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California Petroleum Industry

The petroleum industry has a deep-rooted history in the U.S. and California. With the first commercial oil production in 1876, California established itself as an integral part of the national petroleum industry. The petroleum industry is an extremely important sector of California's local and global economy. Petroleum provides the energy necessary for the transportation of people and goods. Today, California remains the fourth largest oil extracting state behind only Texas, Alaska and Louisiana. California is the third largest manufacturer of petroleum products, SIC 2911, with value of shipments just under $26 billion dollars. The table below shows historic data for value of shipments and their percentage share of the U.S. total for the top 3 states.

California's annual crude oil production in 2000 amounted to 307 million barrels or just fewer than one million barrels a day. The following chart shows historical petroleum extraction data by type.

An important pattern to notice is the yearly decline of production from all petroleum sources. This is a source of significant concern for California because of our high dependence on this energy form. California has over 23 million registered automobiles, which collectively travel 152 billion miles annually. California has 15,000 miles of highways and freeways. This highway infrastructure facilitates intrastate and interstate commerce, daily commutes and weekend excursions to any of California's natural landscapes. California is a driver's state its vast spaces require vehicular transportation and this transportation consumes billions of barrels of petroleum yearly. California is only able to produce half of the crude oil that it consumes the other half has to be imported. California crude oil imports total 21.3% from Alaska and 29.3% from foreign nations, as shown below.

In state crude oil supply and imports from Alaska have been decreasing and are expected to continue decreasing making California more dependent on foreign sources of oil. Foreign supply could exceed the Alaska supply to California in 2006 and could exceed the in-State oil supply by 2012. The chart below shows historical and future projections for California crude oil sources.

Twenty-eight of California's fifty-eight counties produced oil and natural gas in 2000, making petroleum one of the most prevalent natural resources in the state. With 46,779 producing wells, California ranks second in the nation in number of oil wells. Kern County alone (which accounted for 63 percent of California's oil production in 1997) produced more oil than Oklahoma, the fifth largest oil producing state.

The petroleum industry in California employs, directly and indirectly, a workforce of well over 100,000. The oil industry is, therefore, a major contributor to the state's economic health.

Energy Use

Petroleum extraction is an extremely energy intensive process, which uses about 3,700GWh of electricity yearly this is about 1.5% of all electricity consumed by the state. This is a big percentage when one considers that this consumption is for petroleum extraction alone and does not include the electricity used by petroleum refineries. Electricity consumption is expected to continue to rise as petroleum deposits become depleted and enhanced oil recovery procedures are implemented to squeeze as much petroleum as possible out of wells. It is therefore important that energy efficient research be undertaken to try to increase the energy efficiency of these processes thereby reducing the load on the California electrical grid. The electricity is used mostly for pumping oil from an average depth of 2500 ft. with some deep wells having depths of 7000 ft. these wells require large amounts of energy for extraction. Production of unwanted water and re-pumping it back into the wells also requires large amounts of electricity.

Petroleum refining, SIC 2911 includes facilities primarily engaged in the production of gasoline, kerosene, distillate fuel oils, residual fuel oils, lubricants, re-distillation of unfinished petroleum derivative cracking, and similar processes. Petroleum refining is the number one consumer of energy in California's manufacturing sector. In 1997, the industry consumed 7,266 million KWh of electricity and 1,061 million Therms of natural gas. This consumption amounted to 15 and 28 percent of the state's total manufacturing sector's electrical and natural gas consumption respectively. California's overall energy consumption is dominated by the transportation sector. Nearly half of all energy consumed within the state is used to move people and goods, and virtually all of this energy is derived from petroleum.

Specifically, 48 percent of the energy from petroleum is consumed by the transportation sector. A 1991 report warned that consumption might increase as much as 32 percent by the year 2009. The planned discontinuation of MTBE as an oxygenate, with ethanol replacing it, will likely increase the refining cost. Obviously there is constant strong competitive pressure on refiners to increase efficiency of operations.

Link to Energy

California petroleum production comes mainly from the 42,000 small oil producing wells which, are primarily located in southern California. Ninety nine percent (99%) of the companies in California have assets less than $1 million dollars, and 80% operate 2 wells or less. Electricity is used for pumping the crude oil out of wells, transferring it, and injecting excess water back in the well, making electricity a major cost of operation. Consumption of electricity at an average rate of 14 KWh/barrel of oil produced, results into a cost of up to $2.00 or $3.00 per barrel. The operating expenses of small oil producers' are adversely subjected to rising and volatile electricity costs. When the oil is selling at about $10.00 per barrel or less, high energy cost forces the producers to abandon the well. Such orphans wells become environmental hazards and are not good for California's economy either. Efforts to reduce the electricity cost through improved energy efficiency are warranted for the smooth operation and long term survival of the industry. The high-energy intensity of the oil extraction operation makes this industry the 4th largest user of electricity and the highest consumer of natural gas in California. Annually, the oil extraction industry uses 3,846 million KWh of electricity 2,910 million Therms of gas. Reduction of electricity usage and increasing reliability of electric supply becomes a priority area for the PIER-IAW RD&D plan.