Mapping California’s Oil-Water Risks

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Summary
California’s Monterey shale is found in drought-prone agricultural and urban locations with limited water resources, necessitating careful water management and protective measures.
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California is home to the Monterey oil basin, one of the—if not the—largest reserves of tight oil trapped in rocks in the United States. Accessing California’s oil with limited negative repercussions for the environment, and especially for the state’s water resources, will be challenging as production processes pose risks to both the quantity and the quality of California’s water supplies. 

Water in this increasingly arid region is already tightly allocated among existing users. Even small withdrawals of additional water, such as those necessary for some oil production processes, could overtax California’s limited resources. 

Moreover, the difficult task of accessing the Monterey basin’s oil carries a high risk of water quality degradation. There is a chance that either oil or produced water, a sometimes toxic byproduct of some oil production processes, could unintentionally mix with groundwater. This contamination could cause significant problems, both for California’s public health and its economic well-being. 

The risks of contamination make it critical to keep oil and water from mixing, but this is not an easy task. Operator error, equipment failure, migration of fluids, seismic activity, and other man-made and natural circumstances will make it difficult to safeguard against unwanted oil-water interactions. 

Regulatory oversight of these issues is inconsistent and insufficient. California’s water and oil policymaking bureaucracies are fragmented due to tensions between different government agencies with divergent objectives. Regulatory bodies must find a way to implement existing policies and more effectively manage new oil-water concerns while protecting water quality and governing acceptable withdrawals from surrounding groundwater. Without this regulation and oversight, continued development of increasingly difficult plays in the Monterey oil basin could have near-irreversible negative consequences.

Location, Location, Location

California’s Monterey basin tight oil is trapped in extremely deep, thick, and complex shale rock. While oil has been produced in the Monterey basin (both onshore and offshore, where an entirely different set of water challenges and risks arises) for well over a century, the easy-flowing oil is on the decline. New oil methods must be continually employed to maintain production. Hydraulic fracturing—also known as fracking, in which a substantial amount of fluid chemicals and sand is injected into rock formations to break and prop them open, allowing the resources bound up in these formations to flow into a well—is one of the newest breakthroughs. Extracting oil through fracking requires significant amounts of water, which is the main constituent of fracking fluid. 

Compounding the water risks inherent in extracting tight oils is the unique and complex geography of the Monterey oil basin itself. What’s more, the precise location of the oil reserve—and the environmental and geologic traits that define this location—exposes the basin to threats that only increase the water-oil challenges.

The resources in the basin span the state’s major freshwater, agricultural, urban, and coastal regions, where California can expect increased water withdrawals and contamination associated with oil production (see figure 1). A major portion of the basin’s estimated 13.7 billion barrels of oil also sits squarely within California’s Central Valley aquifer system, the state’s largest groundwater reservoir. Here, oil and water resources are layered on top of each other—freshwater resources are at depths up to 3,000 feet; the aquifer, a layer of underground rock and soil through which water flows, reaches down to 9,000 feet; and oil stores are buried from 8,000 to 14,000 feet. Folds, fractures, and fragmentation in this seismically active region have deformed the source rock, which ranges from 1,000 to 3,000 feet in thickness. 

This makes Monterey shale oil difficult to characterize—and even more difficult to produce—with its structure changing markedly throughout the play. It also increases the risk that accessing this oil will negatively impact the state’s water supply because the jumbled geology does not lend itself to the accurate underground assessments needed for safe well and fracturing control.

California Oil Map 1

The demands that oil production processes make on limited water supplies become particularly problematic in California’s arid climate. Statewide, 2013 was the driest year on record since 1895. If experts are correct in their prediction that the twentieth century, one of the wettest in two thousand years, was in fact an anomaly, then California may be reverting back to its historic cycle of severe drought. And the Monterey oil basin—along with the agricultural and urban areas with which oil developers must share limited water resources—is located in some of the most water-stressed regions in the state, in which less than 50 percent of average annual precipitation fell over the previous two years (see figure 2). 

Additional oil-water strains exist in this region due to its active seismicity, which exacerbates the threat of water contamination. The Monterey oil basin is located near several fault lines, including the San Andreas Fault, the Garlock Fault, and numerous known smaller faults near Bakersfield and in the central and south coast regions. Earthquakes affect the earth’s intricate plumbing system. As such, seismic activity has the potential to damage both oil wells and wastewater injection wells, where the toxic byproduct of fracking is injected deep underground for permanent storage. Damage to either type of well type could contaminate water resources. 

