Recoverable Oil Estimates and the Monterey Shale: Get the Facts

This morning, readers of the Los Angeles Times woke up to the following headline: U.S. Officials Cut Estimate of Recoverable Monterey Shale Oil by 96%.

This is a straightforward headline. The Energy Information Administration (EIA) did, in fact, reduce its estimate of how much oil in the vast Monterey Shale formation is “technically recoverable,” which is a description of what can be produced using today’s technologies.

Anti-industry activists wasted no time in either misinterpreting (to be charitable) or intentionally misreading the news, taking to social media to claim that the EIA had actually lowered its estimate of how much oil is in the Monterey Shale.

To be clear: The amount of oil in the Monterey Shale has not changed. There were approximately 400 billion barrels of oil in the Monterey Shale yesterday, and the same amount exists today.

Russell Gold from the Wall Street Journal – author of a new book about hydraulic fracturing and shale development – even cautioned against a rush to judgment:

Of the EIA’s new estimate, Gold further noted in a story for the WSJ: “Does that mean the oil has disappeared? Not at all.”

Always undeterred by facts and context, “Peak Oil” types took glee in what they perceive to be a vindication of their quasi-religious conviction that we are somehow on the downside of the supply curve. Post Carbon even boldly claimed that the oil in the Monterey “disappeared”:

Meanwhile, billionaire activist Tom Steyer joined the careless opining about the news, suggesting the understanding of oil in the Monterey declined by 96 percent:

Perhaps the most dispiriting thing to witness in the wake of this news is that extreme anti-energy activists have not only been intentionally misrepresenting the facts, but have been taking strange pleasure in what they are touting as bad economic news.

The L.A. Times said environmental groups “welcomed the news,” and Food & Water Watch even tweeted that it hoped (“fingers crossed”) people in Europe would lose out on energy abundance. A scan through social media about the news yields several bizarre levels of excitement among the activist community, complete with sarcasm and plenty of exclamation marks.

But other than the EIA’s estimate of what is technically recoverable using today’s technologies, nothing has changed. Just like yesterday, the oil is there, and there are scientists and engineers working to develop new technologies that could unlock the oil from this geologically challenging formation.  If it were easy to tap the oil in the Monterey, after all, companies would already be doing it in a much more robust way.

To believe that some companies won’t invest in the development of the Monterey Shale in the long-term, though, is to believe that American (and particularly Californian) innovation has peaked.

After all, technology only advances. This is particularly true in the energy industry, where the ascendance of U.S. production is the result of technological innovation. In fact, estimates of “proven reserves” and “technically recoverable” oil have almost always proven to be far less than what American innovation is able to unlock. A few examples:

  • In 1995, the U.S. Geological Survey (USGS) estimated that the Bakken Shale in North Dakota contained just 151 million barrels of recoverable oil. But the USGS increased its estimate 40-fold in 2008 to between three and four billion barrels — and then doubled that estimate last year. The Bakken is now producing close to one million barrels of oil every day.
  • It was known for many years that the Barnett Shale had abundant natural gas within it, but it took George Mitchell decades of innovation in the 1980s and 1990s – including the use of hydraulic fracturing and horizontal drilling – for this resource to be unlocked. Experts thought Mitchell was crazy to focus time and money on a resource that many considered impossible to extract. By 2005, the Barnett was producing 500 billion cubic feet of natural gas per year.
  • In 1976, the USGS determined the U.S. waters of the Gulf of Mexico contained only 4.7 billion barrels of oil in proved reserves. The federal assessment for proved reserves in the Gulf in 2010 was 21.5 billion barrels.
  • USGS estimated the Marcellus Shale had two trillion cubic feet of gas in 2002, which increased to an amazing 84 trillion cubic feet less than a decade later.
  • In 2008, the U.S. Securities and Exchange Commission had to change its accounting practices to allow for oil sands production to be included in companies’ official producing activities, owing to “advancements in extraction and processing technology.” The Canadian oil sands represent one of the largest oil fields in the world. Previously, the SEC considered these “unconventional” resources too technologically unproven to allow companies to use them on their balance sheets. Once again, innovation won.

The fact is, there is simply no credible reason to believe that technology won’t advance in the oil and gas industry.

