The soaring cost of oil is causing financial strain for consumers, but it could prove to be a boon for some Long Beach infrastructure projects like the Belmont Beach and Aquatics Center.
High profile projects along the coast in Long Beach are often funded by the city’s Tidelands fund, a highly-volatile pot of money because it comes in large part from oil revenue.
The current fiscal year’s oil production was projected to generate over $98 million at a conservative assumed price of $55 per barrel, but this week Long Beach oil was selling for between $116 and $125 per barrel.
Though any excess revenue due to a higher price could be used for one-time expenses, Robert Dowell, the city’s director of energy resources, said it’s too early to determine how much that might be.
Just because oil is currently selling for over twice what the city is budgeting doesn’t necessarily mean the city will take in twice as much oil revenue, Dowell said. The costs of drilling new wells and new labor and property taxes, which factors in the value of the oil in the ground, have to be recouped before profits are realized, he said.
The price of a barrel of oil has been hovering around $130 per barrel this week and could approach the all-time high peak of $147.02 that was seen in 2008, depending on how long sanctions are in place against Russian oil and how long Russia’s invasion of Ukraine continues to affect global markets.
Dowell, along with City Manager Tom Modica, said that oil prices are one of the hardest things to project. Prices are reliant on a number of factors, including multiple countries setting prices and producers wanting to produce.
“What we do know is whatever number they think it’s going to be, it’s probably wrong,” Dowell said of oil prices.
Tidelands funds are used only to pay for services in the coastal area, including police, but also for infrastructure projects like the new pool or replacing the Belmont Pier, both of which were identified in 2018 as eight projects the city wanted to complete by 2028.
The Belmont Plaza Olympic Pool was deemed unsafe due to seismic concerns in 2013 and was demolished, with the city pledging to replace it with a larger, safer, more modern complex.
The pool complex, which was last projected to cost $85 million, has been stalled by residents challenging its environmental review process as well as the California Coastal Commission asking the city to revise plans to make the pull more accessible to all communities in Long Beach.
The city has resubmitted its application to the commission and has moved forward with the design process as it waits for approval in anticipation of completing construction ahead of the 2028 Olympic Games. The pool has an outside shot of hosting events, according to city officials.
One of the largest obstacles, outside of bureaucratic delays, has been the cost.
The city has previously said that about $61 million is allocated for the pool’s construction, leaving a potential funding gap of over $20 million. Modica said Wednesday that the city is working on a financing plan that it feels very confident about that could be before the City Council by the end of the year.
Excess oil revenue could positively affect the pool’s construction, Modica said, but inflation likely has also driven up the cost of construction.
“You won’t really know it until you bid it,” Modica said. “But anecdotally we’re seeing prices rise across the board.”
Modica noted that most oil in Long Beach doesn’t actually get refined into gasoline but is used to make other things like asphalt. Still, the current market conditions could lead to excess funds that could boost the Tidelands fund in the coming year.
With the prices seen over the past three to four months, Modica said there’s a high likelihood that there would be excess funds over what the city had budgeted for, which could be used for lifeguards, beach maintenance and infrastructure projects.
“One of the big projects we’re looking to fund is the Belmont pool,” Modica said.
Local oil operations
The oil operations that Long Beach overseas in the Wilmington Oil Field is approximately 22,000 barrels per day, but interest in drilling new oil wells or re-establishing old ones is rising.
Dowell said drilling new wells will require investing a lot of money up front, potentially hundreds of thousands to fix broken or non-working wells, but revenue benefits could be seen within a few months.
To say how much extra revenue would be speculating on a very speculative market, Dowell said. He pointed to April 2020, when crude oil prices dipped into negative territory, compared to recent speculation that the price of oil per barrel could reach as high as $240.
How much of a benefit the city could see would depend on how long the market continues to support oil barrels selling for over $100.
In 2008 crude oil averaged nearly $100 per barrel for the year and it was a boon for the city’s Tidelands fund. The city budgeted for about $127 million in oil revenue that year, but by year’s end, it had reached nearly $514 million. After subtracting operating costs and materials, the fund ended with $84.8 million.
“It was a very good year,” Dowell said.