Can CA Survive Without Oil? Two Perspectives

Gas-Pump-blue-generic+flippedA week ago, Zocalo Public Square published an article, Imagining California Without Oil Refineries, by one of its editors, Lisa Margonelli, suggesting that Californians are embracing new technology that will lead to an oil free future. She wrote that not being gasoline consumers has become part of many Californians’ identities. Meanwhile, the California Resources Corporation (CRC), a publicly traded oil and natural gas exploration and production company, produced a website also asking Californians to imagine the state without oil. The two imaginings could not have been more apart.

The Zocalo piece spoke of the history of the environmental movement in the Golden State and the fact that younger generations are limiting consumerism and supporting a new way of living that reduces — and some day would eliminate — the need for oil. The CRC imagined a day without oil and offered a list of products that would disappear. Never mind the energy that is used to power products, petroleum is raw material used in refrigerators, dishes, smartphones, coffee makers, kayaks and more.

But it was the area of economic effects that made me take notice.

Margonelli wrote that, “Technologies as diverse as Facebook, compost bins, and electric vehicles have made many Californians see themselves as participants in building an oil-free future, without much fear of the potential downsides.”

And: “Rather than being afraid, a surprising number saw an economic upside in getting oil out: In polls, 43 percent of Californians said that cutting gasoline use would create jobs, while only 13 percent said it would kill them.”

(I might note that the PPIC poll respondents don’t always have the best information. Continually when asked, they describe prisons as getting the most money from the state budget and education near the bottom when the opposite is true.)

But accepting for the moment that there would be a rush of new jobs with technology and alternative energy what might be lost if we shut down the oil business?

The CRC made the following assertions:

The industry directly employs 184,100 Californians from diverse backgrounds and all levels of the socio-economic spectrum, which translates into $23.3 billion per year in wages and salaries for oil and natural gas jobs. It offers jobs to workers of all education levels, including truck drivers, geophysicists, chemists and machinists.

The oil and natural gas sector reflects California’s diversity. Over a quarter of the statewide industry workforce is Latino … In California, the average annual oil and natural gas industry salary of $118,032 is double the $56,590 average for other private industry jobs, according to a 2015 report by the Los Angeles Economic Development Corporation (LAEDC).

In total labor income alone, the oil industry injected $40 billion annually into the state’s economy, according to the LAEDC report. These salaries filter into the local economy through the vendors who work with the oil companies and the local businesses frequented by workers… The oil industry supported 456,000 jobs in the state, or 2.1 percent of California’s employment, and generated more than $204 billion in direct economic activity.

In addition, U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. According to Standard & Poor’s research, in 2013 the oil and natural gas industry paid an average effective tax rate of 40.2 percent versus 22.3 percent for other S&P 500 industries such as healthcare, retail, utilities, media and pharma.

In California, nearly $22 billion in state and local taxes collected in 2013 can be attributed to the oil industry, as well as $14.8 billion in sales and excise taxes, according to the LAEDC report, all of which help fund essential services and infrastructure that Californians rely on every day.

The issue of taxes paid by oil and gas companies plays against the future imagined in the Zocalo piece. Will the new alternative energy industries produce the same kind of revenue for the state?

The end-oil commentary concluded that a young woman was driving an electric vehicle – a Leaf—“with state and federal incentives.” (The family) “even installed solar panels that feed the Leaf, making them participants in generously funded state programs…”

You wonder if we cut out the traditional energy industries with all those jobs and the billions paid by the oil and gas industry in taxes if there will be revenue available to offer generous state funded incentives to buy solar panels and electric vehicles or pay for other budget items.

Originally published by Fox and Hounds Daily

VIDEO interview: Gov. Scott Walker on Iran, Russia and Keystone XL

Wisconsin Gov. Scott Walker addresses criticisms of his limited foreign policy experience — discusses U.S. policy regarding Iran, Middle East and Russia in an exclusive interview with Orange County Register Opinion editor Brian Calle.

Hermosa Beach Torpedoes Oil Opportunity

Drill, baby, drill?

In Hermosa Beach on Tuesday, voters instead replied: No, baby, no.

On the wave of a big turnout, 79 percent of city voters rejected Measure O for “oil.”  According to Ballotpedia, the measure would have authorized 34 new wells through “an oil drilling and production project agreement between the city and E&B Natural Resources Management Corporation, providing for an exemption to the city’s ban on oil and gas drilling.”

