Drilling for Oil in Sensitive Places – The California Effect

I’ve lived in Los Angeles since I graduated college. I remember the smug and snide east coast remarks about the vast cultural wasteland, the sparseness of academic tradition and the shallow values of surf-dude, Beach Boys California living. I felt a bit bizarre pursuing a career in the film and television industry that was effectively forcing me into this intellectual desert. Even today, when I travel to the east coast, I still get some of those chuckle-laden remarks.

But now I smile. No matter how hard that Trump cabal will try and crush this state, California – which was already rising fast when I arrived so many decades before – is now a leader in virtually every category of the derision I heard so many decades before. And trust me, the entire west coast is experiencing the kind of growth and development that most of the rest of the United States craves and will not match anytime soon… with a couple of pockets of excellence where modernity has permeated through old world smugness. Seattle, the Silicon Valley/San Francisco, Los Angeles/San Diego define technology edginess. Stanford, Berkeley, UCLA, Cal Tech, USC and the University of Washington are academic superstars today. And California is the sixth (fifth to some) largest economy on earth.

So as Trumpers seek to punish California and other high tax (and usually very productive and likely anti-Trump) states by severely limiting the right to deduct state income and property tax from federal tax (I suspect the local legislators will find a way to negate that effort this year), Donald Trump is desperately trying to push the United States backwards – in social advancements, global responsibility and, significantly, in the industries that currently make us “great.” The California legislature is considering a bill to ban gasoline/diesel fueled vehicles by 2040, perhaps over-optimistic, but point well-taken. On the other hand, Trumpers believe that strength lies in the opening up of vast regions of environmentally-sensitive land for resource extractions – primarily oil and coal – is a key to job creation and global greatness.

Hey Donald, haven’t you read that even once-tax-free, oil-rich Saudi Arabia has been forced to impose a 5% VAT tax because oil revenues no longer cover the costs? That every oil-rich sheikdom in the Middle East is trying to raise educational standards and develop new industries because reliance on oil is too precarious in a world that is going the other way? That oil rich Venezuela is on the brink of financial collapse? That all those coal mines in West Virginia, Pennsylvania, Wyoming, etc. continue to layoff miners (a precious few new hires), struggle economically, despite those well-announced plans to remove the environmental restrictions and open new lands to Emperor (“no clothes”) Coal? Trump may want to push the world back into the 1950s, but the world, “she no wanna go.”

And so it is with Trump’s Department of Interior’s officially opening up sensitive arctic lands and off-shore environmental regions to additional exploitation to make the United States the leading oil producing nation on earth. Even if we were able to achieve that most-questionable goal, it seems that “I went to business school at Wharton/Ivy League” Trump may have skipped more than a few economics courses. The self-proclaimed mentally stable genius just might be wrong… again. In an industry where the cost of oil has been off its peak by about 50% for over half a decade, and demand continues to fall, proposing to flood the market with lots more oil will only depress oil prices further.

Further, the above chart should give oil producers pause before they embrace really costly extraction and transportation costs when they attack the most expensive and difficult-to-reach reserves on earth as crude oil sits at $50-$60 a barrel. Simply, it is not worth the effort. There are so many more trillions of gallons of oil reserves than there is demand, and demand is shrinking even more. There are also very few oil economists who project that, using current value dollars, we will ever return to the $100+ barrel world, a price necessary to fund costly extraction. Even as drilling rig workers are replaced (job, jobs, jobs?) by automation, costs at the most difficult sites are still prohibitive.

Keith Schneider, writing for the January 6^th Los Angeles Times, explains the severe miscalculation Trump has made in this arena: “With characteristic flamboyance, the Trump administration has set in motion a grand scheme to lure energy companies to explore for oil and gas across virtually all of America’s outer continental shelf, a deep marine domain encompassing billions of acres of ocean bottom.