While it is uncertain how constant geological shifts might open underground channels between oil, wastewater, and freshwater, recent studies suggest that the injection of wastewater underground could actually induce seismic activity by weakening preexisting faults. The prevalence of faults in California makes it critically important to monitor safe oil and wastewater containment underground in the state’s reported 42,000 underground injection wells on an ongoing basis. The U.S. Geological Survey published a recent study suggesting that underground injection of wastewater could have triggered a 5.6 magnitude earthquake in Oklahoma, large enough to damage homes and buildings and potentially affect groundwater resources. Some states, such as Arkansas, have opted to ban the drilling of wastewater disposal wells near faults after finding connections between existing injection wells and more frequent earthquakes. 

California Oil Map 1

Given these risks, California’s oil-water interactions—which are exacerbated by both geography and geology—must be closely monitored. But managing the oil-water nexus could prove even more difficult as unconventional tools and technologies are developed to surmount the inherent challenges in producing the hard-to-reach oil in the Monterey basin. 

Changing Oil Production and Water Conditions

The next wave of oil production advances in California will need to wrestle with mounting pressures to protect what is left of the state’s clean water resources. Techniques to recycle and reuse water are the first line of defense and may be warranted to lessen the industry’s dependence on California’s limited water resources. Moreover, advancements are being made in the field of water remediation. In the future, the groundwater that is considered unusable today due to high levels of salts, soils, sewage, or other dissolved solids could become usable with improved remediation technologies that remove these contaminants. But groundwater contaminated with wastewater and hydrocarbons necessitates even more complex remediation techniques, and the disposition of the chemicals used in fracking is just beginning to be evaluated. 

Pushing the Oil Possibility Frontier

Dwindling oil production rates have been inviting the use of unconventional techniques, including injecting steam, pumping carbon dioxide, dissolving rocks with acid, and fracturing shale formations vertically. Pushing the technological envelope to produce more of the Monterey basin’s oil poses heightened risks to water resources—primarily by increasing the chances of water contamination and, to a lesser extent, by drawing from limited water resources and reducing the amount available for consumption. 

With the Monterey shale’s unique geology, both vertical fracturing and acidizing may be relied on to a greater extent than the more widely discussed horizontal fracturing methods currently being used to produce tight oil elsewhere (in North Dakota’s Bakken and Texas’s Eagle Ford oil plays, for instance). 

Vertical fracturing pumps a fluid cocktail into an almost completely vertical well to fracture the reservoir rock. This technique fissures large areas of the shale without having to drill horizontally through the Monterey’s messy formation.

Acid well stimulation is a process by which acid is injected (at low or high pressures) into a well to dissolve nature’s cement (limestone, dolomite, and calcite) that lies between the sediment grains of the reservoir rocks. Pumping highly pressurized hydrochloric and hydrofluoric acids into the well physically fractures the reservoir rock and dissolves sediments, forming channels through which oil can flow. 

Both of these processes produce wastewater that is then typically injected into the ground for disposal, storage, or enhanced oil recovery. Reducing and eventually eliminating the subsurface injection of wastewater associated with hydraulic fracturing and acidizing would help protect California from the induced seismicity that Ohio, Colorado, Arkansas, Oklahoma, and Texas have experienced. And it could ease concerns about aquifer and groundwater contamination from the underground injection wells. 

Another disposal method in California involves storing wastewater in large, unlined, man-made ponds to evaporate and percolate into the subsurface. While this method is possibly problematic, in 2013, less than one barrel of wastewater was disposed of in unlined pits for every three injected underground. 

To minimize contamination, wastewater disposed of in unlined pits must meet local requirements, which differ greatly from basin to basin. For example, in the Tulare Lake Basin, which covers much of the inland active Monterey shale play, wastewater criteria established in 2004 cover electrolytic conductivity, chloride, and boron disposed of in an unlined pond. In contrast, the Lahontan Basin, which is just to the east of the Tulare Lake Basin, updated its regulations in 2011 to prohibit the disposal of radioactive substances, toxic substances, and chlorinated hydrocarbons in unlined pits. 

