States of Wonder

In our most recent SOS blog, we asked Why on Earth? – wondering why, on Earth Day, some are so concerned about environmental impacts without really knowing what is impacted and how.

 

We are still in a State of Wonder. This time, about the economic state of two…States.

 

A May 6, 2013 editorial in the Wall Street Journal (WSJ) compares California and Texas – two states that are similar in having an abundance of oil and gas, but quite dissimilar in how their citizens view and, therefore, use the resource. Economic indicators show how this difference can impact our daily lives.

 

The editorial, entitled A Tale of Two Oil States, provides a graphic that says it all.

Energy-boom-and-bust

 

Texas and California have been competing for years as models of U.S. growth, but with few comparisons based on energy. The following differences were highlighted in the editorial:

–       Texas has doubled its oil output since 2005. Texas Railroad (and Oil) Commissioner Barry Smitherman told the WSJ (2013) “total production could double by 2016 and triple by the early 2020s.”  In contrast, California’s oil production has fallen 24% from 2001 to 2012, with an average yearly decline rate of 17%. At this rate, production would fall to zero well before 2050 (Energy Information Administration [EIA] 2013, Energy & Capital 2012).

–       Large investments have been made by California financiers on biofuels and alternative/renewable energy sources. (Our SOS blog entry Why on Earth discussed positive and negative aspects of the development of renewable energy sources.) Texas has invested heavily in wind power but not at the expense of oil production (WSJ 2013).

–       Most Texas oil is on private lands, which owners are willing to lease at a price (WSJ 2013).  In California many oil-rich areas are state or federally owned, and a moratorium blocks new offshore leasing.

–       Monterey Shale also comes into play – as discussed in the SOS blog What the Frack, this formation has the potential to provide energy resources that would provide tax and royalty income to fill the coffers of our cash-strapped state. However, the process of hydraulic fracturing, used safely for years in California, has become the dirty word “fracking” – influencing decisions on project approval.  It’s a drilling process that Texas … and other states have safely regulated for years (WSJ 2013).

 

These differences in production do not occur because California is running out of oil. To the contrary, California has huge reservoirs offshore.  A large part of the explanation for the Texas boom and the California bust is the culture. Despite our cars, Californians consider fossil fuels to be “dirty energy.”  Texas loves being an oil-producing state while California is embarrassed by it (WSJ 2013).

 

In fact, not only is California not producing the energy most available within its borders – but it is increasingly reliant on foreign imports. That really makes you wonder!  According to the EIA (2013), California refiners process large volumes of Alaskan and foreign crude oil received at ports in Los Angeles, Long Beach, and the Bay Area. Crude oil production in California and Alaska is in decline and California refineries have become increasingly dependent on foreign imports. Led by Saudi Arabia, Iraq, and Ecuador, foreign suppliers now provide more than two-fifths of the crude oil refined in California.

 

California has the natural resources and technical expertise to reap the economic benefits that Texans enjoy through their openness to oil and gas exploration and production. What it needs is the political will (WSJ 2013).

 

SOS is committed to educating the public on the potential benefits that California would realize by producing oil from offshore seep areas. Our second documentary, The Road2Energy Independence, places particular focus on the potential economic windfall.

 

SOS is featuring the WSJ editorial in our blog, California Oil, to highlight the economic consequences endured by California because of misconceptions associated with using our most abundant energy source. A few examples:

–       Texas has been leading the nation in job creation since the recession ended. The energy boom is creating thousands of jobs related to drilling but also in downstream industries such as transportation, high-technology, construction and manufacturing (WSJ 2013).

–       According to the Bureau of Labor Statistics (BLS) Unemployment Rate for States Monthly Rankings (Seasonally Adjusted, March 2013), the Texas jobless rate is 6.4% while California’s is the third highest at 9.4% (BLS 2013).

–       More than 400,000 Texans are employed by the oil and gas industry.  This is almost 10 times more than in California. In addition, in Texas, Mr. Smitherman has stated that the average salary is $100,000 a year (WSJ 2013).

–       In Texas, the oil industry generates about $80 billion a year in economic activity.  Texans are realizing another benefit from oil production: money to fund government services. James LeBas, a fiscal consultant who also works as a lobbyist for the Texas Oil and Gas Association, estimates that oil and gas interests paid about $12 billion in taxes in Texas in fiscal 2012, up from $9.25 billion in 2011 and $7.4 billion in 2010 (State Impact 2013). This helps Texas avoid a state income tax. California’s top marginal income-tax and capital-gains tax rate is 13.3% (WSJ 2013).

