubic feet of natural gas in 2002. Less than a decade later the estimate is 84 trillion cubic feet.
• In 1974, it was estimated that Alaska’s Prudhoe Bay contained about 10 billion barrels of oil. By 2012 it had produced more than 12 billion barrels and still is producing today.

Now, here’s what others are saying and/or reporting about the Monterey Shale oil reserve estimate:

Amy Myers Jaffe, executive director of energy and sustainability at UC Davis, to the LA Times:

“The academic geologists said the same thing about the Barnett Shale. They said it wasn't recoverable and it wasn't going to produce. That didn't turn out to be right. … Some of those companies are not going to give up. The first companies that went into North Dakota had problems too. It's very early to be making a definitive judgment.”

Erik Milito, API director of upstream operations, to CNBC:

Ten or 15 years ago, nobody would have projected Bakken or Eagle Ford to produce 1 million barrels a day. These technologies weren't in place 10 years ago. Now they clearly are. We're only about five or six years into this, and companies are finding ways to advance technologies ... and figure out which are worth the trouble.”

Bakersfield Californian:

Several people in the local oil industry said reservoir estimates are inherently tricky, and that either way, there’s still a considerable amount of oil in the Monterey. … “It’s a huge source. It’s just that nobody has solved all the problems that you have to face with it,” Bakersfield oil geologist Phil Ryall said. He and others expressed doubt that the revision will reverse an influx of nationwide oil companies to Kern County over the last few years. … Bakersfield-based oil producer Aera Energy LLC said it remains committed to exploring and testing in the Monterey. “Whether there are 15 billion barrels or 600 million barrels or something in between, it’s still a lot of oil,” the company’s public affairs director, Susan Hersberger, wrote in an email. “We see potential and are in it for the long term.”

Tupper Hull, Western States Petroleum Association, to the LA Times:

“We have a lot of confidence in the intelligence and skill of our engineers and geologists to find ways to adapt. As the technologies change, the production rates could also change dramatically.”

Severin Borenstein, director of the University of California Energy Institute, to the San Jose Mercury News:

“I would not at all say the game is over. ... It is way too early to say that this is the death of fracking in California. Technology only moves forward, and I am sure there is going to be millions of dollars spent trying to make it better specifically for California because there is so much potential.”

Tim Worstall, Forbes contributor:

(The EIA estimate) could be the trigger for the creation of many more jobs in the area and the industry. After all, there’s still exactly the same amount of oil there as there was before the announcement. All we’ve been told is that it’s going to be more difficult to get it out. And when we get told similar things about green energy, that wind, or solar, or lithium batteries or whatever will require more people to be employed to build them then everyone thinks that that’s just great! So, if it’s true with green, why not with oil?

Kim Owens, Shafter, Calif., daughter of an oil rig supervisor, to the LA Times:

“If there's oil out there, the oil companies will find some way to get it, no matter what the government says.”