California’s decision to halt hydraulic fracturing permits by 2024 is unlikely to do much to hasten the current decline in production, but any production clampdown would increase the state’s dependence on it. imported crude.
California was once the third largest oil producer in the United States behind Texas and Alaska, according to data from the US Energy Information Administration. In the early 1980s, crude production in the Golden State reached 1 million b / d, behind Texas’s 2.5 million b / d and Alaska’s 1.7 million b / d.
But in January 2021, California ranks seventh among oil-producing states with 364,000 bpd, behind Texas (4.66 million b / d), North Dakota (1.1 million b / d). , New Mexico (1.09 million b / d), Alaska (464,000 b / d), Oklahoma (426,000 b / d) and Colorado (373,000 b / d).
An April 23 executive order issued by California Governor Gavin Newsom called for an end to oil production by 2045. But production already had to move in that direction “because of the higher supply cost in the region. San Joaquin Valley and tighter, more burdensome regulations, as well as continued political risk, ”said Parker Fawcett, North American sourcing analyst for S&P Global Platts Analytics.
Platts Analytics predicts that the state’s oil production will drop below 300,000 b / d in early 2023 and fall below 200,000 b / d by the end of 2028. By the end of 2040, production should be less than 130,000 bpd.
The April 23 order would also end hydraulic fracturing in the state, but will have little impact on its failing oil production because only about 2% of the oil extracted uses such a method, Fawcett said.
Many older California fields discovered 100 or more years ago still produce using cyclic steam, a widely used and messy process that has given new life to old fields by allowing heavier and thicker crude to s ” flow more easily to the surface.
The process is used on many historic fields such as Midway-Sunset, discovered in 1894 and one of the largest onshore oil reservoirs ever found in the United States, located in central Kern County, southwest of Bakersfield .
Cyclic steam also accounts for more than half (170,000 bpd) of oil production in the San Joaquin Valley, a key production area in the state, and much of offshore production, said. Fawcett.
A sweeping bill submitted to lawmakers on April 13, 10 days before Newsome’s executive order, which would have banned fracking, cyclic steam, and water and steam flooding by 2027 and stopped allowing such methods from next year, was narrowly shot. by the Senate Committee on Natural Resources and Water, which further opens up the possibility of legal challenges against the governor’s mandate.
“A ban on cyclical steam would be absolutely devastating, even if only for new sources of production via a permanent permit ban,” Fawcett said, adding such a shutdown “would essentially end California’s oil industry as it is. as we know it. production is declining and a sharp increase in imports of foreign oil. “
Import dependency to grow
The state’s crude production is declining, which has resulted in and will continue to stimulate increased reliance on imports, mainly from the Middle East, South America and Canada, for refineries in California, a Fawcett said, especially as the risks to oil production grow. “
California does not have the pipelines and other infrastructure to move domestically produced crude to the state and relies on shipments by water from Alaska and foreign sources.
The use of foreign crude by state refineries fell from just 5.7% of throughput in 1990 to 25.7% in 2000 and 47.7% in 2010, before resuming the majority of volumes to 50.7 % in 2012 and stay above that 50% level until a pandemic. -hit 2020, according to data from the California Energy Commission.
California Independent Petroleum Association CEO Rock Zierman called the decree against hydraulic fracturing “disappointing” and said the state’s demand for 1.4 million bpd of oil will not change. which will lead to increased dependence on crude from “foreign regimes that do not share” our environmental standards and human rights values. “
Production under pressure
With mounting environmental pressures and measures like the Newsom order, California production has nowhere to go but declining, Fawcett said.
The state’s main producers include Chevron and Aera Energy, and small operators Berry Petroleum, California Resources Corp. and Sentinel Peak, Fawcett said.
Chevron produces 104,000 bpd of oil equivalent in California, notably from the steam surge of the Kern River near Bakersfield, while Shell and ExxonMobil are partners in the Aera joint venture which produces around 100,000 boe / d, according to UBS analyst Lloyd Byrne.