California oil and gas industry

The California oil and gas industry has been a major industry for over a century. Oil production was a minor factor in the 19th century, with kerosene replacing whale oil and lubricants becoming essential to the machine age. Oil became a major California industry in the 20th century with the discovery on new fields around Los Angeles and the San Joaquin Valley, and the dramatic increase in demand for gasoline to fuel automobiles and trucks. In 1900 California pumped 4 million barrels, nearly 5% of the national supply. Then came a series of major discoveries, and the state pumped 100,000,000 barrels in 1914, or 38% of the national supply.[1] In 2012 California produced 197 million barrels of crude oil, out of the total 2,375 million barrels of oil produced in the U.S.[2] California drilling operations and oil production are concentrated primarily in Kern County, San Joaquin Valley and the Los Angeles basin.

There is also some offshore oil and gas production in California, but there is now a permanent moratorium on new offshore oil and gas leasing and new offshore platforms in both California and federal waters, although new wells can be drilled from existing platforms. These restrictions were imposed after the 1969 Santa Barbara oil spill released oil into the Pacific Ocean.[3] California produces some gas but imports most of its supply by pipeline.

Early history

There was plenty of visible oil in California and eastern experts said it would be worth a fortune. The early oil ventures in the 1850s and 1860s were well-funded, but all of them failed. The drillers spent $1 million and their poor quality oil was worth only $10,000.[4]

Prospectors after 1848 discovered an increasing number of oil seeps—oil seeping to the surface. In Northern California, there were oil seeps in Humboldt, Colusa, Santa Clara, and San Mateo Counties, and in the asphaltum seeps and bituminous residues in Mendocino, Marin, Contra Costa, Santa Clara, and Santa Cruz Counties. In Southern California, large seeps were found in Ventura, Santa Barbara, Kern, and Los Angeles Counties.[5] Interest in oil and gas seeps was stirred in the 1850s and 1860s, Interest became widespread after the 1859 commercial discovery of oil in Pennsylvania. In 1864, Yale chemistry professor Benjamin Silliman, Jr., a leading expert, examined the oil seepages in Ventura County, and wrote reports that indicated excellent commercial possibilities. The Philadelphia & California Petroleum Company, drilled wells in the Ojai region between 1865 and 1867; one became California’s first "gusher."

As early as 1856 a company began working the tar pits at La Brea Ranch, near Los Angeles, distilling some oil. Initially these oil discoveries were done by hand digging a well with pick and shovel or even tunneling (by hand) into a mountain that contained oil. By sloping the tunnels downward the oil ran out the mouth to be collected. Some of this oil was so thick that when pipelines were used they had to be heated in winter to get the oil to flow. Transporting the oil to a market or refinery was nearly always a primary concern. In 1866 the first oil refinery in California was built near McKittrick Tar Pits in Kern County to process kerosene and asphalt.

Much of California’s early oil discoveries were in the form of asphalt also known as bitumen a sticky, black and highly viscous liquid or semi-solid form of petroleum. It was found in natural deposits and by processing it became a refined product. Some cities in California started asphalting their streets in the 1870s to keep down dust and mud. In the 20th century the primary use is in road construction, where it is used as the glue or binder mixed with aggregate particles or gravel to create asphalt concrete.

Oil production

The Los Angeles City Oil Field. Other oil fields are shown in light gray.

The story of oil production in California began in the late 19th century.[6] As of 2012, California was the nation's third most prolific oil-producing state, behind only Texas and North Dakota. In the past century, California’s oil industry grew to become the state’s number one GDP export and one of the most profitable industries in the region.[7]

Standard Oil largely controlled the distribution of oil products in the state. After its breakup by the Supreme Court in 1911, its California operations became Standard Oil of California or "California Standard." It is now part of Chevron Corporation.

The Los Angeles City Oil Field was discovered in 1890, and made famous by Edward L. Doheny's successful well in 1892. The field became the top producing oil field in California, accounting for more than half of the state's oil in 1895. Doheny became one of the richest men in California. The peak year was 1901, with 200 separate oil companies were active on the field. In 2011 only one small well remained in production.

