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California's Top Oil Regulator on Fracking, Climate Change, and Fossil Fuels California's Top Oil Regulator on Fracking, Climate Change, and Fossil...

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The New Energy Paradigm

California's Top Oil Regulator on Fracking, Climate Change, and Fossil Fuels

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(Amy Harder)

Gov. Jerry Brown, a Democrat, leads the eighth-largest economy in the world, and this powerhouse is wading into the national debate over hydraulic fracturing, the oil and natural gas boom, and what it means for the economy and environment. Mark Nechodom, who as the state's Department of Conservation director is Brown's top oil and natural gas regulator, recently spoke with National Journal about the state of the energy play in the Golden State. Edited excerpts of the interview follow.

What was the impetus behind the recently enacted law regulating hydraulic-fracturing activities?

 

The broader picture all across the country as you've now seen is that there is great interest, which starts with fracking, but it broadens out to how oil and gas actually work and the potential environmental impact.

In California it has been used for 60 years, and actively used for 40 years, and in California there has been not one record of reported damage directly to the use of hydraulic fracturing. But despite that, given the great nationwide wave of concern, we at the Department of Conservation are treating this as an opportunity to again embrace public demand for knowledge and transparency, and this is an opportunity for people to learn where their oil comes from, just the same way we want to teach people where their milk and water come from.

It is inaccurate to say … that hydraulic fracturing stimulation is not monitored or not regulated. That's simply just not true.

 

It is a regulated activity in the sense we regulate all activities that are done in the drilling and completion of an oil and gas well. From the regulator perspective, hydraulic fracturing stimulation is one of several activities that take place in the operation of a well or increasing the productivity of a well.

But we are not dismissive about this. In the year and a half or year and three quarters in this position after being appointed in January 2012, I've learned an enormous amount about the oil and gas industry and have been intimately educated about their practices in the field. And from my perspective, it is something that is done safely.

People don't even realize California is an oil producer, let alone that it's the fourth largest oil and gas producer in the country. Most people know nothing about California's oil and gas industry. To suddenly get all concerned about one particular activity is a little out of proportion. I'm not being dismissive about this. Let's treat this as an opportunity.

How do you respond to the criticism the law faces from environmentalists who say it's watered down and doesn't even start requiring disclosure of fracking activities until 2015?

 

I simply disagree. It's not been watered down. It was the best they could do.

How common is fracking now in California? I've gotten a wide range of answers on this question. Does the fact that the practice isn't regulated make that question difficult to answer?

By our count, because of the voluntary reporting requirement that we put in place over a year ago, we might see around 650 hydraulic fracturing jobs a year. We issue between 2,000 and 3,000 drilling permits a year. Not every well is fracked when it's drilled and completed. Some of the hydraulic fracturing jobs are done on wells 10-20 years old. As we get the emergency regulations or whether we use emergency regulations or compliance with S.B. 4 [the fracking law] as of January 1 this coming year, we will have really begun accumulating data on well stimulation. That data will give us a lot more accurate picture of how much is going on.

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Tell me more about the voluntary reporting.

In the first 60 days [of my tenure], it was quite clear the legislature had a much different picture in their minds of the importance of regulations of hydraulic fracturing. So literally within 90 days of my tenure we put out a notice to operators requesting that they voluntarily report hydraulic fracturing jobs on [the industry-run website] FracFocus. The reason it was voluntary is we cannot order people to do something without going through the rulemaking process. There was no sense in doing a formal rule-making to do reporting. So we asked to voluntarily report, and the industry stepped up. They started to report and went back in history and recorded all of their fracture jobs back to 2007.

Was there any reporting before this?

No. There didn't appear to be any need to.

From regulators' point of view, engineers in the field ask themselves: "Is there an activity going on that rises to the level of risk that warrants a level of monitoring?" And quite frankly, for 40 years the division didn't see hydraulic fracturing as something that was a specific event of high risk, like for example every blowout prevention equipment test will be witnessed by one of our engineers because a failure from our point of view is a very catastrophic event.

So we do report all of that, and it's all in there in [the] electronic well. It's risk-based. Since we had not seen hydraulic fracturing as a high-risk activity compared to other things done in the oil patch, it was not reported.

Do you think the perception people have on fracking has outgrown the specifics of the actual drilling technique itself?

I do. I think it's legitimate for us as the regulators to apply science and risk management to the perception, and we'll sort it out. Look at it 10 years down the road, after strong reporting requirements, and I think my suspiscion will be that we discover we have been doing pretty well. Right now that's a working hypothesis. I can't tell you based on data.

