California is Missing Out on Transforming the State

fracking oil gasHardline energy policies against fossil fuel exploration and production (E&P) originating from Sacramento are causing California citizens and taxpayers to miss the boom coming from United States (US) shale production taking place in Texas, North Dakota, Pennsylvania, Oklahoma and Colorado that has forced OPEC to raise crude supply forecasts for 2018. California could use this economic growth from shale E&P since our GDP growth rate has slipped to 35th in the nation.

Moreover, Los Angeles now ranks as having the worst traffic congestion in the world, California is possibly in another drought according to the New York Times, and The Stanford Pension Institute says, “that CalPERS has a $1.4 trillion unfunded liability.” These could be some of the reasons why more people are migrating out of California – even beautiful San Francisco isn’t immune to net migration – and regulations are also making it tougher to grow the economy, hire workers and bring tax relief to the middle class.

But there is hope for California that energy E&P could pave the way to relieve many of these problems along with upgrading our outdated infrastructure, older schools, and overreliance on wealthy taxpayers to fund a majority of the state budget.

According to the International Energy Agency (IEA), the United States (US) will surpass Saudi Arabia and Russia with record oil production topping over 10 million barrels a day (mbp) while approaching 11mbp faster than analysts expected. This type of energy production hasn’t been seen since the Nixon administration. Daniel Yergin, economic historian and author of The Prize: The Epic Quest for Oil, Money and Powerstates:

“This is a 180-degree turn for the United States and the impacts are being felt around the world. This not only contributes to U.S. energy security but also contributes to world energy security by bringing new supplies to the world.”

Shockingly, the US Census Bureau in early February reported that the US exported roughly 700,000 barrels of light domestic crude in December 2017 to the United Arab Emirates (UAE). The EIA iterated the significance by pointing out the UAE is the fourth-largest OPEC producer and first time importer of US oil. The US net oil imports now hover near 3 mbp, whereas in 2006 the US imported over 12 mbp.

The EIA reports that by 2022 the US “will become a net petroleum exporter from rising crude exports and overseas sales of refined petroleum products such as gasoline. This new reality has the Energy Information Administration (EIA) Annual Energy Outlook 2018 confident that America will be the world’s leader in oil and natural gas E&P by the end of this year.

For California, the untapped, unexplored Monterrey Shale and Pacific Ocean could hold trillions in new revenues and economic activity. The question is will voters and elected officials understand the significance of wise, regulated energy exploration in one of the largest shale plays and ocean reserves in the world? If Texas, North Dakota and Pennsylvania can figure out reasonable E&P then California’s technological giants based in Silicon Valley and universities like Cal-Tech can certainly come up with best practices to ensure environmental safety while growing California’s economy.

Many critics like the Post Carbon Institute’s new report, “Shale Reality Check,” question the sustainability, long-term production prospects and viability of US shale. But are critics like the Post Carbon Institute missing an opportunity to diminish the force of the modern petro-state led by OPEC that in the past has crippled California’s economy and caused our Marines based in Camp Pendleton to be deployed overseas to fight in their never-ending, expensive wars?

For decades American, western and Asian diplomats have tiptoed around Middle Easter nations – particularly, Saudi Arabia – since they needed vital oil and natural gas for continued economic growth. But the US no longer needs as much Middle Eastern oil. This will make it tougher for OPEC to agree on production guidelines that raise prices at the pump while limiting Russia’s foreign policy that relies on the weaponization of state-run oil giants to fund their geopolitical adventures.

In late 2014 it seemed America’s oil independence was a pipedream and the Saudi’s would force America into renewable energy when they targeted shale drillers for elimination by flooding world markets with new supply. Throughout this Saudi-led war on US shale, bankruptcies overtook the Texas Permian Basin and Bakken Formation in North Dakota; production also fell in the US from 9.6 mbp to 8.5 mbp. Shale companies though never declared defeat; instead, they slashed costs, employed automation and adopted cutting edge technology (robotics, sensors, smart phones) to keep drilling. There is no reason why California can’t be the leader in these technologies, E&P and oilfield services.

West Texas intermediate crude is now in the 60s and the US is supplying China and India while causing the Saudis to now try and invest in US shale properties. Taking aim at Russia – a California priority after the 2016 elections – is taking place since the US is now a major exporter of natural gas and can “undercut Russian energy dominance over Eastern Europe.” The US is now able to withstand political turmoil in Venezuela, Libya and Nigeria – all major OPEC suppliers – when historically supply disruptions would have risked global growth. California now doesn’t have to concern itself as much with unstable countries and regions as we have for decades.

Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University and former Obama administration energy official speaks about this new geopolitical reality:

“For the last 40 years, since the Arab oil embargo, we’ve had a mindset of energy scarcity, but as a result of the shale revolution, the U.S. has emerged as an energy superpower.”

This new reality also means China, Japan and Southeast Asia have become more dependent on the US and potentially California than on the Middle East. The US and California can now argue the global order they have ensured should become a shared burden financially and militarily.

These are good problems for California to have, and when energy independence was only a dream in the 70s over the Arab oil embargo now fossil fuel superiority can bring California benefits for everyone in our state and the US. Energy accomplishments that bring economic freedom should be celebrated; and the geopolitical advantages that America and now California enjoy from shale drillers reshaping global energy markets could bring us decades of prosperity if only we will take advantage of them.

 is an independent public policy consultant focusing on the geopolitical implications of energy based in Los Angeles, California.

This article was originally published by Fox and Hounds Daily