In 1900, the state produced 4 million barrels.[6] In 1903, California became the leading oil-producing state in the US, and traded the number one position back-and forth with Oklahoma through the year 1930.[8] Production at the various oil fields increased to about 34 million barrels by 1904. By 1910 production has reached 78 million barrels.

By 1920, oil production in California had expanded to 77 million barrels.[6] Between 1920 and 1930, new oil fields across Southern California were being discovered with regularity including Huntington Beach in 1920, Long Beach and Santa Fe Springs in 1921, and Dominguez in 1923.[6] Southern California had become the hotbed for oil production in the United States. In a 1926 Times magazine article, it was said, The Standard Oil Company of California (now Chevron) is the largest individual producer of crude oil in the U.S. and dominates the marketing of petroleum products along the west coast of both Americas."[9]

In 1929, however, the sense of crisis in the oil market grew as vast amounts of oil supplies were going unused in Southern California and throughout the US.[9] The situation got worse during the Great Depression, with oil selling for 25 cents a barrel. The solution came in the mid-1930s when the Railroad Commission of Texas gained permission of Washington and the major oil companies to set the national price of oil.

San Joaquin Valley Oil

Largest oil producers in 2005[10]
StateBarrels/day
Louisiana1,463,000
Texas1,331,000
Alaska894,000
California
San Joaquin Valley		515,000
Oklahoma177,000
New Mexico171,000

Except for a couple of mediocre wells on the "westside" of the San Joaquin Valley, and a few tar mining operations, farming was the mainstay of the valley in the late 1800s. However, the 1899 discovery of "black gold" in a shallow hand-dug oil well on the west bank of the Kern River changed all that. The Kern River discovery started an oil boom, and a forest of wooden derricks sprang up overnight on the flood plain just north of Bakersfield, a sleepy farm town known to most as "Bakers Swamp". Soon Kern River production accounted for 7 out of every 10 barrels of oil that came from California, and Kern River field by 1903 had made California the top oil-producing state in the country.

Inspired by the Kern River discovery, oil prospectors fanned out across the San Joaquin Valley, and derricks began to pop up everywhere. Many discoveries followed, and a string of spectacular gushers at Coalinga, McKittrick and Midway-Sunset fields kept the valley in the oil news.

The Valley is also home to 21 giant oil fields which have produced over 100 million barrels of oil each, with four "super giants" that have produced over 1 billion barrels of oil. Among these "super gaints" are Midway-Sunset (the largest oil field in the lower 49 United States), and Elk Hills (former U.S. Naval Petroleum Reserve).

Refining and distribution

Five companies controlled most of the refining and distribution of oil in California in the early twentieth century. The leader was California Standard (Chevron Corporation), a separate company since the court-ordered breakup of the Standard Oil trust in 1911. Second was the Union Oil Company, formed in 1890, and based in Ventura County. The Shell Company of California was the only affiliate of an outside Corporation. The Associated Oil Company was fourth, and was controlled by the Southern Pacific Railroad Company. The newest company was General Petroleum Company, organized in 1910, which operated in the San Joaquin and southern fields. Union Oil Company of California, ("Unocal") was bought out by Chevron in 2005 after a Chinese attempt to but the company failed,[11]

California shale oil (tight oil) production

Main article: Monterey Formation

Widely distributed in sedimentary basins of southern California is the Monterey shale, thought by some to contain more than 400 billion barrels of oil in place. The formation has for many years yielded oil in areas where it is naturally fractured, and oil companies are investigating ways to make the shale in currently non-productive areas give up the oil through artificial fracturing.[12] Over some large areas, California's geologic layers are complexly folded, making horizontal drilling difficult. As of 2013, the Monterey shale has resisted attempts to obtain economic production of oil through hydraulic fracturing, fracking, which involves injecting water, sand, and chemicals into the shale under high pressure, to crack the rock and allow the oil and gas to flow. The U.S. Energy Information Administration estimates there are over 15 billion barrels of oil that can be recovered using today's technology and potentially much more if techniques can be found to safely release it. Despite intense industry efforts, there has been little success to date (2013) in producing Monterey-hosted tight oil/shale oil, and it may be many years, if ever, before the Monterey becomes a significant producer of shale oil.[13]

