California: America’s Next Oil Boom?

Forget Texas, California may be set to lead the United States when it comes to oil production and potential. The Monterey Shale, which stretches from Los Angeles to San Francisco, is estimated to contain approximately 400 billion barrels of oil. The United States consumes just under 19 million barrels of oil on a daily basis meaning that the Monterey reserves has the potential to meet the nation’s needs for over 57 years. Of course, recovering that oil will prove to be something of a struggle [for more oil news and analysis subscribe to our free newsletter].

The Age Old Debate

Sure, the Monterey Shale has massive potential, but extracting it from the ground could have a very significant impact on the surrounding environment. California is already a state that prides itself on green legislature, so a project that could be damaging to the surrounding environment likely won’t sit well with local governments. Then again, the crushing deficit of the state does not sit well either, and tapping this reserve would create thousands of jobs and could erase a number of the budget problems that plague the West Coast state.

“As a result of the San Andres fault, California’s geologic layers are folded like an accordion rather than simply stacked on top of each other like they are in other Shale states,” writes Steve Hargreaves. This makes fracking much more difficult, as that process works best when drilling into flat shale. Still, it is estimated that today’s technology can recover 15 billion barrels, enough to power the country for more than two years. But many feel that the rapid advances of the oil industry will grow that 15 billion figure significantly in the coming years [see also 25 Ways To Invest In Crude Oil].

Those wanting to make a play on the boom can look to companies like the California-based Occidental (OXY) to be among the first movers. Of course, bellwethers like Exxon Mobil (XOM) and Chevron (CVX) are also sure to make a grab for this potentially game-changing reserve. For now, investors should keep tempered expectations, as it seems that environmental regulations will be difficult to overcome in this instance. Now it will simply be a battle for how long California can maintain its crippling debt and if that number will ever be enough to look the other way on some key environmental issues that surround this reserve.

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Disclosure: No positions at time of writing.