California's Fracking Gusher Runs Dry

For advocates of a halt on unconventional oil development and more aggressive investment in renewable energy, last week provided a rather potent rhetorical gift. 
Frack away, but don't don't expect a miracle. Photographer: David McNew/Getty Images

So much for oil producers' California Dream: As reported first in the Los Angeles Times, the U.S. Energy Information Administration will soon slash its previous estimate -- made only a couple of years back -- that roughly 14 billion barrels of oil might ultimately be drawn from a huge deep-rock reservoir under Central and Southern California. The original estimate for the play -- known collectively as the Monterey Shale formation -- represented a whopping 64 percent of all "technically recoverable" shale oil resources in the lower 48 states.

Naturally, this set off speculation of coming boom times in the state and boosted the notion that the U.S. is on an unstoppable path to energy independence. A study based on the assessment from the University of Southern California, published with partial funding from the Western States Petroleum Association, envisioned a "new gold rush" that could add up to 2.8 million new jobs and as much as $24.6 billion in state and local government revenue.

In the space of a day, that all seemed to evaporate. The EIA now suggests that just 600 million barrels of oil might be recoverable from the Monterey shale -- a 96 percent reduction. The clean-tech news site CleanTechnica described the recalibration succinctly in a headline: "Fracking's Great Moment of Derp."

Just how the EIA's estimate could be so wildly off base -- or whether it even was wildly off base, in the big scheme of things -- remains a matter of fierce debate. Some of it could be simple semantics. The oil and gas world is replete with terminology that refers in various and sometimes confusing ways to the amount of useful hydrocarbons in the ground. And particularly for new or emerging oil fields, estimates how much oil can be recovered by "available technology" are highly uncertain. Absent actual drilling data, they are based largely on input from oil companies, which are assumed to have conducted advanced geological and technological assessments on an area before spending huge sums of money to secure permits, buy acreage and poke holes in the ground.


Such was the thinking of Intek Inc., the Virginia-based consultancy that prepared the initial Monterey assessments under contract for the EIA. The company has been taking hits in the investing and environmental press for what is perceived as shoddy work. But Hitesh Mohan, the Intek vice president who authored the original estimate, said in a phone call Monday that people who express shock at last week's adjustment are simply unfamiliar with how resource assessments work.

He pointed by way of example to a recent blog post in The Wall Street Journal, which documented the wandering official estimates of "technically recoverable" natural gas in Appalachia's contentious Marcellus formation. Those went from less than 2 trillion cubic feet a decade ago to more than 400 tcf in July of 2011, then back down 84 tcf a month later, and then to half that amount again last month.

Such is the course of things, Mohan suggested, as computer-modeled guesses are ultimately squared with real-world conditions -- including technological advancements and limitations, economic twists and turns and, of course, geological unknowns. "You don't know what Mother Nature is like 10,000 feet below the ground unless you start drilling some wells," Mohan said. "When you use analogs, you're always going to be off."

As it happens, the Post Carbon Institute, a California sustainability consultancy, suspected that the EIA/Intek estimates were so far off it conducted an exhaustive analysis of its own, publishing a critique of the official calculations back in December. Using real-world production data from other shale formations, such as the Bakken in North Dakota and the Eagle Ford play in Texas, as well as early production data in Monterey and what is already known about the uniquely undulating, faulted and folded geology of the deep shales there, the group concluded that the EIA/Intek numbers were "highly overstated."

And so they were.

Does that mean that the Monterey Shale won't eventually be developed? Don't count on it. The amount of oil presumed to be lurking in the area is still there. It's just going to be harder and perhaps more expensive to get it out than originally thought.

"Experience has shown that the technology needed to develop the Monterey shales has proven more difficult than in the Bakken or Eagle Ford. The fact that we learned from experience is a good thing," said the EIA's administrator, Adam Sieminski, in an e-mail. "The geology in California is indeed different. That does not necessarily mean it will never be possible to produce economically in the Monterey someday. I'm reminded of Edison quote about the long and tedious effort to invent the incandescent light bulb: 'I have not failed. I've just found 10,000 ways that won't work.' It eventually worked."

Whether it's worth all the effort to make the Monterey Shale "work," however, is a much more daunting question facing both California and the country more widely. It is also one that is continually undercut and muddied by overstatement and hyperbole.

In the view of Asher Miller, the executive director of the Post Carbon Institute, missing the mark by 96 percent suggests that someone, at the very least, was being sloppy -- particularly given that shale underlying the Monterey play was long understood as distinct from other shale formations. These sorts of flubs, he says, hinder the discourse on America's real and difficult energy choices, including finding alternatives to fossil fuels.

"Their estimates and forecasts drive public perception and policymaking," Miller said of the EIA. "I believe that the analysts at the EIA truly want to do the best possible job and are surprised when their analysis is used for political means. But it is. They put out an embarrassing estimate that sent California on a wild goose chase for three years."


For advocates of a halt on unconventional oil development and more aggressive investment in renewable energy, last week provided a rather potent rhetorical gift. Whether it proves to be anything more is far from clear, but the incident surely highlights a nagging impediment to informed public discussion on energy in America.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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