Chronology of the California oil industry

California gas production

Initially the natural gas discovered was allowed to vent or was burned off. Only a relatively small fraction was used for lighting or heating purposes. At the turn of the century, before electrical lights were common, street lighting in cities was done by gas street lamps. Some homes were lighted with gas lamps. Much of this gas was generated from coal. By the time significant amounts of natural gas became available electricity was taking over the lighting job.

The gas industry market structure was dramatically altered by the discovery of massive natural gas fields throughout the American Southwest beginning in 1918.[16] The natural gas found was cleaner than manufactured gas and less expensive to produce.[17] While natural gas sources were abundant in Southern California, no economical sources were then available in Northern California. In 1929, PG&E constructed a 300-mile pipeline from the Kettleman oil field to bring natural gas to San Francisco Bay area.[18][19] The city became the first major urban area to switch from manufactured coal gas to natural gas.[16] The transition required the adjustment of burners and airflow valves on 1.75 million appliances and gas lamps.[16] In 1936, PG&E expanded distribution with an additional 45-mile pipeline from Milpitas. PG&E gradually retired its gas manufacturing facilities, although some plants were kept on standby.[20]

During World War II defense related population growth and industry growth boosted natural gas sales in California and cut deeply into the state's natural reserves.[21][22] In 1947, PG&E entered into a contract with the Southern California Gas Company and the Southern Counties Gas Company to purchase natural gas through a new 1,000-mile pipeline running from Texas and New Mexico to Los Angeles.[22] Another agreement was reached with the El Paso Natural Gas Company of Texas for gas delivery to the California-Arizona border. In 1951, PG&E completed a 502-mile gas main which connected with the El Paso network at the state line.[22]

In 2012 California was the 13th largest state in terms of natural gas production, with a total annual production of 248 billion cu feet of gas.[23] Today natural gas is the second most widely used energy source in California. Depending on yearly weather conditions, about 45% of the total natural gas used is now burned in natural gas fired electric generator plants for electricity generation as coal burning plants are phased out. Most of these plants are cogeneration plants that use high temperature burning gas to run gas turbines driven generators and use the captured turbine exhaust heat as power for a steam turbine driven generator set. By combining these technologies almost 60% of the energy from burning gas can be converted from heat into electrical power. About 9% of the natural gas is used in facilitating the extraction of more oil and gas. Roughly 21% is used for residential space and water heating, cooking, clothes drying, etc.; about 8.6% is used for commercial building and water heating, 14.5% is used in industrial use and some of the rest has varied uses such as fueling bus fleets and UPS trucks.[24]

California imports about 85% of its natural gas using six large gas lines. The majority of its natural gas comes from the American Southwest, the Rocky Mountain states, and Canada. The remaining 15% of California's natural gas is produced in-state, both off-shore and onshore.

Natural gas-fired electricity generator plants have been the dominant use of natural gas California for many years. Natural gas is a dispatchable resource that fills in the gaps from other electrical resources when peak power loads are needed. In addition, natural gas releases from a natural gas fired generator station are about half the CO2 that coal fired plants would use.[25] Typically California gets about 14% of its electricity from water generated electricity. The availability of hydroelectricity resources depends upon annual rainfall in the state so varies considerably year by year. The emergence of renewable and often highly variable resources for electricity generation such as solar and wind power has led to more natural gas use in generation with its much cheaper, more versatile and reliable source of electricity generation—so far.