The existence of a massive oil reserve underneath California’s Central Valley is a matter of objective fact. Californians should be encouraged by the fact that such a large reserve of recoverable oil exists. Why? Because developing it would create thousands of good-paying jobs, increase revenue to state and local government, and enhance our energy security by reducing our dependence on imported energy – some of which is produced under environmental standards far below what we have in California.

The development of the abundant oil and gas supplies that is fueling the economic renaissance in North Dakota and Texas wouldn’t have been possible without innovations like fracking and horizontal drilling, particularly the innovative combination of these decades-old technologies. We have always known that the Monterey Shale formation poses challenges for development. If and when it is economic to develop the resource, the industry will develop it, in compliance with the strictest environmental regulations in the world.

Comments

  1. Rick Munroe says:

    The tweet stating, “your tight oil disappeared last night” is inaccurate, I agree.

    However, I find the wording in this article to be similarly inaccurate and provocative. I consider myself to be a careful researcher of energy supply issues, including the peak oil phenomenon. I’m not an “anti-industry activist” nor am I “always undeterred by facts and context.”

    Post Carbon’s response to the LA Times article is here:
    http://www.postcarbon.org/press-release/2239062-government-slashes-california-oil-forecast

    I see nothing inappropriate or inaccurate about PCI’s response. Dave Hughes is a meticulous researcher who presented 58 pages of detailed analysis in support of his respectful call for “a reality check on the Monterey Shale.”

    Five years ago another veteran analyst, Art Berman, made a respectful presentation calling for “critical thinking” regarding shale gas. A few weeks later Art was gone from World Oil. This was unfortunate, as trade journals are a perfect place for informed, reality-based debate.

    I hope that EID will welcome constructive, respectful discussion of peak oil and other important energy issues.

    • Thank for your comment Rick.

      Calling Mr. Hughes a “meticulous researcher” may be an accurate statement, but it glosses over his true opinion of oil and natural gas production.

      “Maybe we have been even less cognizant of the services provided by fossil fuels than people did from their slaves,” reflects Hughes. “Slavery, after all was in your face. Now it’s all about filling up the tank.” (SOURCE: http://thetyee.ca/Opinion/2011/05/05/EnergySlaves/)

      Comparing oil (or gasoline) to human slavery may not refute the calculations in his analysis, but it does reflect, at the very least, a rooting bias. Hughes has also said, “we have to realize that the growth paradigm is very close to an end. It’s unsustainable. Ideally, for sustainability, we need at the very minimum a steady-state period. So that we operate without growth.” Again, opinions delivered by individuals who believe that using oil is similar to slavery, and that in fact we need to “operate without growth,” should be taken with large grains of salt, to say the least.

      Berman is also a well-known “Peak Oil” theorist, albeit not someone — to our knowledge — who has had the audacity to compare affordable energy to one of the most disgusting and vile institutions in humanity’s history.

      The problem with “Peak Oil,” though, is not that some of its adherents hold objectionable (to put it kindly) views. It’s that they have been proven wrong over and over again, to the point of comedy. A decade ago Peak Oilers believed they had been vindicated. We were building natural gas import terminals, and American oil production was in decline. When the shale revolution began, Peak Oilers ran damage control to try to prevent the truth from getting out once again — i.e. that their theory is based on a view of technology that is static, not dynamic, and thus could not explain the effectiveness of hydraulic fracturing and horizontal drilling — and employed folks like Berman, Hughes, and others to talk about decline rates and other supposed concerns about the staying power of shale. The purpose was to sow doubt, nothing more.

      Where are we today? Oil production is at its highest level in a quarter century. We’re now the world’s largest natural gas producer, and by the end of the decade we’re projected to be the world’s largest oil producer as well. All of this is happening as U.S. demand for motor fuels has crested or flattened. A few years ago, the best experts said the Permian Basin in West Texas was a mature oil field that would never see another rise like it had in the early to mid 20th century. Thanks to shale, the Permian is a growing powerhouse — and will likely continue to be after the Eagle Ford and the Bakken ever meet their peaks. See more here: http://www.star-telegram.com/2014/05/21/5838025/permian-basin-oil-production-expected.html?rh=1

      The benefit of the Peak Oil crowd is that they can repeat the exact same thing, just change the dates at their convenience, and eventually they may be proven right — again, assuming technology advances far slower than history has shown. After all, everything on Earth is a finite resource. To use an analogy, adherents of a particular belief could stand on the street corner and say THE END IS NEAR, and eventually — in millions or billions of years when Earth’s time comes to an end, and assuming their progeny continued the message — they would be right. The question, then, is whether the Peak Oil theory has any relevance to our current situation, or even the near to medium term. That question has already been answered: it does not.