Though the politics of drilling turned the city vote into fodder for a familiar national controversy, the outcome hinged on a decades-old saga affecting the beach community. At the same time, clear ideological lines were blurred by the complicated scheme of subsidies promised to Hermosa Beach and its public schools.

A historic vote

Especially in recent years, the word “historic” has been used to describe outcomes or events that count toward some bigger sense of progress or social change. Although anti-drilling advocates made clear they viewed the Hermosa Beach vote that way, voters cast their ballots against the backdrop of a more traditional kind of history.

For years, long-running peculiarities defined their municipality’s hesitant approach to oil. As the LA Weekly recounted, Hermosa Beach has puzzled through the costs and benefits of drilling for generations.

A 1932 vote wiped out any oil and gas exploitation within city limits. Residents only loosened the ban in 1984, green lighting two initiatives that allowed drilling at two locations. One such permit went to Macpherson Oil.

By 1992, the City Council had signed off on a so-called slant drilling plan; Macpherson would access offshore oil by angling its bits and pipes from an onshore facility.

Three years after the slant drilling plan was approved, voters pulled the rug out from under Macpherson by reimposing their 1932-era ban on all drilling. Three years after that, in 1998, the City Council reversed itself completely and opted to scuttle Macpherson’s whole setup.

Perhaps predictably, Macpherson took the city to court. Perhaps even more predictably, the case never made it to trial.

settlement blessed Macpherson’s sale of its Hermosa Beach stake to another firm, E&B Natural Resources, which secured, as part of the deal, an allowance to seek voter approval for its own take on the Macpherson plan.

Late last year, the Hermosa Beach City Council finally gave its approval to the wording of E&B’s ballot initiative — vowing to stay neutral and merely provide voters information in the run-up to this week’s referendum.

Shock waves

At once, friends and foes of offshore American drilling interpreted the long-gestating Hermosa Beach vote as a bellwether. Advocates on both sides sprung into action accordingly.

Up and down the L.A. coast, anti-drilling activists used the vote to warn that, if Hermosa Beach approved E&B’s plan, drilling would proliferate. The Santa Monica City Council could offer only token opposition, but did.

Manhattan Beach, the nearby Del Rey Neighborhood Council and the Surfrider Foundation followed suit. Heal the Bay, the National Resources Defense Council and others brought Robert F. Kennedy Jr. into town to decry the measure.

In an effort to woo voters, meanwhile, E&B worked to ensure that it helped subsidize popular local priorities. As the New York Times observed, the quirks of the agreement that teed up the vote put E&B in the strange position of punishing Hermosa Beach if residents voted against it. Opting against drilling triggered a payout of $17.5 million in damages to E&B, “the equivalent of about half the annual general fund budget in this city of almost 20,000 people.”

Currying favor, E&B touted the $600 million-odd windfall in royalties it said Hermosa Beach would enjoy if the deal went through.

Oil markets

But the exigencies of the oil markets, and the shifting sands of its increasingly complicated agreements, made the potential payout more uncertain. A cost-benefit analysis commissioned from Kosmont Companies by the City Council assumed oil would hover around $95 a barrel. But the plunging oil prices of recent months forced Kosmont to revise its analysis in a supplemental report designed to better sync estimates with market prices and future projections.

Reported EasyReaderNews.com:

“The school district would receive $1.8 million at $95 per barrel and $1.4 million at $40/per under the terms of the lease agreement, Kosmont said. The education foundation would receive $16.5 million at $95 per barrel and $7.1 million at $40 per barrel under the terms of the development agreement, Kosmont said.

“Should voters not lift the oil ban, Kosmont said, the city would need to repay E&B the $17.5 million loan. The city has $6 million set aside to meet this obligation. The balance, Kosmont said, would cost $825,000 to finance over 30 years. The city’s current annual budget is $34 million.”

Amid the flurry of numbers, Hermosa Beach residents found themselves increasingly divided, even bickering over the vote. The anxiety of drilling may now be over, but the costly payout now adds to the burden of taxpayers.

Originally published by CalWatchdog.com

Whether Politicians Like It or Not Gasoline Is California’s Life Blood

The Field Poll reports that for the first time in seven years more California voters believe the state is moving in the right direction (50 percent) than feel it is on the wrong track (41 percent). Those living in coastal California are much more likely to have a positive outlook on our state’s future than inland residents. And Democrats are more optimistic than Republicans, so it may be safe to assume that Democrats living in Malibu, Silicon Valley and the Bay Area are much happier than Republicans living in Central Valley and other areas with high unemployment.

