You may think that California was built by the movie business, or by Silicon Valley tech companies. But, before either of those, there was oil. In many ways, the history of California in the past 150 years has been the history of oil. For a century and a half, the state’s ample petroleum resources have spurred growth and prosperity throughout all sectors of our economy and, with investments from the California energy industry, even helped to establish moviemaking in Hollywood. Fast forward to today, with the oil and natural gas industry employing 184,100 Californians in 2013 with an average salary of more than $2,000 a week, and contributing $21.2 billion in tax revenues to state and local governments in 2013.
The History of oil and gas in California: The road to prosperity
California is blessed with accessible oil and natural gas resources that range from surface deposits of crude oil in places like the La Brea Tar Pits and along the Ventura and Santa Barbara coastline to oil and gas formations over 14,000 feet deep. Native Americans used the tarry material, which collected in open “seeps,” such as those visible today on rocks along the highway near Ojai, to caulk boats and strengthen tools. Early settlers discovered ways to distill the substance to create lamp oil, replacing oil from whales and seals.
By the 1860s, entrepreneurs were turning oil into mass-produced kerosene for home lighting, and in 1870, California’s first oil well was drilled. Soon, oil drillers were developing new extraction techniques, which made oil — and eventually natural gas — the focus of a flourishing new industry in California from Orange County to Sacramento. The new fuels improved Californians’ quality of life, replacing whale oil and wood burning appliances and keeping homes, schools, businesses and hospitals safely and reliably lit. The galvanizing influence of these fuels on the state economy was inevitable. Produced from the ground, they quickly became natural drivers of prosperity, fueling industry, agriculture and transportation.
Around the turn of the 20th century, drillers discovered massive reserves in places like Kern County, and, by the 1920s, California was the world’s leading oil producer, with 57 refineries processing 186 million barrels of oil a year.
Oil production, as California’s leading sector, fed the economy of the fast-growing state. “Oil money funded huge real estate developments and encouraged construction of roads and highways,” historian Eric Schlosser told the New York Times in a 2008 interview. “Hollywood was born in the decade from around 1911 to 1921, and oil money financed some of the new films.” Thanks to the oil industry, Los Angeles, Orange and Kern counties began to thrive and diversify their economies. California’s oil and natural gas production was also instrumental in powering the industries that helped the United States and our allies prevail in World Wars I and II.
As our state continues to diversify with growing technology and services sectors, California oil and natural gas production remains an economic powerhouse essential to meeting the state’s rising energy demand. These days, the state produces about 16 million barrels of oil a month. It is also part of the natural-gas revolution: California produced a quarter of a trillion cubic feet of natural gas in 2014 used for heating and cooking in homes and businesses and to generate electricity. The good news is that California has plentiful oil and natural gas resources beneath its surface to provide ample, affordable and reliable energy to California homes, farms, businesses and communities well into the future.
The total cost of imported oil can’t be measured solely in dollars per barrel. The real costs include the risks associated with turmoil and violence in exporting regions, the uncertainties around transportation routes, and environmental concerns. Imported oil is not produced according to California’s stringent environmental and safety standards. But despite that, and despite the fact that California has all the gas and oil the state needs in the ground beneath our feet, we are still importing energy in large amounts. In 2014 , California produced approximately 40% of its own oil and imported the rest, with more than half of its imports coming from foreign countries according to the U.S. Department of Energy’s Energy Information Administration. Of the total, more than 35% came from Saudi Arabia and 21% from Iraq.
And oil is not something we can do without, now or in the coming decades: The U.S. Energy Information Administration predicts that in 2040 fossil fuels will continue to provide 80% of the nation’s energy, while renewables will provide just 10%.
Foreign oil: Subjecting us to geopolitical turmoil
Oil has been used as a strategic weapon. “In the 1970s, the Organization of Petroleum Exporting Countries represented a big chunk of the world’s production,” said Fariborz Ghadar, PhD, senior scholar at the Center for Strategic and International Studies in Washington, D.C., a nonprofit think tank. OPEC’s six-month oil embargo in 1973 tripled the price of oil during the Yom Kippur War. “Since then, OPEC’s influence declined substantially as exploration opened fields throughout the world.” Though OPEC’s control has declined, its member countries still extract about 40 percent of the approximately 93 million barrels of oil produced daily across the globe.
The national security risks of relying upon foreign energy extend beyond OPEC, the U.S. Council on Foreign Relations cautioned in the 2006 task force report “National Security Consequences of U.S. Oil Dependency.” Russia, as one example, has used its natural gas reserves to gain strategic advantages in Europe and to punish former Eastern Bloc allies that have sought greater ties with the U.S. and the European Union. They famously curtailed gas supplies to Ukraine in five of the last ten years, including this winter. That action reduced Ukraine’s gas supplies by 70% — and because Europe gets gas via Ukrainian pipelines, it reduced Europe’s supply by 30%, causing severe economic impacts across many borders.
With oil, location matters for the environment
Producing oil in foreign countries, where regulations are far less stringent than in California, can lead to far greater emissions than local domestic production. “Oil is not fungible, environmentally,” said Adam Liska, PhD, associate biological systems engineering professor at the University of Nebraska-Lincoln. “Depending on where it’s sourced and how it’s processed, large differences in greenhouse gas emissions can result.” California’s oil and gas regulations are some of the toughest in the U.S., and America’s federal environmental regulations are among the strongest globally.
Governor of California Jerry Brown made the same point on his way to the Paris climate talks. As he told the San Jose Mercury News in advance of his attendance: “We already import 70 percent of the oil that goes into our vehicles. And what do they want to do? Import 75 percent? And bring it in by train from North Dakota where they don’t even have controls on methane, and the environmental standards are much lower? And you put it on a train, which is subject to spills. That doesn’t make any sense.”
California energy is cleaner and safer
California energy self-sufficiency can eliminate many of the challenges and risks of imported energy. California’s extraction methods are among the cleanest and safest in the world, think-tank scholar Ghadar said.
California oil is an ecologically sound alternative to foreign oil, with development and refining regulated by more than 20 federal and state agencies. For example, in-state oil and gas production facilities are subject to California’s pioneering greenhouse gas cap-and-trade program, as well as intensive regulations governing well construction, health and safety, water use, monitoring and disposal, hydraulic fracturing, spill prevention, control of air emissions and habitat protection.
Developed economies run on oil, and the United States is no exception: “We either must produce oil domestically or import it from other nations that often lack strict environmental protections,” Ghadar said. Given the environmental, economic and geopolitical costs of imported energy, sourcing petroleum locally is the energy solution for California.
Producing oil and gas in California keeps energy prices down
It’s as simple as the law of supply and demand: Plentiful supplies of energy here in California help keep money in your wallet when you pay your electricity bill and stop at the pump. In fact, Boston Consulting Group estimates that U.S. households have saved $800 a year because of America’s increased natural gas production; the savings come from lower heating and electric bills, plus the reduced cost of goods that comes from cheaper energy. In addition, the U.S. Department of Energy estimated an extra $750 in savings at the pump for every American household in 2015 because of lower gasoline prices.
There’s another way that producing oil and gas in California keeps prices down: by lowering the cost of transportation. For example, it costs about $2 to $6 a barrel to import oil by tanker, and costs only go up from there: According to a report by the Congressional Research Service, it costs $10 to $15 per barrel to ship oil by rail from Alberta, Canada or North Dakota.
Whether you’re looking at it from a national security standpoint or an environmental one — or just adding up dollars and cents — it’s smart to produce oil and natural gas here in California.