Libya, the Middle East, and Southern California

Often overlooked in the analysis of escalating developments of the Middle East is Southern California’s connection, in both cause and effect.

Recent events in the constantly volatile region, most notably the September 11th murder of a United States ambassador combined with the storming of an American consulate in Libya, highlight the precariousness of the political, social, and economic situation in the Middle East.  The turmoil stops not in Libya; protests and riots threaten U.S. embassies in Sudan and Tunisia, where the Obama administration recently ordered the evacuation of all non-essential State department personnel.   At the same time, the new government in Egypt presides over a delicate and developing situation in its streets as well.  All the while, Israel is readying itself for a possible preemptive strike against Iran’s nuclear facilities, an attack which, though justified in the minds of many Israelis, would undoubtedly fuel a broader military conflict in the region, the end result of which is far from certain.

The exact cause of the recent flair-up is not entirely clear; the Obama administration has largely pointed to the film depicting anti-Muslim sentiments as the catalyst of the most recent flair-ups.  Uploaded to YouTube in July, the film, Innocence of Muslims, was shot in Southern California and was allegedly influenced by an Orange County based anti-Muslim cleric.  Regardless of whether or not the film itself is the ultimate cause of the increased turmoil, at least one effect is readily apparent—the price of oil has been heading north.  If the region tips into additional turmoil, the price of oil might skyrocket.

Crude oil as recently as late June had dipped below $80 a barrel, but closed this past week near $100 a barrel, a 25% rise in less than 3 months.  Volatility at the pump is rearing its head again as the Presidential election heats up in the home stretch.  America’s over-dependence on foreign oil, a platform issue for every U.S. President for decades, remains as compelling an issue as ever.  Fortunately for California, the State can be an integral part of the long-term solution.

California is not just the Golden State—it’s also the Black Gold state.  Tom Gray’s recent City Journal article highlights the issue well.  In the mid 1920s, California produced one-quarter of the world’s oil.  California’s offshore and onshore production hit its all time peak in 1985 as 424 million barrels were extracted.  Since then, the production of oil in California has steadily declined, and the state is now the country’s fourth largest producer (behind Texas, Alaska, and North Dakota).  The reason, however, is not due to lack of oil; rather, it relates significantly to increased regulation, taxation and governmental oversight.

As the Middle East continues to dive into crisis mode, lawmakers in California must reexamine its oil production policies.  The state’s coffers could undoubtedly use the increased tax revenues, and there are legitimate national security implications at play, as recent Libyan events demonstrate all too well.  Gray’s City Journal article cites 2011 estimates from the Department of Interior cite federal tracts off Southern California’s coast alone as holding 5.32 billion barrels.  More importantly, Monterey Shale, petroleum-rich rock that encompasses much of the State’s length, may hold as much as 500 billion barrels.  If only a small fraction of that amount is recoverable, it would easily double California’s current output.  New technologies have allowed increased output from previously dry wells, a development that has many in Southern California on the hunt again for new wells.

However, recently enacted California laws will have a negative effect on future production of oil in the State: regulations from the 2006 climate-change initiative, AB 32, that are beginning to go into force, requires certain oil producers to pay for carbon credits if they do not reduce their carbon outputs below certain levels.  The regulations undoubtedly make California oil extraction less competitive and more costly, with the ultimate effect being a reduction in oil output.  In addition, the “carbon intensity” initiative of AB-32, which measures the greenhouse gas emissions of a barrel’s entire life cycle, (i.e from extraction to combustion), must be reduced by 10 percent by 2020.  Much of Southern California’s onshore oil requires energy intensive extraction methods.  The new regulation will hit them the hardest, again, reducing the State’s oil output.

In the wake of Middle Eastern turmoil, domestic energy policy reform is a natural byproduct.  California has billions of barrels of recoverable oil.  The developments from the Middle East remind us that the United States relies far too heavily on foreign oil.  California must decide: does it help the nation wean its way off Middle Eastern oil, or does it attempt to limit production in hopes of a technological breakthrough in an alternative energy source to take oil’s place?  Until that day comes, it would seem black gold remains the answer.

(Ben Everard is an attorney and producer based in Los Angeles.)