| Topic: |
Politics > Politics-USA |
| User: |
"Captain Compassion" |
| Date: |
04 May 2007 11:30:31 PM |
| Object: |
Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy |
April 26, 2007
Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy
by Daniel Fine, Ph.D.
Heritage Lecture #1015
Delivered on March 8, 2007
http://www.heritage.org/Research/EnergyandEnvironment/hl1015.cfm
I'm pleased to be invited to The Heritage Foundation and to develop
with Heritage and in Washington what might be called the "shale
story," which currently is almost silent with regard to national
policy and world petroleum. Earlier on, I edited a book on the
resource war in the Reagan Administration. It was based upon how to
understand, how to conceptualize strategic resources: oil, gas, and
hard-rock minerals. I'm currently based both on the East Coast and in
New Mexico, participating in the New Mexico energy model for the
country and maybe the world.
The New Mexico model is based on a diversity of fuels. It is not
exclusive; in fact, the language of "alternative," "conventional,"
"bio," "geo" is almost disappearing. The concern statewide is: What is
fuel? Where is the supply of energy going to come from? And the model
is diversification, which in New Mexico means solar; the energy
technology of national laboratories; the fourth largest producer of
natural gas (California depends on New Mexico for 30 percent of its
gas and electricity); the potential for hydrogen; the utilization
export of CO2; and, finally, oil.
That's an effective energy production model for the country to follow.
In one portfolio, all the energy assets are recognized systemically
rather than competitively in terms of production of energy and fuels.
Robert Gallagher, who served in Washington in the Clinton
Administration Department of Energy (DOE) and is now president of the
New Mexico Oil and Gas Association, has made the New Mexico model an
operational success.
Shale is a very big part of American history. First of all, shale is
not "yesterday" in the sense of the current crisis of energy security.
It goes back to 1913, to Winston Churchill, to the British
establishing a state company entering Persia to secure the access to
petroleum for the Navy, and, in a parallel action, the United States
establishing the Office of Naval Petroleum and Oil Shale Reserves (its
current designation in the Department of Energy). From 1913 on,
government and industry have been watching these oil shale reserves.
Oil shale has an episodic history that relentlessly provokes
frustration. Why is it not developed? It even produced histories and
congressional hearings in the 1960s and 1970s of almost novel-like
proportions. The most interesting point is that the pioneers, with
covered wagons, knew about shale. They found it going west in the 19th
century and used it for axle grease in their wagon wheels. So the
petroleum-like end-use of shale oil took place before the country was
unified coast to coast.
While the government established this office, geologists of the time
established that in the Rocky Mountain region, in three petroleum
basins—the Piceance Basin is one—there was an enormous oil reserve
which was locked into shale rock in the form of what is called
kerogen. Kerogen is an obscure pre-petroleum organic sediment. It is
what nature did not complete by heat and combustion, the process that
developed petroleum. There was insufficient heat to transform the
molecules in this material into petroleum, so it remains in the pores
of enormous shale rock formations in northwest Colorado, Wyoming, and
some in Utah, all far from the Persian Gulf.
This oil shale set Congress on its heels. The Mineral Leasing Act of
1920 was changed to promote oil shale development in the United
States, because 1920 was a scarce period. We were running out of oil,
very similar to some scenarios of the last two years. And then nothing
happened; the potential of oil shale went silent. Under President
Herbert Hoover, the decision was made to abandon leasing of oil shale.
Fifty-four years passed without one lease going into shale.
The Second World War stimulated official interest. The U.S. Bureau of
Mines, since abolished, began research on oil shale.
Stewart Udall, who was a founder within the Democratic Party of the
environmental movement, was pro-shale. As Secretary of the Interior,
he mobilized in the 1960s to move shale forward, to lease it, to make
it commercial, but this effort failed again. The debate over oil shale
in the 1960s concluded that the very low price of conventional
petroleum ruled out shale. Required oil shale investment could not
compete against imported, low-cost petroleum as American companies
went worldwide in the '60s. At that point, the economics were not
favorable.