Like politicians everywhere, California’s governing class will attempt to claim credit for this reversal of what had been nearly unanimous pessimism.  Moreover, they will also claim that this is vindication of progressive policies that have given California one of the most harsh tax and regulatory environments in the nation.

However they explain the voters’ optimism, they are unlikely to bring up the one thing for which they can claim no credit whatsoever; the lower gas prices that existed during the period the poll was conducted, January 26-February 16, just before the cost of a gallon of gas began to vault upward again.  With prices in late January down almost 2 bucks per gallon since the high in 2014, many Californians have had reason to smile. It is also interesting to note that the last time more voters than not were positive about their state, gas prices were also down.

Even if there is not an exact correlation, when drivers who fill up their cars two or three times a month see that they are saving money, they are definitely in a better mood.What is ironic is that while the Sacramento political class may want to take credit for voter optimism, they have been working overtime to keep the cost of gasoline high. Between the high gas tax and the additional “carbon tax” imposed on manufacturers that is putting upward pressure on prices, the politicians have proven they are no friend of the millions of average folks who must depend on their cars for transportation.  According to State Board of Equalization Member George Runner, even with the price dip, Californians in January were paying as much as 47 cents more per gallon than drivers in other states.

Acknowledging that gas taxes are providing sufficient revenue, the State Board of Equalization last week reduced the state gas tax by 6 cents a gallon beginning this July. The reduction is based on a formula enacted by the Legislature in 2010, a formula that is so complicated that most news reporters don’t understand it.  Runner rightfully objects to this confusing system that hides the actual cost of the gas tax by hiding the second carbon tax that is only reflected in the overall price.  Currently, Californians pay about 64 cents per gallon in taxes and fees — the second-highest rate in the nation — but we become number one when the hidden tax of about 15 cents is added in.

If the Sacramento politicians really want to see voters smile, they should lay off trying to increase costs for the millions of Californians who depend on their cars to go to work, take their children to school and to do the weekly shopping.  Because one thing is certain – the optimism that Californians are feeling now will disappear in a heartbeat if gas prices return to what they were less than a year ago.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Economic Contrast: Texas vs. CA

In the last decade, Texas emerged as America’s new land of opportunity — if you will, America’s America. Since the start of the recession, the Lone Star State has been responsible for the majority of employment growth in the country. Between November  2007 and November 2014, the United States gained  a net 2.1 million jobs, with 1.2 million alone in Texas.

Yet with the recent steep drop in oil prices, the Texas economy faces extreme headwinds that could even spark something of a downturn. A repeat of the 1980s oil bust isn’t likely, says Comerica Bank economist Robert Dye, but he expects much slower growth, particularly for formerly red-hot Houston, an easing of home prices and, likely, a slowdown of in-migration.

Some blue state commentators might view Texas’ prospective decline as good news. Some, like Paul Krugman, have spent years arguing that the state’s success has little to do with its much-touted business-friendly climate of light regulation and low taxes, but rather, simply mass in-migration by people seeking cheaper housingSchadenfreude is palpable in the writings of progressive journalists like the Los Angeles Times’ Michael Hiltzik, who recently crowed that falling energy prices may finally “snuff out” the detested “Texas miracle.”

Such attitudes are short-sighted. It is unlikely that the American economy can sustain a healthy rate of growth without the kind of production-based strength that has powered Texas, as well as Ohio, North Dakota and Louisiana. De-industrializing states like California or New York may enjoy asset bubbles that benefit the wealthy and generate “knowledge workers” jobs for the well-educated (nationwide, professional and business services employment rose by 196,000 from October 2007 through October 2014), but they cannot do much to provide opportunities for the majority of the population.

By their nature, industries like manufacturing, energy, and housing have been primary creators of opportunities for the middle and working classes. Up until now, energy  has been a consistent job-gainer since the recession, adding  199,000 positions from October 2007 through October 2014, says Dan Hamilton, an economist at California Lutheran University. Manufacturing has not recovered all the jobs lost in the recession, but last year it added 170,000 new positions through October. Construction, another sector that was hard-hit in the recession, grew by 213,000 jobs last year through October. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes.

Reducing the price of gas will not change the structure of the long-stagnant economies of the coastal states; job growth rates in these places have been meager for decades. Lower oil prices may help many families pay their bills in the short run. But there’s also pain in low prices for a country that was rapidly becoming an energy superpower, largely due to the efforts of Texans.