      Oil production is putting Americans back to work, and in areas with significant development, businesses are growing and unemployment is low (see also: North Dakota; Midland, Tex.; etc). We’re reducing our reliance on imports, and generating historic levels of tax revenue to pay for public services. The entire energy discussion is about energy abundance and technological advancement, not decline and stagnation — and certainly not a “descent paradigm,” as Hughes has called for.

      Sitting in the bleachers and yelling that the end is near may please those who are screaming, but for the rest of us, we prefer to see the reality that surrounds us.

      Thanks for reading.

      • Rick Munroe says:

        Thanks for your detailed reply, Steve.

        Dave Hughes was a Government of Canada geoscientist for 32 years, headed its Unconventional Gas Potential Committee and its Coal Inventory, etc for many years. No-one would be assigned such positions if he were simply “yelling that the end is near.”

        Much of Hughes’ research involves the exponential surge in human energy consumption which has resulted from the rapid increase in population during the past 150 years, coupled with increasing per capita energy consumption, especially of fossil fuels. If we accept that fossil fuels are reasonably finite, then we must accept that the rates of consumption which we presently enjoy are indeed unsustainable.

        As for the conclusion that peak oil has no relevance to our current situation, the evidence is to the contrary. Global production of conventional, pump-able oil has been stuck on a plateau for almost a decade (at around 74 mbpd). During this time the price of oil has tripled.

        The ongoing surge in North American oil production is largely due to tight/shale oil and bitumen, none of which is cheap. One could argue that we are already into a ‘descent paradigm’ insofar as we appear to have peaked in terms of conventional oil and gas production and must henceforth rely increasingly on lower grade resources which are more expensive to extract in every respect: financially, environmentally and energetically (in terms of net energy/EROEI).

        The most thorough & thoughtful analysis of the peak oil phenomenon that I’ve seen was not written by Hughes or Berman, and certainly not by anyone yelling that the end is nigh. Rather, it was written by a team of German military analysts. Their observations are entirely relevant to our current situation.

        • “If we accept that fossil fuels are reasonably finite, then we must accept that the rates of consumption which we presently enjoy are indeed unsustainable.”

          This is a gigantic leap in logic, albeit done in a quite subtle way. Just because a resource is finite doesn’t mean we “must accept” that current usage is “unsustainable.” That’s why I pointed out the fact that motor fuel consumption in the United States, the largest consumer of oil (if China has not already passed us), has hit a plateau. Additionally, “unsustainable” use implies that we’re running out faster than we can replenish. As I stated originally, that hinges upon a view of technology that is static, that the abundant amounts of oil still untapped will remain so, and no technology will ever exist to make those resources economical to produce. Natural gas was once considered a waste product of oil; it’s now responsible for 25 percent of our electricity. The Bakken was once thought to hold only 151 million barrels of recoverable oil; the formation will produce more than that by mid-June this year alone. The Permian Basin “peaked” at about 2 million barrels per day around 1970 (remember when Hubbert said “Peak Oil” would come?); analysts now project it will hit 3.5 million barrels per day in the very near future. Again and again, technology and human innovation unlock new ways to extract resources and new uses for them. This used to be called progress.

          The idea that our current understanding of what is technically recoverable will remain largely unchanged is not only contradicted by history, but it’s also an incredibly pessimistic and dismal view of human ingenuity. Energy resources are an opportunity, not something to fear.

          • Rick Munroe says:

            I admire your optimism, Steve.

            Please consider the following observation: “It took us 125 years to use the
            first trillion barrels of oil. We’ll use the next trillion in 30.”
            This claim was not made by peak oil alarmists; it was made by CERA and featured in various Chevron ads. The only correction I’d offer is that it actually took us more like 140/150 years to use the first trillion.

