Oil

Thursday, Mar 14 2013 05:02 PM

Report sees economic benefits from 'fracking' in Monterey Shale

BY JOHN COX Californian staff writer jcox@bakersfield.com

A new study predicts that the Monterey Shale oil formation underlying much of the southern Central Valley will fuel substantial economic growth in California for years to come -- assuming continued use of the controversial but effective technique known as hydraulic fracturing.

Basing some of their conclusions on the energy boom under way in North Dakota and other states, University of Southern California researchers projected that developing the Monterey will add nearly 3 million jobs and close to $25 billion in tax revenues by 2020.

There will be challenges to address along the way, from heavy demands on local roads and public services to potential water and air pollution as oil producers bring to bear technologies such as hydraulic fracturing, or "fracking," according to the study released this week.

The report is sure to stoke hopes that Kern County is literally sitting on a petroleum treasure trove, even as some members of the local oil industry continue to harbor doubts that the Monterey will ever yield the 15 billion barrels of oil that the federal government has estimated exist there.

"This is not the final word, but it just indicates clearly that there could be a real uptick for California," said Jack Cox, president of The Communications Institute, a nonprofit public policy research and education nonprofit that helped USC economists and engineers with the study.

Among the report's projections: California's per-capita economic activity will increase by at least $10,000 over the next seven years thanks to the oil production in the Monterey. That's 14 percent more gross domestic product per person than would exist without work in the Monterey.

Developing the Monterey -- a deep and geologically diverse "source rock" thought to be the largest deposit of its kind in the country -- would also greatly reduce California's heavy reliance on imported oil, the report says.

The study was funded in part by a grant from the oil trade group Western States Petroleum Association, which advocates in favor of fracking in the Monterey and elsewhere.

The report's release comes as state regulators are working on new rules specific to fracking. While environmentalists push for a ban on the practice, or at least strict new safeguards, the oil industry maintains that the technique is safe and economically vital.

According to the report, its purpose is "to conduct an objective and economically sound assessment of the net benefits and costs of the increased use of hydraulic fracturing in California, especially with regard to the production of oil from the state's Monterey Shale formation."

Economists from USC's Price School of Public Policy created the model on which much of the study was based. The university's Viterbi School of Engineering also contributed by developing a scenario for how the Monterey will likely be developed by the oil industry.

Last year, a report issued by a Wall Street research team cast doubt about the Monterey's potential for oil production.

Titled "The Mystery of the Missing Monterey Shale," the report by an analyst with global asset management firm AllianceBernstein stated that oil production in California has remained flat despite increasing investment in the Monterey. It discussed possible reasons for the formation's underperformance, including its abundance of natural faults, low reservoir pressure and a geological profile somewhat resistant to fracking.

Locally, opinions on the Monterey are mixed, with some oil executives saying it's only a matter of time and engineering before production along the formation booms. Others wonder whether the formation's geology is too complex for wide-scale production, and whether the "source rock" still contains large petroleum deposits after more than 100 years of drilling in the region.

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