Already the decline in the energy economy, which supports almost 1.3 million manufacturing jobs, is hurting manufacturers of steel, construction materials and drilling equipment, such as Caterpillar. Separately, the strengthening of the dollar promises harder times ahead for exporters  in the industrial sector, and greater price competition from abroad, amid weakening overseas demand. Factory activity is slowing, though key indicators like the ISM PMI are still signaling that output is expanding.

Right now in Texas, of course, the pain is mounting in the energy sector. Growth seems certain to slow in places such as Houston, which Comerica’s Dye says is “ground zero in the down-draft.” Also vulnerable will be San Antonio, the major beneficiary of the nearby Eagle Ford shale. The impacts may be worst in West Texas oil patch towns like Midland, where energy is essentially the economy.

Yet there remain reasons for optimism. Cheaper energy prices will be a boon for the petrochemical and refining industries, which are thick on the ground around Houston and other parts of the Gulf Coast. The Houston area is not seeing anything like the madcap office and housing construction that occurred during the oil boom of the 1980s. Between 1982 and 1986 the metro area added 71 million square feet of office space; including what is now being built, the area has added just 28 million square feet since 2010. Compared to the 1980s, the residential market is also relatively tight, with relatively little speculative building.

The local and state economies have also become far more diversified. Houston is now the nation’s largest export hub. The city also is home to the Texas Medical Center, often described as the world’s largest. Dallas has become a major corporate hub and Austin is developing into a serious rival to Northern California’s tech sector.

Texas needs to increase this diversification given that oil prices could remain low for quite a while, and even drop further after their recent recovery.

This is not to deny that the state is facing hard times. Energy accounts for 411,372 jobs in Texas, about 3.2% of the statewide total, according to figures from Austin economist Brian Kelsey quoted in the Austin American-Statesman. If oil and gas industry earnings in Texas fall 20%, Kelsey estimates the state could lose half of those jobs and $13.5 billion in total earnings.

Low prices also could also devastate the state budget, which is heavily reliant on energy industry revenues. A reduction in state spending could have damaging consequences in a place that has tended to prefer low taxes to investing in critical infrastructure, and is already struggling to accommodate break-neck growth. The only good news here is that slower population growth might mitigate some of the turndown in spending, if it indeed occurs.

But in my mind, the biggest asset of Texas is Texans. Having spent a great deal a time there, the contrasts with my adopted home state of California are remarkable. No businessperson I spoke to in Houston or Dallas is even remotely contemplating a move elsewhere; Houstonians often brag about how they survived the ‘80s bust, wearing those hard times as a badge of honor.

To be sure, Texans can be obnoxiously arrogant about their state, and have a peculiar talent for a kind of braggadocio that drives other Americans a bit crazy. But they are also our greatest regional asset, the one big state where America remains America, if only more so.

This piece first appeared at Forbes.

Cross-posted at New Geography and Fox and Hounds Daily

Hydraulic Fracturing Major Contributor to CA’s Economic and Energy Future

The release of the draft EIR on Well Stimulation Operations marks an important milestone in meeting the deadlines set by Senate Bill 4. WSPA and our members are reviewing the details of the draft EIR and will continue to participate in workshops and public discussion regarding SB 4.

While we are pleased with the state’s process on implementing Senate Bill 4, it is important to note the draft EIR contemplates hypothetical development scenarios and provides a high level review.

To date, well stimulation in California has never been associated with any known adverse environmental impacts.

California has been a major producer of oil for well over 100 years.  We produce close to 600,000 barrels of oil per day, making us the third largest oil producing state in the nation, behind Texas and North Dakota. The vast majority of this production takes place in Kern County at the southern end of California’s San Joaquin Valley.

California also is home to significant shale oil resources, the largest of which is the Monterey Shale Formation that lies under large parts of the San Joaquin Valley and Southern California.

Hydraulic fracturing is a safe and proven energy production technique used to obtain oil and natural gas in areas where those energy supplies are trapped in tight rock and shale formations. Once a well has been subjected to hydraulic fracturing, crude oil or natural gas production may occur for years without additional fracturing.

Hydraulic fracturing operations occur over very short time periods, usually two to five days. Once an oil or natural gas well is drilled and properly lined with steel casing, fluids are pumped down to an isolated portion of the well at pressures high enough to cause tiny fractures in rock formations thousands of feet below the earth’s surface. These fractures allow oil and natural gas to flow more freely.

