Although the hyperventilating over California’s state budget has eased, the situation is still scary. There’s $28 billion in debt accumulated through the recession, a $10 billion deficit in the unemployment insurance fund and at least $100 billion – some believe much more – in unfunded pension obligations. And there’s the fear that the ones we’re counting on to pay for much of that – businesses and wealthy individuals – increasingly will slip out of state to avoid the even-higher taxes and lower level of government services that seem bound to come. (See the LABJ Forum, below.)
But wait. Maybe, just maybe, there’s a way out for California.
It’s called the Monterey Shale, and in case you haven’t heard about it, it’s an immense oil formation that lies generally under the San Joaquin Valley north of Los Angeles. Immense as in 15.4 billion barrels of oil. That’s a stunning two-thirds of America’s shale oil reserves and enough to spark talk of how California might become the new Saudi Arabia. Enough even to make Texans oil envious.
If the Monterey Shale were fully developed, it could create almost unfathomable benefits not only for the state budget, but for the state’s businesses and workers.
The Manhattan Institute’s Mark Mills went through the math in an op-ed last month in the Wall Street Journal. According to research, he said, for every billion barrels of oil produced in California, the state collects about $15 billion in taxes. And there’s an additional $30 billion to $80 billion in broad economic and social benefits.
“Do the math,” he wrote. “The overall economic benefits of opening up the Monterey Shale field could reach $1 trillion. One can only imagine the impact on California’s education system, social programs, infrastructure, and even energy-tech R&D. Moreover, with that kind of revenue, Sacramento tax collections could wipe out debt and deficits.”
Well, maybe, but first there’s the very real issue of whether oil can be extracted economically from the Monterey Shale. The formation is expensive to get to because it’s quite deep (which explains why it came into the world’s consciousness only recently). What’s more, California has tectonic plates, crazy underground geological features and tight shale – not to mention earthquakes – which make the oil tricky to find and difficult to get out.
Indeed, L.A.’s Occidental Petroleum Corp., which has been active in exploring the area, has expressed disappointment in some of its test drills. Chevron Corp. of San Ramon seems entirely disinterested.
Still, many in the industry believe that with time, a lot of fracking and perhaps a technological advance or two, the Monterey Shale could be a huge gusher for California.
But that brings up the other big issue: the green lobby. It’s a powerful constituency in California, and environmentalists regard fossil fuels much like 14th century Europeans regarded the Black Plague. The whole idea of fracking near fault lines is energizing them.
“That oil’s not going anywhere,” Nathan Matthews, a lawyer for the Sierra Club, declared to CNBC last week. His organization has sued the state, claiming it hasn’t enforced existing regulations. The club is seeking a moratorium on all exploration of the Monterey Shale until the state comes up with more rules governing fracking.
From here, it gets interesting. Real interesting. Will the environmental lobby maintain its power and convince the state Legislature to tamp down on any exploration of the Monterey Shale? To do that, the greens likely will need to keep their main ally and the state’s other powerful lobby, labor unions, in the fold.
Or will labor defect? After all, oil exploration and production mean lots of private-sector union jobs, and high-paying ones at that. What’s more, the gusher of revenue to the state would mean the public-sector unions might see any threat to their pensions vanish and their job prospects expanded. Money talks, and the Monterey Shale could be speaking loudly to them.
But how about other Californians? There are millions of voters – particularly in Los Angeles and San Francisco – who are not in a union and care more about the environment than about possible threats to someone else’s pension. They’re not fond of oil companies. The bulk of those folks might well favor the Sierra Club in this fight.
The Monterey Shale – assuming it can produce lots of oil economically – could be a way out for California. Whether it will be remains to be seen.
Charles Crumpley is editor of the Business Journal. He can be reached at firstname.lastname@example.org.
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