Regulatory violations are making the news. In 2009, a farmer from Kern County, which is part of the Lahontan Basin, was awarded $8.5 million for damages to his crops caused by produced water stored in open pits. More recently, a Kern County company was fined for discharging fracking fluid into an unlined pit. Updating and unifying regulations and increasing oversight for the many unlined pits that are not documented or routinely inspected could increase compliance and help prevent further groundwater contamination.

Preventing Another Dust Bowl

California’s struggles with water quantity and quality are etched into the state’s history and will play a major role in its future. Today, the state faces an unprecedented water crisis brought on by ongoing drought conditions, related climate factors, and man-made water shortages. As a result, Californians are growing less tolerant of risks to their limited water resources, and this attitude could affect oil production from the Monterey shale. Mishaps during oil drilling, production, and waste injection can be devastating to those who depend on scarce water resources for human consumption and food production. 

Three-quarters of California’s precipitation occurs in the north, but three-quarters of the state’s water demand comes from the south. Urban areas, such as Los Angeles, struggle to meet their citizens’ residential and commercial water demands, while farmers in the San Joaquin Valley struggle to find sufficient water to irrigate crops. 

There are massive state- and federally funded water relocation projects, such as the California State Water Project and the Central Valley Project. Still, surface water use currently leaves many streams already fully allocated, preventing new water users from withdrawing water. 

Less flow means that even legitimate water use can prevent other users from meeting their needs or cause ecosystem, recreation, and economic damages. This creates a clash between farmers, fishermen, environmentalists, citizens, and energy producers. 

California is already seeing land subsidence, in which the surface of the land decreases in elevation because of a removal of subsurface support—water in this case. Overuse of the groundwater supply has also caused saltwater intrusion, in which pumping groundwater pulls saltwater from the ocean toward the well, making a groundwater source unviable as drinking water for years. In addition, stress on the water supply has led to groundwater table depression, which forces users to dig deeper to access groundwater, making extraction more expensive and giving rise to disputes between users over the quantity extracted.

The reduction in water supply caused by future droughts will lead to economic hardships and raise safety concerns. Pumping groundwater will be more expensive, acquiring imported resources will be more competitive, and the damage associated with water contamination will be more dangerous.

Enhancing Oil-Water Governance

The imminent threats of water shortage and water contamination necessitate effective regulation of both oil and water resources. Since the mid- to late-nineteenth century, oil has been tapped from the relatively accessible portions of the Monterey formation in the state’s urban, agricultural, and offshore zones. The state has endeavored to manage its water resources in the face of this development, but this balancing act has not been easy.

Governing oil-water interactions has become especially difficult as concerns over sufficient groundwater supplies play out against the reality of more difficult-to-extract oil that calls for more water-intensive and environmentally risky production processes. The fight continues today in courtrooms, the state legislature, and the U.S. Congress as California’s water laws continue to evolve in response to political, demographic, environmental, safety, and economic changes.

Overseeing State Water Resources

It is often difficult to know who is in charge of California’s water resources. In 1886, the California Supreme Court established “dual-doctrine” water governance that allows the state to reallocate water appropriations to maintain the ecosystem, navigable commerce and recreation, fisheries, or other public trust features. Groundwater controls follow a similar division of water rights

The courts have studied cases of disputed groundwater allocation and directed water basins in southern California, the San Joaquin Valley, and elsewhere to redistribute their groundwater. The Monterey oil basin is located in some of these “adjudicated” groundwater basins

State law distinguishes surface water from groundwater, with different laws and regulatory bodies governing these distinct water resources.2 In California, groundwater quantity issues tend to be primarily regulated by local entities and regional water boards. Surface water, especially its quality, is regulated within the state—which has primacy for the Safe Drinking Water Act—through state laws, regional water boards, and the federal requirements under the Clean Water Act.

A complex web of actors—the U.S. Environmental Protection Agency, California’s State Water Resources Control Board and its nine regional water quality control boards, the State Department of Public Health, and the State Department of Conservation—coordinate various aspects of water quality protection. These bodies draw on a number of regulations, including the Federal Water Pollution Control Act, the California Water Code, the Porter-Cologne Water Quality Control Act, and various water quality control plans.