            In any case, this is an exceptionally rapid acceleration in our consumption of a vital non-renewable resource. Everyone agrees that the next trillion barrels are there, but whether a third trillion (or a fourth) can be extracted is a matter of some debate. I’m surprised that anyone would not be concerned about the sustainability of such rapid rates of global oil extraction.

            Speaking of rapid extraction, your optimism re. surging US oil production appears to be justified in the near term. But both the EIA and the State of North Dakota expect the situation to shift in about five years’ time. The EIA’s most recent AEO sees domestic crude production peaking in 2019 at 9.61 mbpd. This drops gradually to around 9 mbpd six years later, dropping further to around 8 mbpd by 2034. I presume that the EIA shares your confidence in human innovation and technological advances and has considered those aspects in making these forecasts.

            It remains to be seen how the EIA’s revised expectation for the Monterey will affect the Outlook. In any case, a decade is barely an eye-blink in the life of a nation, especially when we are talking about the long-term supply of its primary source of energy.

            The peak oil concept is indeed relevant here in North America (even more-so in the rest of the world). I thank you for engaging in this discussion, which I hope will be of interest to others.

          • Tim R says:

            Steve,

            Thank you for making the effort to prepare this article and respond to Rick’s comments. To respond so clearly and intelligently on such a technically challenging and politically/emotionally-charged issue is not easy. If I benefit and appreciate the information you provide, I am sure there are many readers out there who feel the same.

            “The idea that our current understanding of what is technically recoverable will remain largely unchanged is not only contradicted by history, but it’s also an incredibly pessimistic and dismal view of human ingenuity.” Absolutely! A person would have to have an incredible lack of awareness not to recognize how quickly scientific and technological progress is compounding. The TI-30 went into production in 1976 – a handheld calculator that anyone could afford. Today we carry powerful computers in our pockets that double as communication tools (cell phones). To think that the petroleum industry won’t find increasingly efficient methods to access and unlock the hydrocarbon reservoirs in the continental U.S. and Alaska is foolish. With the U.S. Government regulating and monitoring production activities around the country and the American People demanding accountability from the Government, our society will be enriched to the benefit of all!

  2. Yes, technology advances. But basing the economic argument for fracking on technology that does not exist yet makes no sense. This technology could be developed in 2 years, in 50 years, or never. That’s a far cry from the “economic” boom that was originally promised.

    Makes as much sense as saying “there are billions of barrels of oil on Mars…we have no way of getting to it…but don’t worry, our engineers are working on it.”

    • That actually sounds a lot like the rationale for banning fracking — “We can use all renewables! The technology is a long way off, but if we ban fracking, then we’ll get it! Don’t worry about the very real technological constraints, or costs. Engineers are innovating and working on it.”

      The difference, of course, is that oil and natural gas already occupy a large part of our economy, and have proven useful on a large scale.

      • D Nelson says:

        Actually, the technology for using renewables is here right now. It is possible to have all 50 states using nothing but various combinations of renewable energy. These isn’t some possible future technology. It is readily available now. We only have to have the resources to mass produce and implement the technology. It would also create jobs.

  3. klfoo123 says:

    Hi,
    Right now we invested 1.5 dollar to get back one dollar in fracking according to Bloomberg news. Yes, we have a lot of oil but how much it cost to dig it out?
    It should be cost even more than 1.5 dollar because the area are very difficult to reach. It may cost 2.00 dollar or three dollar to get back one dollar.

  4. randy verret says:

    As a 30+ year veteran of the industry, I find the current climate regarding energy quite puzzling. Few people who (actually) look at the facts on oil & gas development would argue that we have less than 50-60 years of oil & gas reserves that can transition us late in the 21st Century to whatever the next big thing is. We have been given a GIFT that we need to responsibly develop. Whether it be fusion, thorium, molten salt batteries, algae, hydorgen fuel cells…Whatever…we need to start having an ADULT conversation about REAL alternatives. I got news for the Sierra Club. We are NOT Beyond Coal, Oil, Gas or Nuclear whether they want to engage in fantasy or not. Just stop it. Let’s start discussing & demand from our leaders a thoughtful national energy policy & promote scaled alternatives that will actually work in the eventual transition away from fossil fuels. At this stage, a lot of wasted motion (otherwise). This is too important to screw up. Time to start working together in the national interest for a change. Wow, collaberation & intelligent debate recommended…What a concept!

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