How do you respond to the environmental and public-health concerns about another well-stimulation practice called acidizing, which puts large amounts of hydrofluoric or hydrochloric acid down wells?

We must be careful with some of the terms here. Acidizing is a term that's generated from the environmental community concern; it's not necessarily an industry term. We're using hydrofluoric or hydrochloric acid at some percentage, about 15 percent concentration.

There are different ways of using acids. Most of the use of acid in the oil patch is for routine maintenance, like dissolving minerals around the well bore.

We're now by regulation going to set the line so you're not going to regulate standard maintenance and cleanup, but we will regulate any time a treatment is to change that permeability of the rock formation, geology around the well.

You recently said, without hesitation, that Governor Brown unequivocally supports fracking. Why such an easy, clear-cut answer amid the environmental concerns?

What the governor has said is here we have technique—whether it's fracking or well-stimulation of any kind—and we have two-thirds of the known reserves of oil shale deposits in the United States, and we should sensibly be producing that. It's an enormous opportunity for the state to develop economically, and he [Brown] has said it needs to be well regulated.

He placed his trust in me, my division, to get this stuff right. And I come from a scientific background: Ph.D. in environmental policy and political science, done hard science for years in the fed government. I have a pretty good science nose, and I am committed to using good solid science and evidence-based rulemaking. That's why I'm not particularly worried, because I'm not going to let some sloppy work go by so the industry can make a lot of money.

What can California teach the rest of the country about oil and natural gas regulations?

We actually have much more stringent standards than many states. I'm always very cautious, because I certainly don't want to criticize other states and their regulations, and don't want to do the standard [talk] of California exceptionalism. It's not my style.

Can you talk about California's parallel tracks of oil and natural gas paired with one of the largest and most ambitious renewable-energy markets in the world? How can these two tracks coexist? Do you find them conflicting or can they be complementary?

They are certainly not contradictory. The reality is 96 percent of energy consumption in California has something to do with hydrocarbons. Renewables, if you don't count hydro power in California, it's still somewhere between 2, 3, or 4 percent. Getting to 30 percent is just incredibly important, and I myself come from renewable energy biomass/ecosystems for many years.

I know it's a cliché, but this governor is very much aligned with an all-of-the-above strategy. "The reality is, civilization is about the concentration of energy, and right now hydrocarbons are our most abundant and economic resources. But if we are not in the longer-term working on the transition to a lower carbon intensity, what are we doing? I've had that position for years, and that's why I've worked actively on the federal climate bill. We need to move to some other way of powering our economy."

What about tapping into the Monterey Shale and its potential impact on climate change? Will fracking unlock this formation?

There is no reason to assume that fracking is the key to the Monterey shale. There's a big assumption that somehow the Monterey is suddenly going to be available because of fracking. [The oil industry is] actually less sanguine than the rest of the world because they're the ones that are going to have to make the investments.

But by producing more fossil fuels, does this make combatting climate change harder?

You can't blame the petroleum industry for the economy's dependence on hydrocarbons. That's like blaming the dairy industry for kids being dependent on milk for calcium. The demand is there, it's an important form of energy, and we will do it with a lower environmental footprint.

How has the California oil industry evolved over the years? Have you noticed an upward trend in production in recent years? What is this being fueled by?

The absolute numbers we are producing less in the state of California than we were in the 1970s and '80s--that's in sheer barrels of oil. Right now, last year's production was 196 billion barrels. If someone finds keys to the Monterey Shale that very likely will go up.

Is oil production increasing already in California, irrespective of the Monterey Shale?

It is true. With the sweet spot in the industry at about a hundred dollars a barrel—sweet spot meaning it's enough to make a lot of reserves economical to get at it—it's enough to stimulate a fair amount of investment for R&D for [enhanced oil recovery techniques, including fracking and directional drilling].

With the likelihood of oil staying at $100 a barrel or more, we will likely see an increase in both the research and development and the production side.

Under current technologies, the estimate is on average from a regular oil-bearing reservoir, that they [the oil companies] will be able to tap 30 percent of the oil in that reservoir. With EOR of various kinds, that can go to 50 percent or 70 percent. That's greater investment, takes energy for EOR, that is.

As regulators, we want to watch trends and technology investments so we are aware of what we need to put under our purvey. Whether it's regulating a new practice or understanding better how it works in the oil patch. For the most part our engineers are extremely well-trained, for the most part I think we have a pretty good handle.

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