The complicated bureaucracy fans out from there, with over 1,000 reported specialized and general-purpose local governments, water companies, and other organizations that manage water at the local level. This ranges from city departments and special districts to private utilities and a host of other public agencies and private entities. 

Overseeing State Oil Resources

Oil production oversight is completely separate from water oversight and is provided by an entirely different set of state and federal agencies, depending on where in the state drilling and production are occurring. Oil drilling and water injection on private land involves the California Department of Conservation, with oversight by the U.S. Environmental Protection Agency. Drilling on federal lands (and offshore in the outer continental shelf) can involve the Department of Interior, the Bureau of Land Management, the Forest Service, the Department of Defense, the Environmental Protection Agency, the National Park Service, Fish and Wildlife Services, or any combination of these agencies.

Before the federal government granted California authority over its underground injection wells in 1983, exemptions were granted to the oil industry that effectively allowed it to drill and inject wastewater into underground water supplies that the government deemed unlikely to be used as sources of drinking water. Questions remain as to whether exemptions of this sort are advisable, especially if California continues to contend with droughts. 

Today’s new oil production techniques are being met with new regulations under the purview of the California Department of Conservation’s Division of Oil, Gas, and Geothermal Resources. California’s new hydraulic fracturing regulations, for instance, require background monitoring, permits for well stimulation, injected fluids disclosure, community notification, and random spot checks during drilling. While a step forward in terms of oversight, California’s new rules will need to be carefully implemented, monitored, and enhanced. Only time will tell if the new law is excessively stringent, strikes the right balance, or falls short in assessing the value of oil production against that of water protection in the Monterey basin.

Moving forward, the state of California needs to investigate all well stimulation treatment techniques and address concerns over inadequate permits granted through 2014. And a new joint water-oil policy agency may be needed to develop best practices for safe management of future oil-water risks.

Balancing Oil Abundance With Water Scarcity

Producing oil resources, especially increasingly difficult-to-extract tight shale oil, in a state that is facing “an unprecedented water crisis” presents major challenges. Future oil production must take California’s serious water constraints into account.

Tapping oil in the Monterey shale should only be allowed if it is done in economically and environmentally sound ways. According to Chevron CEO John Watson, the jury is out as to whether companies can strike this balance. The oil industry has not yet reached a final conclusion on the development potential in the Monterey basin. 

But some companies may be willing to take greater risks than others. Smaller oil companies, including Santa Maria Energy, Venoco, and Occidental Petroleum, are already present. These players are eager to develop the Monterey basin in part because California, unlike many other states, does not impose an excise tax on companies extracting oil. Other major oil-producing states impose taxes ranging from 4.75 percent (Texas) to up to 50 percent (Alaska). In effect, this means that California offers a hidden subsidy, although the state senate is considering a bill that would remove this subsidy and impose a 9.5 percent tax on all petroleum extracted.3

The state will need to work closely with an increasingly diverse oil industry—ranging from large international companies to small independent ventures—to develop best practices. Many oil companies are not used to working in California, and the state runs a higher risk of acquisitions, mismanagement, and even bankruptcy when independent operators are involved.

These concerns will dominate the future of oil development and water management. While the twentieth century was marked by fossil fuel resource scarcity, water is becoming the twenty-first-century resource concern. If California is going to safely navigate the oil-water nexus—protecting its economy, environment, and public health—the state will have to continuously revisit its water and oil policies. Greater oversight, expanded monitoring, new fiscal measures, and the development of best practices will be required.


Notes

1 Note that the offshore portions of the Monterey Basin are included in the map but beyond the scope of this article.

2 State and federal open waters, while critical in terms of environmental protection related to oil, are handled differently than surface and groundwater.

3 Senate Bill (SB) 241 would remove this hidden oil subsidy. The “Oil Severance Tax Law” would impose a severance tax on oil companies for petroleum extracted off- and onshore in California. A water rider could be added to the oil tax, either up front or upon evidence of elevated water risks borne by oil extraction in the state.

End of document

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Comments (1)

 
 
  • Anthony Alfidi
    2 Recommends
     
    This drought is a harbinger of shortages to come. The Golden State is about to get a lot stingier with water. California's future water plans pose big opportunities for business. Mixing innovation, regulation, and smart land use allows the private sector to find cost-effective solutions. http://alfidicapitalblog.blogspot.com/2014/01/business-opportunities-in-california.html
     
     
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