California’s move to end fracturing permits by 2024 will likely do little to accelerate the current decline in production, but any production limitation will increase the state’s dependence on imported oil.
California was once the third largest oil producer in the United States after Texas and Alaska, according to the US Energy Information Administration. In the early 1980s, oil production in the Golden State reached 1 million barrels per day, lagging 2.5 million barrels per day in Texas and 1.7 million barrels per day in Alaska.
But as of January 2021, California ranks seventh among the oil-producing states with an indicator of 364,000 barrels per day, behind Texas (4.66 million barrels per day), North Dakota (1.1 million barrels per day), New Mexico ( 1.09 million barrels per day), Alaska (464,000 barrels per day), Oklahoma (426,000 barrels per day) and Colorado (373,000 barrels per day).
An executive order issued on April 23 by California Governor Gavin Newsom called for an end to oil production by 2045. But production was already expected to grow in this direction “due to higher supply costs in the San Joaquin Valley and stricter and more onerous regulation,” said Parker Fawcett, North American procurement analyst at S&P Global Platts Analytics.
Platts Analytics predicts that the state’s oil production will fall below 300,000 barrels per day by early 2023 and fall below 200,000 barrels per day by the end of 2028. By the end of 2040, production should be below 130,000 barrels per day.
The April 23 order will also essentially end fracking in the state, but will have little impact on its volatile oil production as only about 2% of the oil produced uses this method, Fawcett said.
Many of California’s old fields, discovered 100 years or more ago, are still running thanks to cyclic steaming, a widely used and messy process that gave new life to old fields by allowing heavier, thicker oil to flow to the surface more easily.
This process is used in many historic fields, such as Midway Sunset, discovered in 1894, and one of the largest onshore oil reservoirs ever discovered in the United States, located in central Kern County, southwest of Bakersfield.
Cycling steam also accounts for more than half (170,000 barrels per day) of oil production in the San Joaquin Valley, a key state production area, and much of offshore production, Fawcett said.
A far-reaching bill presented to lawmakers on April 13, 10 days before Newsom’s decree that would ban hydraulic fracturing, steam cycling, and water and steam flooding by 2027 and end these techniques starting next year, has been narrowly collapsed. … The Senate Committee on Natural Resources and Water Resources, which additionally opens up the possibility of judicial appeal against the governor’s mandate.
“A ban on cyclical steam would be absolutely disruptive, even if only for new sources of production through a permanent ban on permits,” Fawcett said, adding that such a stop “would essentially put an end to the California oil industry as we are. we know her. a decline in production and a sharp increase in oil imports from abroad ”.
Reliance on imports for growth
Oil production in the state is declining, Fawcett said, which has led and will continue to drive increased dependence on imports, mainly from the Middle East, South America and Canada, for California refineries, especially as the risks to oil production “are only continue to decline. grow. “
California has no pipelines or other infrastructure to transport domestic oil to the state, and relies on water supplies from Alaska and foreign sources.
Foreign oil use by state-owned refineries rose from 5.7% of production in 1990 to 25.7% in 2000 and 47.7% in 2010, before taking over most of the volume at 50.7% in 2012 and remain above this level of 50% before the pandemic. -hit 2020, according to the California Energy Commission.
The CEO of the Californian Independent Petroleum Association, Rock Zierman, called the frac ban order “disappointing” and said the state’s 1.4 million barrels a day oil demand would remain unchanged, leading to further dependence on oil by “foreign regimes that do not share our environmental standards and human rights values ”.
Manufacturing under pressure
Due to growing environmental pressures and measures such as Newsom’s order, production in California has nowhere to go but fall, Fawcett said.
The main producers in the state are Chevron and Aera Energy, as well as smaller operators Berry Petroleum, California Resources Corp., Fawcett said. and Sentinel Peak.
According to UBS analyst Lloyd Byrne, Chevron is producing 104,000 barrels of oil equivalent per day in California, in part due to the flooding of the Kern River near Bakersfield, while Shell and ExxonMobil are partners in the Aera joint venture, which produces about 100,000 barrels of oil. equivalent per day.