 

Since the WSJ editorial touched on issues pivotal to the mission of SOS, and on the subjects of postings in our blog thus far, our Treasurer, Jim Nelson, wrote a response. The WSJ hopped on it, and Jim’s comments were published May 11, 2013.

 

Jim knows whereof he speaks. Prior to joining SOS, Jim was Chief Financial Officer, Vice Chairman and a Director of Cal Dive International, Inc., a marine contractor and operator of offshore oil and gas properties and production facilities. Jim currently serves on the boards of 5 publicly traded and privately owned energy companies.  He was asked to join our board by SOS co-founder, Lad Handelman.  Lad was an abalone diver in the 1960s who formed the original California Divers and pioneered the first use of mixed gas diving when oil exploration in the Santa Barbara Channel went beyond 250 feet.  It is hard to recall but just four decades ago California was at the leading edge of offshore technology.

 

Jim’s extensive experience analyzing the economics associated with all aspects of oil and gas exploration and production is what drew him to SOS. He is able to see the potential that California’s vast resources offer.  Jim’s response to the WSJ editorial states, in part:

–       An estimated 2-4 billion barrels of oil are thought to be in the Santa Barbara Channel with a total of 14-19 billion barrels in waters offshore California

–       Development of those reserves not only would generate the economic benefits (the editorial) discuss(es) but would also clean up the environment.

–       There are 2,100 natural oil and gas seeps in the Santa Barbara Channel, second largest in the world, which each year emit oil into the ocean that is the equivalent of the 1969 California oil disaster and every four years the equivalent of the Valdez oil spill.

–       Hydrocarbon offshore seeps are the largest source of air pollution in Santa Barbara County.

–       Producing the underlying oil reserves has been documented to clean up our beaches and our air.

–       (Californians) pay $1.00 a gallon more for gasoline than in Texas.

 

A Santa Barbara County economic boom could mirror or surpass that of the State of California’s if oil and gas were to be developed locally.  Mark Schniepp, head of the Goleta-based California Economic Forecast, spoke before a November 8, 2012 gathering of the Santa Barbara Technology & Industry Association. Regarding the economy, he stated “I don’t see any change in the next four years….But people will continue to mistakenly hope more green industry jobs will bail us out.”  Schniepp said that won’t begin to happen until after the year 2030, but “will cost us a lot.” (Santa Barbara View 2012).

 

Dr. Schniepp added that some 230,000 California jobs will be created in 2013 (in construction due the need for houses, and in school hiring due to Proposition 30) , but the unemployment rate won’t begin to decline to pre-recession levels until 2015.  He added, “We need a new (job) engine.” Schniepp said if California used its vast, untapped oil and natural gas deposits during the next 40 years, it would have billions of dollars in revenue and hundreds of thousands of new jobs.  He admitted state and federal moratoriums on new oil leases make increased

petroleum exploration in California unlikely for the moment (Santa Barbara View 2012).

 

Given our crumbling roads and an education system that is ranked 49th out of 50 states in per-pupil spending (EdSource 2013), it’s a wonder California is not following Texas’ lead. AND with the potential for a healthier environment from offshore oil production, we could do them one better.

 

Now we wonder…who’s ready for a little state competition?

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REFERENCES

BLS 2013. U.S. Department of Labor, Bureau of Labor Statistics. http://www.bls.gov/web/laus/laumstrk.htm

 

EdSource 2013. California drops to 49th in school spending in annual Ed Week report. John Fensterwald, January 14, 2013. In EdSource, Highlighting Strategies for Student Success.
http://www.edsource.org/today/2013/california-drops-to-49th-in-school-spending-in-annual-ed-week-report/25379#.UZSBrO3n9jo

 

Energy & Capital 2012. California Oil Production, Is This a Fool’s Oil Rush? Keith Kohl, November 20, 2012 http://www.energyandcapital.com/articles/california-oil-production/2819

 

EIA 2013. U.S. Energy Information Administration. http://www.eia.gov/state/print.cfm?sid=CA

 

Santa Barbara View 2012. Santa Barbara Business Beat, Ray Estrada. November 9, 2012.

http://www.santabarbaraview.com/santa-barbara-business-beat-2/

 

State Impact 2013. Shale Boom Has Major Impact on Texas’ Budget. Kate Galbraith, Texas Tribune. In State Impact, A reporting Project of NPR Member Stations/ Texas, Reporting on Power, Policy and the Planet.

http://stateimpact.npr.org/texas/2013/04/30/shale-boom-has-major-impact-on-texas-budget/

 

Wall Street Journal (WSJ) 2013.  A Tale of Two Oil Stateshttp://online.wsj.com/article/SB10001424127887324695104578416871045535226.html?

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