In the 1970s, with the OPEC embargo and the price escalation, shale
once again attracted attention, and the first leases went forward.
American oil companies applied for leases and paid $41,000 per acre in
Colorado. Seventy-five percent of the shale is federal; 25 percent is
patented private.
How large is this resource? In the Piceance Basin, an area of 1,100
square miles, the oil shale is over 1 million barrels per acre, or
roughly 750 billion barrels of recoverable oil. If you extend outward
to Wyoming and to Utah, it is 1.3 trillion. This is why you hear shale
next to trillions, not billions or millions, of barrels. The Air Force
in the 1970s looked at shale, tested it, and found that it was a
superior liquid for jet fuel. Roughly 65 percent of the oil shale is
liquid, which could go into jet fuel. The J-8 engine can take shale
oil as premium jet fuel.
These are the dynamics now. From the 1970s, in which the Iranian
hostage events and consequent escalation in price led to the 1980s
Synfuels Corporation and its abandonment, a good deal of government
incentive and private initiative advanced oil shale technology and
pilot scale production. Why did it fail in 1982? Look at the price
charts. Saudi Arabian exported production expanded, and new supplies,
non-OPEC and OPEC, came on the market. The market was saturated with
conventional oil from the Middle East, and prices fell rather
radically to about $15 a barrel, which was less than break-even for
Texas oil in 1986. So the market again changed the dynamic against
shale oil.
Apart from supply and demand, there is the technology variable. The
oil shale technology of the 1970s is not the technology of 2007. The
technology of the 1970s had imposed a surface disturbance footprint
which today would be unacceptable in the United States. The process to
recover kerogen and upgrade it was essentially mining; that is, to
take the shale itself, ton by ton, to the surface and to crush it with
great volumes of water and retort it, creating spent shale or tailings
for disposal. Then there were extraordinary water requirements: over
three barrels of water for one barrel of shale.
What has changed since the 1980s are the dynamics of supply, demand,
security, and technology. Two years ago, a major superstorm struck the
Gulf of Mexico, which supplies 30 percent of our oil and 25 percent of
our natural gas. We are increasingly concentrated in the Gulf of
Mexico. Congress was unable under the Republican majority to pass
Outer Continental Shelf legislation, which would have expanded access
to oil and gas offshore. With one minor concession in the Gulf,
nothing was done. We are still dependent on a Gulf-centered domestic
supply.
Second, what happened with Katrina was that it triggered thinking
about natural disaster and its relation to climate change, because the
climate change movement saw the storm as the function of superheated
oceans, which would cause more superstorms. This caused another
development in the market itself. All of the oil and gas, heating oil,
and related products' prices are determined in futures markets on a
24-hour basis from Singapore to New York. Both investors and
speculators began to see that there was a new vulnerability to oil
supply, not only caused by the war in Iraq and the geopolitics of the
Middle East, but also from natural disaster linked to global warming.
They began unprecedented speculation in oil, driving the price up to
the historic high of late last summer.
The interesting part of that was the belief of speculators in the
forecasts of climatologists, who study climate change, that there
would be seven superstorms last summer of the Katrina class. But none
occurred, and gradually the prices of oil fell from the high of $78
per barrel to the low of $50, and now we're in the middle range. This
shows some uncertainty and unpredictability about those climate change
scenarios.
Shale oil is not responsible for price or technology; the resource is
simply in place. Resource recovery is feasible. Around it is a
technology change, and around that is always price. Why that Colorado
shale hasn't been on the market, and where we would be today if it had
been, is a function outside the resource itself and the technology
used to make it into oil. It is a function of policy and price.
There is a silence about this that I want to call your attention to.
Those of you who are familiar with the Energy Policy Act of 2005 can
turn to Section 369, which calls upon the Administration, the DOE, to
produce a report to make policy recommendations to commercialize oil
shale in the United States and to recognize it as a strategic fuel.
That report was mandated by Congress, but it has not yet been released
and sent to Congress. It contains incentives that are needed still to
develop the shale in Colorado. Those incentives are quite obvious.