Natural gas prices spiked in 2007 but have decreased significantly since then as more gas has become available nationwide. The biggest change in U.S. gas supply has been the expansion of total natural gas production in the Lower 48 States, which has increased 20% from 2005 to 2011. The increase is largely attributed to breakthroughs in horizontal drilling techniques and increased hydraulic fracturing.

Six major interstate pipelines deliver the 85% of natural gas imported to California. Inside California more than 100,000 miles of intrastate pipelines take the natural gas to customers for immediate consumption or to underground storage facilities for later use.[26] There are 10 operating natural gas storage facilities in California, which use underground depleted oil or natural gas production fields. All but three of them are owned by either Pacific Gas and Electric or Southern California Gas Company. The latest interstate pipeline additions are the 42 inch diameter Ruby Pipeline, LLC, which began operation in California near the Oregon border in July 2011,[27] and the Kern River Expansion, which came on-line in October 2011.

Notes

  1. ↑ Harold F. Williamson et al. The American Petroleum Industry the Age of Energy 1899-1959 (1963) p 17
  2. ↑ US Energy Information Administration, Crude oil production, accessed 10 Mar 2014
  3. ↑ 1969 Santa Barbara Oil Spill accessed 12 Jan 2014
  4. ↑ Richard Rice et al. The Elusive Eden: A New History of California (1988) p 317
  5. ↑ Early California oil discoveries accessed 11 Jan 2014
  6. ↑ 6.0 6.1 6.2 6.3 "Oil and Gas Production: History in California." State of California. Web. 18 Mar. 2013. <ftp://ftp.consrv.ca.gov/pub/oil/history/History_of_Calif.pdf>.
  7. ↑ E. Hugenin, History of gas conservation in California (1945)
  8. ↑ G. R. Hopkins and A. B. Coons, 1934, "Crude petroleum and petroleum products," in: Statistical Appendix to Minerals Yearbook 1932-33, US Bureau of Mines, p.306-307.
  9. ↑ 9.0 9.1 ftp://ftp.consrv.ca.gov/pub/oil/history/History_of_Calif.pdf. Oil and Gas Production: History in California
  10. ↑ Giant Oil Fields of the San Joaquin Valley accessed 44 Jan 2014
  11. ↑ Arthur M. Johnson, "California and the National Oil Industry," Pacific Historical Review (1970) 39#2 pp. 155-169 at p 159
  12. ↑ California shale oil production accessed 12 Jan 2013
  13. ↑ So Much Shale Oil—but So Hard to Get, Wall Street Journal, Updated Sept. 23, 2013
  14. ↑ Brief Oil and Gas History of Santa Barbara County: Santa Barbara County Energy Division
  15. ↑ Oil Chronology accessed 11 Jan 2014
  16. ↑ 16.0 16.1 16.2 Cleveland, Cutler J. (2009). Concise Encyclopedia of the History of Energy. Academic Press. pp. 167–168. ISBN 0123751179.
  17. ↑ Charles M. Coleman, P.G. and E. of California: the centennial story of Pacific Gas and Electric Company, 1852-1952 (1952) p=299
  18. ↑ (Coleman 1952, p. 300)
  19. ↑ "Oil and Gas Production: History in California" (PDF). State of California Department of Conservation. p. 7.
  20. ↑ (Coleman 1952, pp. 304–6)
  21. ↑ Brewer, Chris (2002). Historic Kern County: An Illustrated History of Bakersfield and Kern County. Historical Pub Network. pp. 64–65. ISBN 1893619141.
  22. ↑ 22.0 22.1 22.2 (Coleman 1952, pp. 306–307)
  23. ↑ California gas production accessed 12 Jan 2014
  24. ↑ California Uses for Natural Gas accessed 12 Jan 2014
  25. ↑ CO2 release from fossil fuel power production Accessed 7 Mar 2014
  26. ↑ CPUC, California Natural Gas Supply Infrastructure accessed 12 Jan 2014
  27. ↑ Ruby Pipeline Interconnect accessed 12 Jan 2014

Further reading