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:
Re: Monterey Shale… recoverable reserves ≠ oil; many misleading headlines & email subjects flying around today.
— Russell Gold (@russellgold) May 21, 2014
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”:
— Post Carbon Inst. (@postcarbon) May 21, 2014
Meanwhile, billionaire activist Tom Steyer joined the careless opining about the news, suggesting the understanding of oil in the Monterey declined by 96 percent:
MYTHBUSTED: Monterey Shale oil estimates just had a massive downgrade from 13.7B barrels to 0.6B barrels — a staggering 96% decline.
— Tom Steyer (@TomSteyer) May 21, 2014
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.
- The EIA’s 2007 estimates of gas reserves in the all of the top six shale gas producing states turned out to be significant underestimates.
- 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.
- In 1974, the state of Alaska estimated Prudhoe Bay held about 10 billion barrels of oil. But by October 2012, Prudhoe Bay had produced over 12 billion barrels – and continues producing today.
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.