There is a market risk in shale, as I pointed out, because of the oil
price volatility over the last 87 years and the episodic way shale has
been handled by the world market and government. Market risk reduction
is among the DOE recommendations, and that translates into production
tax credits and possibly one other item which I'm going to mention:
streamlining the permitting process. Go to the Energy Policy Act;
you'll see in Section 369 what was mandated about shale and perhaps
why it is has not been released.
The Energy Policy Act of 2005 created a partnership with Alberta in
tar sands development. Alberta is the world's largest producer of tar
sands or bitumen, another unconventional fuel source, which could
reach 4 million barrels of oil per day by 2012. Alberta's fuel exports
to the United States are greater than Saudi Arabia's. It has been a
success story. The conversion of tar sands through natural gas and
steam injection has produced oil, and those reserves in Alberta are
now classified officially as reserves, not resources. That exists in
U.S. legislation, in law, to form those partnerships.
So as President Bush leaves Washington this afternoon to go to Brazil
to sign a well-publicized agreement on Brazil's sugar conversion to
ethanol, why not add to that an agreement under Section 369 of the
Energy Policy Act 2005: an agreement with the Brazilians to
co-develop, share technology and information on, Brazilian oil shale?
The United States has 1.3 trillion barrels of reserves, followed by
Brazil with 90 billion barrels. With 90 billion barrels of new oil
reserves in Brazil, the geopolitics of Latin America oil will surely
change.
Why am I optimistic about shale in 2007? It's been 25 years since the
world petroleum price shut down development in Colorado. What is now
available in terms of technology that changes the perspective of
shale? Why should we not call shale an official strategic fuel in the
United States, and why not commercially develop it in a most
aggressive way?
The technology issue is moving significantly in terms of progress. For
example, one major development is the Shell Oil project in Colorado.
Shell has established some leadership; it has been in Colorado for 30
years. It has invested, in terms of research and development, a
significant amount of its own revenues and is moving toward
commercialization.
Shell has Bureau of Land Management research and development leases
and is moving stage by stage to prove up and resolve all the issues
around extraction of shale through a proprietary process called the
in-situ conversion process. Understanding ICP requires a visualization
that eliminates the surface retort heating and disposal of shale rock
as a mining-industrial process. Shell is going underground. The
refinery of shale will be underground, with almost no surface impact.
This is a breakthrough change in technological capability, and it
makes shale accessible. Shell is confident that it can recover shale
oil with the price of West Texas intermediate oil at around $25 a
barrel.
Older studies have always argued—again, using the 1970s know-how and
data—that surface processing would create prohibitive costs extending
to intractable problems of reclamation; and water use in the older
studies, as I said, was projected at three barrels of water to one
barrel of oil shale oil. However, Shell is going underground into the
shale formation with electrical heaters. The heaters will provide
high-temperature radiant heat, which will then do what nature did not
do for organic matter when it was transformed into conventional
petroleum. The shale rock under very hot conditions and combustion
will yield kerogen, which will flow to the surface through production
wells.
There is silence about shale in Washington, but not among the
bloggers. I read the bloggers, and many of them have discovered shale.
Many of the bloggers out in the West have a nightly debate about this.
What you see here is a potential for an environmentally friendly
extraction of shale for the first time: no surface problems, nothing
on the surface, an underground refinery. That is a change not
available in 1981. But it has to be done by way of creating from
Shell's conception, under today's social and environmental standards,
protection of water. So Shell is developing the technology of an ice
wall around the action of heating the shale, and the ice wall that
they're going to put up—they're doing it experimentally now—must
contain liquids from going into groundwater and protect the thermal
process from water intrusion.
Los Alamosjoined the shale development technology just three months
ago and signed an agreement with Chevron. Chevron is going to use
another unique technology; it is going to approach the rock itself,
rubbleize it by explosives, and then flush the kerogen out with a
critical liquid, which is CO2. CO2 is utilized as another method to
reduce greenhouse gases or global warming.
