Long Beach faces substantial oil abandonment costs in next decade

The City of Long Beach could spend nearly $150 million to end oil production in the next couple of decades, according to a new memo from city manager Tom Modica made public Monday.

Though the city has already put aside $43 million to pay the costs associated with closing down oil wells, it would still have to raise another $38 million to meet the lowest estimate for abandonment costs in 2035, the year city officials have said for the last few months that they plan to end oil production.

Modica’s memo states that at the current rate of savings, the city will be able to fund $81 million in abandonment costs by 2035. But if the abandonment costs swell to $146 million—the high end of estimates—then there will have to be “substantially higher contributions to the abandonment fund” or a decision to keep oil production running beyond 2035, states the memo.

Failure to set aside the required funds now could leave the city with a “potential major unfunded liability” that would possibly require the city to spend additional public funds to close down oil production.

In 2015, the most recent year highlighted in Modica’s memo, wells in Long Beach produced 13.3 million barrels of crude oil and 5.1 million Mcf (thousand cubic feet) of natural gas, which in turn generated 8.3 million metric tons of carbon dioxide equivalent. According to the memo, this represents “significant” greenhouse gas emissions.

Mayor Robert Garcia hailed Modica’s memo on Twitter, saying that it “provides a pathway to end production in our city by 2035—10 years ahead of the state.

“Oil revenue has provided significant investments in our city and state for decades,” Garcia added. “And many of these jobs provide good paying union work. As we transition away from fossil fuels, these workers and their families deserve our support, respect, and equitable work.”

Though Gov. Gavin Newsom wants to phase out oil extraction in California by 2045, a separate city memo from May shows the state faces a far larger liability in terms of shutting down oil production. So far, the state has set aside $300 million to fund oil abandonment, but must still raise another $609 million, according to that memo from Bob Dowell, the city’s director of energy resources.

As to why the city is projecting ending oil production in 2035, “it really is dependent on the price of oil,” said Kevin Tougas, manager of the city’s oil operations bureau. If oil prices remain in the $50-$70 per barrel range, then city officials project they’ll be able to fully fund abandonment by 2035, he said.

On Monday, the price of oil hovered around $85 per barrel, according to Reuters.

Still, many unknowns remain, such as what to do with the artificial THUMS islands just off the coast. City officials anticipate that the city will keep the islands and repurpose them, according to Dowell’s May memo.

Modica’s memo also outlined how much more work the city must do to wean itself off oil revenue. One of the “next steps” city staff will be taking said simply, “Continue to look for alternatives to oil revenue.”

The city received $18.9 million in oil revenue in fiscal year 2020, according to the memo. Of that, $10.3 million went to the general fund while the remaining $8.6 million went to the Tidelands Operating Fund.

The Tidelands Operating Fund pays for a wide range of projects and programs in the city, including aquarium and convention center maintenance and improvements, lifeguards and tree trimming.

One key recommendation from Modica to the mayor and City Council was to avoid issuing “any new Tidelands debt as it is inherently supported by oil revenue” and would therefore increase the city’s dependence on oil revenue at precisely the time when the city is trying to decrease it.

In any case, oil production in the city already declines at about 6% each year, according to the memo.

Editor’s note: This story originally misstated how long city officials have planned for oil production to end in 2035, and has been corrected.

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Anthony Pignataro is an investigative reporter and editor for the Long Beach Post. He has close to three decades of experience in journalism leading numerous investigations and long-form journalism projects for the OC Weekly and other publications. He joined the Post in May 2021.
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