12/15/12: Oil and Natural Gas in Southern California

· December 2012, In This Issue

By Nathan Chen, Matt Goldberg, Adam Grosher, Stephen Holle, Lauren Otaguro and Kali Staniec

With a population of over 37 million people, California is the second largest energy consumer in the United States. Fossil fuels – today, specifically natural gas - have always fulfilled a large portion of this energy quota. But California has a varied relationship with oil and natural gas. At once an oil giant that historically produced much of the world’s crude, a present-day major importer of natural gas, and an implementer of some of the nation’s most stringent environmental regulatory policies, the Golden State’s future with fossil fuel resources is unclear, and up for grabs. This collection of reports will cover Southern California’s history of fossil fuel production, the present day role of oil and natural gas in the state, refinery operations, electricity generation, future energy resources, and the environmental legacy that oil and natural gas leave the region.

Southern California’s relationship with oil began in the late 1800s, when the first big oil fields were developed for commercial drilling. Over the next century, the state’s oil production would move through a cyclical pattern of technology, demand, and discovery-fueled oil booms followed by periods of slumping production. Each time the oil booms would have a different character: the oil-baron making, regulation-free wildcat days around the turn of the century, the commercialization of the biggest oil fields in 1920s, the war effort of the 1940s, the push to offshore drilling in the 1960s, and peak state oil production in 1985. As demand for California oil decreased at the end of the 20th century, demand for natural gas instead increased. Previously only considered an irritating byproduct, natural gas was captured from oil-producing wells more and more successfully over the decades as the state became more populated.

Today, California gets natural gas from an interstate pipeline that delivers the resource from Canada and the Southwest. Once the gas arrives, it is distributed amongst several large gas companies- serving 98% of California’s natural gas consumers. This process can cost billions of dollars, and reached a high of $20 billion in 2005; however, the use of natural gas did prevent a heightened demand for gasoline, which in turn had significant positive environmental impacts. Future demands for natural gas will be met with liquefied natural gas imports, with 13 receiving terminals already proposed in California and along the west coast. Oil production and consumption in California is to be offset by this influx of natural gas. Originally, gasoline was the only available fuel to the public, and fuel traders would predict demands on the market and make investments that determined fuel prices. As a result, gas prices could quickly go up or down as traders predicted shortage or surplus. Currently, gas prices have dropped dramatically, as the market re-stabilizes after a panic that previously spiked gas prices.

There is a missing link, though, between pumping or importing crude, and the consumers who use fossil fuels for energy. Oil refineries have been a major part of Los Angeles community for over a hundred years, affecting everything from the health of local populations, gas prices, local economies, and the environment. There are currently six major companies that own refineries in Los Angeles County, but by 2013, two companies (Chevron and Tesoro) will own and operate a majority of the refineries.

There are a number of downsides to having a refinery in your backyard. One is the negative impact that refineries have on people’s health, stemming from the emission of air pollutants including sulfur oxides, nitrous oxides, particulate matter, reactive organic gases, and carbon monoxide. Most refineries are the largest point source emitters of pollution in each of their communities. The AQMD sets emission targets for each refinery, but many of the older refineries are in need of upgrades. While some of this information is provided to the public, these companies try to avoid publicity about what goes in their operations and are very restrictive about giving any information to inquiring citizens.

There are some positives for the local communities to having a refinery. The companies that own the refineries pay local taxes and are often the largest contributors to the town’s revenue. This also means that they are responsible for many jobs within the community. Additionally, refineries generally donate money to the local community for purposes such as maintaining public libraries and upgrading school facilities. This is often done to improve their image and avoid paying more in taxes and regulations, ultimately benefiting the company more than the local community.

After fossil fuels are gathered and refined, they can be used to combat the state’s persistent hunger for energy. Today, California finds itself on the front lines of a Executive Summary 4 battle for a new energy profile—one befitting to the 21st century. The enemy is a century’s old status quo, a fully entrenched way of doing business and an aging, inefficient infrastructure. The motivation is a looming threat of climate change and all the uncertainties therein, human health, and environmental health. California is leading this fight as its state legislature has implemented measures to switch the fossil fuel-dependent economy to one run on renewables. In considering the plausibility of this future, facets such as the state’s past and present energy profiles, the goals of the Senate Bill 1078 legislation, and the progress being made to meet these goals in reference to Southern California must be considered.

Currently, California has suggested that natural gas development will serve as a foundation to support fluctuating renewables and adhere to GHG reductions under The Global Warming Solutions Act. However, there are many issues associated with natural gas production with the advent of hydraulic fracturing. One specific proposed site for fracking is the Inglewood Oil Field. Much of the concern expressed by NGO’s and locals arises over the nature of the Environmental Impact Assessment, which was developed by a consulting group with ties to the oil and gas industry. Residents in the Inglewood area are also concerned about the potential for fracking to induce seismic activity, which could greatly impact the structural integrity of their homes. Furthermore, studies have suggested that natural gas development and use in the LA basin has the potential to greatly increase fugitive CH4 emissions, which would go against ambitious plans under The Global Warming Solutions Act. The struggle is whether residents’ concerns will be addressed and if the state will develop more levels of oversight before fracking is developed relentlessly within the Los Angeles Basin.

Even without fracking, oil and natural gas extraction and refinery has a huge impact on the environment in Los Angeles County. Oil fields throughout Los Angeles can leak methane, an extremely flammable hydrocarbon that is often found along with oil. This methane can seep up through the oil wells to contaminate soil and groundwater, and has proven to be very dangerous and even explosive if levels are high enough, as seen by the 1985 Ross Dress For Less explosion in Fairfax. Other chemicals such as benzene that are found in crude oil can also travel upwards along with methane, contaminating soil and seeping into houses and classrooms, leading to increased health problems and disorders.

As mentioned earlier, refineries can lead to water and air pollution. Three such refineries in Los Angeles that have caused one or the other, or both, are Chevron, Exxon Mobile, and BP. Both air and water pollution is hazardous and can cause many human health problems and can also destroy ecosystems. Sulfur dioxide in particular is dangerous because it can convert into other compounds, such as sulfuric acid, making acid rain when combined with normal rain. Pollution, which includes the criteria pollutants, also leads to climate change as many of these criteria pollutants are also greenhouse gases.

There is no single way to define Southern California’s relationship with oil production and consumption, and certainly no one clear path for the region to take in the future. However, by both looking back to a century of policy, economic swings, and environmental impacts, as well as analyzing the available technologies of the present, it’s possible to come a little closer to understanding the close, complex dynamic between fossil fuels and the continued development of the Los Angeles region.