“Drawing a distinction from the Obama administration’s concerns about climate change and restricting offshore fossil energy development, Interior Secretary Ryan Zinke cast President Trump’s offshore drilling campaign as a study in American strength. ‘We’re embarking on a new path for energy dominance in America,’ Zinke said. ‘We are going to become the strongest energy superpower.’

“Yet like other marquee directives that Trump has issued in the past year to empower the domestic fossil fuel industry, the offshore plan may not bear out its grand ambitions. Many energy analysts already are predicting that exorbitant costs, flat prices, civic opposition, climate concerns and new transportation technology make major new offshore drilling enterprises, at least outside the Gulf of Mexico, unlikely.

“Even in the Gulf, which produces 1.6 million barrels of oil daily, or 16% of U.S. production, the cost of exploration, permitting and operations in deep water is well over $1 billion per well, according to the American Petroleum Institute.

“Energy analysts also say it will take at least 10 years for a new well to begin producing in the Gulf, and twice that anywhere else on the outer continental shelf. By that time, according to industry forecasts, demand for oil will be well past its peak and dropping due to the advent of electric vehicles, more efficient engines for planes and ships and new materials that are not made with oil or natural gas.

“In short, many of these experts say, the administration’s offshore drilling plan could be out of touch with its time. ‘The price of crude is the determining factor,’ said Ron Stein, founder of PTS Staffing Solutions, an Irvine-based company that provides professional staff to energy companies. Producing oil offshore is a money-burner, he said. ‘If the price of oil isn’t right, they won’t do it.’”

Also writing for the same edition of the Los Angeles Times, writers Bettina Boxall and Tony Barboza tell us how California is prepared to deal with a very unwanted federal plan to open up California ocean waters to oil drilling: “Under the plan, the federal government would offer 47 leases in U.S. waters on the outer continental shelf, including two each off the Northern, Central and Southern California coasts and one off Washington and Oregon.

“The governors of all three states issued a joint statement Thursday saying they would do whatever it takes to block new leasing off their shores, which include some of the nation’s most pristine coastlines.

“The first hurdle for the Trump plan is a period of public comment and an extensive environmental review under federal law, which opponents can use to challenge the proposal as ecologically harmful.

“In California, the state coastal commission also has the authority to review activities in federal waters to ensure they are consistent with the state’s coastal management plans.

“‘The commission has extremely broad and very powerful authority to say ‘no’ to federal actions that would harm the coast of California and harm coastal waters,’ said Steve Mashuda, an attorney at Earthjustice, a nonprofit environmental law organization.

“The commission is ready to use it.

“‘Nothing galvanizes bi-partisan resistance in California like the threat of more offshore oil drilling,’ coastal commission Chairwoman Dayna Bochco said in a statement. ‘We’ve fought similar efforts before, and we will fight them again.’

“While the U.S. secretary of Commerce could override a commission finding that new oil drilling violated the state’s management plan, federal courts have tended to side with states in such contests.

“And California has another weapon: State Lands Commission jurisdiction over tidelands and waters that extend roughly three miles offshore… That gives the commission the ability to stop the construction of pipelines that are the most economical way of transporting oil and gas from offshore rigs to land.”

The entire west coast, all of which states are vehemently anti-Trump and his obsolescent policies, will have none of Trump’s vision. Again. The west coast knows how to build tech industries for the future, how to sustain America’s greatness. Donald Trump clearly does not. He’s the only president in modern history not to have even visited California – the largest and most economically powerful state in the union – in his first year of office, and his willingness to evict a solid core of necessary residents, reverse our marijuana laws, raise our taxes above most of the rest of the country and underfund our disaster relief will only harden our resistance to everything Trump.

In an interview with The Guardian, California State leader, Sen. Kevin de León, said it as clearly as anyone: "There should be no doubt that President Trump has officially declared war on California."

I’m Peter Dekom, and with every passing day, there is increasing evidence that the west coast of the United States needs to learn to go it alone.