The bottom line here is that the approach to shale extraction and
converting it into oil in the United States will be a technology that
will contain carbon. There will be a carbon footprint that will be
established to diminish the carbon emission from the process of
production by way of sequestering carbon, storing it underground,
putting it into saline aquifers, and so on. Is there any basis for the
claim that the conflict between shale oil and the environmental or
climate change crisis is irreconcilable? Nothing will move forward
without a carbon footprint integrated in the technology of recovery.
The resource, again, is in the trillions of barrels of oil, and if you
compare, Saudi Arabia's official reserves are about 289 billion
barrels. The New York Times said last week that it had discovered what
is called essentially unconventional fuel, which is the topic today,
and the petroleum industry is looking at how to get more oil out of
existing fields. The Saudi response to that was, "We too can do that;
we can potentially double our reserves, albeit with extraordinary
investment."
If the Saudis upgraded their own recovery technology, which would take
billions to do, they would still have one-half of the reserves in oil
shale discovered in Colorado. We're talking still about 1.2 trillion,
1.3 trillion barrels of oil; the Rocky Mountain region is the Saudi
Arabia of oil shale. The United States has 75 percent of the world
resource, which is about 1.8 trillion barrels. Brazil is next.
As the size of the resource grows, you can see the geopolitical
configuration follows. China has announced government incentives for
shale development in the last six weeks, while Washington is silent on
Section 369. Then there is a series of interesting countries in the
Middle East without conventional oil: Morocco, Israel, and Jordan are
the next shale reserve holders in the world. This is a configuration
of potential shale producers that might have an international
organization, an OPEC of shale one day, and transfer of the
technology. I should add Estonia, which develops much of its energy
from oil shale.
Where are we with regard to the market today and investment? The price
of oil will continue as the uncertain variable, and that's why the
recommendations are still to look at shale and market risk reduction.
Secondly, there is the permitting process. Shale was once seen in the
United States as so valuable that anti-monopoly issues dominated
government shale policy. The government decided at one point that it
wanted competition in shale and limited the acreage to 5,000 acres per
company. We changed that in 2005 to 25,000 in five different
locations; but if you look at the acreage per resource, 1 million
barrels of oil from oil shale per acre, you'll get the idea of what
acreage does. Do your computation: Bureau of Land Management R&D
leases are 160 acres each. Underneath an R&D lease, there are roughly
around 250 million barrels of oil, or over five months of Saudi
Arabian spare capacity needed to stabilize the world market.
How long can oil shale last? There is enough shale to sustain United
States consumption of crude oil easily through 2120. One of the
arguments in the energy security debate has been foreign oil import
dependence. Some elements of the national security community in
Washington have joined the alternative fuels community, the biofuels
community, under the notion that we are dependent upon potentially
hostile supply sources after 9/11, which could be disrupted or
politically manipulated.
The national security argument, or the energy security argument,
centers on foreign oil import dependency. If shale is commercialized
by 2012, we can, under production from Colorado alone, eliminate
dependency on Middle East oil by 2020. The President wants to lower it
by 20 percent by 2017.
Shale production will eliminate it altogether, and that dependence is
roughly 2.3 million barrels a day. The projection is that when it is
commercialized, with the ramp-up that will occur, and with everything
favorable—that is, world price—we would be at 2 million barrels a day,
or the objective of the Department of Energy in the shale process.
Currently, we're getting 2.2 million barrels a day from the entire
Middle East: 19 percent of our total imports.
Our major sources of imports are Canada and Mexico—that is, North
America—and oil shale would expand a North American domestic energy
source, which minimizes and reduces foreign oil dependency with GDP
benefits to the American people. Some of the projections are that when
shale is commercialized in the next three to five years, the market
price will decrease at least $5 a barrel. That's conservative, but
that depends on supply and demand worldwide and the growth of
economies worldwide.
There's been a great deal of excitement about biofuels, and as you
know, in Mexico and New Mexico and Arizona, the prime base for a
staple tortilla is white corn. Because of the biofuels investment,
U.S. farmers are beginning to turn their crops from food to fuel, and
white corn has almost disappeared from the market. Even though Mexico
has a NAFTA quota of 460,000 tons a year, Mexico is not getting it, so
the price of tortilla corn in Mexico has had people demonstrating in
the street and has caused low-income families difficulties in buying
daily bread. I introduce that in contrast to the notion that we have a
resource that has no impact whatsoever on food supply.