Hydraulic fracturing is a common well stimulation technique that has been linked to America’s dramatic domestic energy resurgence and economic recovery. Most notably, hydraulic fracturing is connected with natural gas production in parts of the Northeast and Intermountain West regions of the United States and with oil shale production in North Dakota and Texas. Hydraulic fracturing, a technology that has been used safely for more than 60 years, has played a critical part in helping the United States become energy independent.

Energy producers in California continue to fuel the West with affordable and efficient domestic energy and are major contributors to the state’s economy and energy future.

 is president of the Western States Petroleum Association

This article was originally published on Fox and Hounds Daily

CARTOON: Carbon Tax Grinch

Carbon Tax

Rick McKee, The Augusta Chronicle

Pipeline vs ChooChoo

Keystone pipeline

Steve Sack, The Minneapolis Star Tribune

Voters affirm CA fracking

 

 

Monterey ShaleAfter a lot of spending and acrimony, little has changed from California’s high-profile ballot measures to ban hydraulic fracturing, which injects a mix of substances into shale rock to free up oil for extraction.

In two counties with little to no oil drilling — San Benito and Mendocino — anti-fracking measures prevailed. San Benito’s Measure J passed with almost 57 percent of the vote. Mendocino’s Measure S prevailed with 67 percent voting in favor.

In Santa Barbara county, however, where drilling has been well established for over a century, fracking was protected. There, Measure P was defeated by 63 to 37 percent.

Santa Barbara, host to the oil industry since the late 19th century, had the most at stake. In 1969, the county suffered a dramatic offshore oil well disaster that triggered environmental legislation and galvanized the environmentalist movement. Although oil production held on, the industry had to invest substantial sums to fend off the fracking ban.

According to the San Francisco Chronicle, Chevron (headquartered in San Ramon) ponied up $2.6 million to sink the three measures, with Aera Energy adding $2.1 million and Occidental Petroleum another $2 million.

Supporters of the ban raised only a fraction of that.

Political geography

Geography dictated the focus of the fracking debate. The three counties lie on and around the Monterey Shale formation, which winds and twists its way through much of California. The Chronicle reported that “the federal government this year slashed its estimate of the amount of oil that can be squeezed from the shale using current technology,” although “drillers continue probing the formation, saying it could one day yield an economic bonanza for the state.”

As David Quast, California director of the pro-fracking organization Energy in Depth, indicated to Platts, “The U.S. Geological Survey in 1995 estimated that the Bakken Shale in North Dakota contained just 151 million barrels of recoverable oil, only to significantly boost that projection in 2008 to 3-4 billion barrels, and then again doubling it last year.”

Yet, as Platts reported, the U.S. Energy Information Administration announced in May that the Monterey Shale formation was very unlikely to yield a bonanza. Its estimate of “technically recoverable resources” plunged by 96 percent, “from 13.7 billion barrels in a 2012 study to 600 million barrels in a study” released in June.

California at a crossroads

With the split decision by voters in Santa Barbara, San Benito and Mendocino, the legal landscape surrounding fracking has become even more fractured. In Sacramento, as The Huffington Post reported, the state Senate “narrowly voted against a statewide fracking moratorium earlier this year,” while “Santa Cruz County and the city of Los Angeles already have similar bans in place.”

Meanwhile, Gov. Jerry Brown rankled environmentalists last year by supporting legislation that “would allow fracking to continue while lawmakers implemented a specific set of regulations and experts studied its potentially hazardous effects.”

In a further twist, California’s weather has clashed with changing consumer tastes to add a layer of complexity to the fracking debate. Since fracking requires the use of substantial amounts of water, the Golden State’s current drought has intensified the trade-offs associated with its use.

But energy exploration and development have not turned out to be the only culprit in the competition for scarce resources. The burgeoning market for almond milk has pushed the market for California-grown, water-intensive almonds so high the nuts now generate $4 billion a year in revenue, according to the Guardian. Monterey County, where water is also scarce, grows 44 percent of the world’s lettuce.

Kern County, meanwhile, has faced direct competition between Californians’ energy needs and dietary tastes. California’s oil-producing regions have been struggling to make do with current water supplies.

While half of America’s carrot crop and 40 percent of its pistachio crop come from Kern, the Guardian observed, the county’s oil fields are the sixth largest in the United States.

Water vs. oil: It’s an old California battle that will continue.

This article was originally published on CalWatchdog.com