Environmentalists rejoiced at a Los Angeles Times report that the government cut its estimate of how much technically recoverable oil was in California’s Monterey Shale formation.
But are they overreacting?
The Energy Information Administration cut the amount of technically recoverable oil in the Monterey Shale by 96 percent. Many believe this to mean that two-thirds of the U.S. tight oil supply to have disappeared, but the facts of what the EIA actually said should give them pause.
When EIA refers to “technically recoverable” barrels of oil, they mean how many barrels of oil can be taken out of the ground with existing technology — it’s not an estimate of how many barrels of oil are actually in the ground.
So the 96 percent cut in technically recoverable oil means that only 600 million barrels of oil can be taken out of the shale formation with current technology as opposed to previous estimates of 13.7 billion barrels. There are still about 400 billion barrels of tight oil in the ground that oil companies will be able to access when technology improves.
Why did this happen? Author Russell Gold writes in the Wall Street Journal that “the geology of the Monterey is complex” as it “is riddled with faults, its oil is deeply buried, and its rocks aren’t amenable to being fracked, as they are elsewhere.”
“Companies focused on the Monterey, such as Venoco Inc., have been warning investors that the California shale was different from other shales. And oil output has been lackluster,” Gold writes.
But environmentalists jumped at the opportunity to slam the oil industry and accuse it of overblowing the positive impact shale development would have in the state.
— Post Carbon Inst. (@postcarbon) May 21, 2014
San Francisco liberal billionaire Tom Steyer also joined the fray and slammed the oil industry’s supposed misfortune.
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
Steyer has spent millions of dollars opposing the Keystone XL pipeline and backing anti-fossil fuels candidates like Massachusetts Democratic Sen. Ed Markey.
Oil companies may develop better drilling technology to unlock even more oil reserves than were previously estimated.
For example, the U.S. Geological Survey (USGS) aimed that North Dakota’s Bakken shale formation only had 151 million barrels of recoverable oil. But the USGS increased its estimate 40-fold in 2008 and then doubled the 2008 estimate in 2013.
In 1976, the USGS said the Gulf of Mexico only held about 4.7 billion barrels of proven oil reserves. In 2010, the proven reserves in the Gulf were determined to be 21.5 billion barrels of oil.
“Calculating reserves is a very imprecise science,” writes Gold. “But this doesn’t mean the shale boom isn’t for real. About a million barrels of oil a day are flowing from the Bakken Shale and even more is coming from the Eagle Ford. That isn’t a best guess of reserves — that is actual oil production.”
“The lesson here? Beware of forecasts that make too many assumptions about how much oil is available. You need to drill a lot of wells first before you can really figure it out,” Gold writes.
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