I'll conclude with a point about the history of this. When you leave
here, the question is, Why is there silence today, in this
Administration, on shale? There is a strategic task force that for two
years has been meeting with five governors, and they have
recommendations. There are two major companies with leases moving
through R&D incrementally. A week ago, Shell had community discussions
to bring in 600 employees into the shale area in the Rocky Mountain
slopes.
That's big news; that's jobs and so forth. The perception is that
something is going to happen, and something rather big. But there is a
gap between the technology, the availability of the resource, the
commercialization that is coming, and Washington policy.
Probably the most effective signal, apart from releasing the DOE
report, derives from the President's proposal in the State of the
Union to add 750 million barrels of oil to the Strategic Petroleum
Reserve by the year 2020. I would propose a long-term contract with
shale oil producers, that all of the production from 2013 in shale oil
from Colorado and the Rocky Mountains to 2020 be dedicated to the SPR.
Under existing law—again, the Energy Policy Act of 2005—the U.S.
government can enter into long-term purchase agreements and buy oil
from shale for the SPR. That would be an internal oil supply; it
eliminates the national security risk of foreign oil import
beneficiaries.
This would be a powerful incentive for the oil shale industry. It
would itself reduce market risk without subsidies to a phenomenally
low level, and it would put the U.S. government in the forefront of
assuring energy security. The Department of Defense could also be a
buyer of jet fuel, along with the SPR, and this would accelerate rapid
commercialization.
So if the intention is to add to the Strategic Petroleum Reserve to
improve energy security, then buy into strategic, unconventional fuel
produced in the United States. That would mitigate historic market
risk a century after discovery.
There are some who say that 1.3 trillion barrels, under market and
positive circumstances, could eventually be ramped up to 10 million
barrels a day. With a resource like that, at 10 million barrels a day,
we are moving back to the 1960s, close to a position where our import
dependence on petroleum is becoming marginal. Using that number—and
that is a remote number, far off, but absolutely doable under the
resource that exists and the technology—that would give us the
following composition: We would be 80 percent North American at that
point, with Mexico, Canada, Colorado, the oil shale, and conventional
Texas, Alaska, all factored in, and maybe 20 percent oil dependent.
Questions & Answers
Question:Ed Borcherd, Borcherd & Company. I'm currently working in
Alberta with the Canadians on the water problem. The water problem is
one of the biggest problems because it takes anywhere from two gallons
to four gallons to produce one gallon of petroleum. It has a terrible
effect on the natural environment, and many problems are coming from
that. Do you have any comments on that particular problem?
Dr. Fine:It's quite true. The retort that I talked about, building
your processing and wetting the shale—that was where the water
went—was about three to one. This is also cited in the RAND report,
which was mildly negative on oil shale. But it is a dimension of the
problem that existed in 1979. The two processes that I've mentioned,
the injection of the supercritical fluid, which flushes the kerogen
out of the rock and so on, is CO2, and that is recycled. That becomes
the problem today: the carbon footprint, how to get that manageable.
Neither the Chevron nor the Shell process is going to be
water-excessive; and they have to be sensitive to the Colorado River
Basin, because that is the source of the water, and share the water
under 21st century standards. So I believe that the water problem is
less under technology change than it was. What has changed is the fact
that you've got a carbon-based material, and you have to capture the
carbon to CO2, use it, inject it, store it, and that's what's going
forward under the Bureau of Land Management leases today. So it's no
surprise that the carbon footprint is integrated in shale development;
it's not hostile to it.
Question:I'm Kirk Couchman with Sunoco. If you look at a map of where
the pipelines that run crude oil in the U.S. are and where the
refineries in the U.S. are, middle-American refineries—that is, Ohio,
Texas, Oklahoma—the middle part of the country has access to crude
pipelines running pretty much from anywhere to anywhere. If you look
at the coasts, California and the East Coast—particularly the
Philadelphia region—they don't have crude pipelines that run to them.
So when this oil shale is developed to the point where it's very
commercially available, getting it to a significant portion of
domestic refining capacity is going to be a bit of a problem. Are
there any policies that you would recommend to change the current
ability to site crude pipelines to overcome state and local
opposition, which currently handle the regulations?
Dr. Fine:There are current pipelines in the Piceance Basin, Rio Blanco
County, running to Salt Lake; Salt Lake is pipeline connected. The
infrastructure was put in place and refining and upgrading again in
Salt Lake. It has a regional component.
What I would do is look at a very interesting development. The
Canadians face a pipeline problem as well, and a refining problem with
their tar sands in Alberta. So a leading Canadian company and
ConocoPhillips decided to reinvest, or invest in each other. Conoco
Phillips will make its refineries in the lower 48 open to tar sands
product, bitumen, coming through. That's the twin of kerogen coming
out of the tar sands. So the tar sands from Alberta will go to two or
three mid-U.S. refineries. This is the adaptability on the refinery
issue to get both tar sands and oil shale to market, to refine and get
it into the system as well.
It has not become a problem in terms of development; the obstruction
to development is not transportation at this point. Utah has some tar
sands and some shale, and they will have to connect Utah into the
pipeline infrastructure. It might be a little different. Utah has
about 12 billion barrels of oil shale against the Colorado, and
Wyoming is another player in that.
If you want a measurement, per ton of rock in Colorado, 35 gallons of
oil, roughly, and then it declines in Wyoming to 20, 25 gallons; so
Wyoming is less economic than Colorado. So visualize a ton of rock,
because this is unorthodox in terms of petroleum, and what the rock
will yield in terms of gallons. It is economic at 25 for one ton; that
is now economic at $20 to $25 cost.
You all know the geopolitical issues in a world where the national oil
companies are changing contracts, expropriating—Caracas, Venezuela—and
diminishing the exploration space for the same companies who are in
Colorado: Shell, Chevron, and so forth. It becomes almost an
irrational resource question: Why is a resource in the United States
not developed, and why is there so much silence around it?
Question:What would you say is your answer to that? Why, in your
opinion, is there so much silence, and why is the resource so
underdeveloped?
Dr. Fine:The reason for this is historic, in a way: uncertainty over
price. That's why I recommend the SPR as the market-maker or initial
buyer. Since the President declared, "We're going to buy the oil," the
next step is where are we going to buy it? If it is purchased from oil
shale in the Rocky Mountains, this is an indirect way to assist an oil
shale industry.
The second reason is the episodic way shale is handled. When The
Heritage Foundation said, "What is the best way to present this
lecture?" I answered "Back to the Future," because generations of
geologists and petroleum engineers, as students in mining schools in
the West, were exposed to a pyramid. At the top was conventional oil,
petroleum, from Texas. At the base of the pyramid was the hard-to-get
stuff. Shale was almost at the bottom, and underneath shale were gas
hydrates, which are even more difficult to get.
This was the American perspective from 1913 onward. My point is the
expectation that the hydrocarbon cycle could be deferred even in the
current crisis of energy security by a third element, apart from
economics and technology: namely, public policy distorted by the
public and the media reacting to agendas of security and fear—and, of
course, by climate change.
The issue on climate change is simple. The Congress debated it for 18
months, and I watched all the debates from one side and the other. A
speaker from one faction or the other would say, "We've got to reduce
our dependence on foreign oil." The next speaker would say merely
"oil." Do we mean dependence on foreign oil or imported oil, or
dependence on oil itself?
If you look at it that way, there are two camps. Oil itself is
available and abundant: 3.7 trillion barrels in unconventional oil in
the world. There is the peak oil thesis, but the peaking out means
that your oil-finding level is lower than it has been. You're not
replacing as much as you did, in conventional oil only. But "peak oil"
simply means that the old pyramid comes into play; you move down the
pyramid, and the peak is rolled forward. You're on plateau, and then
you're into unconventional hydrocarbons oil.
Those who say the issue is oil itself make themselves very clear: They
want to move away from oil and all forms of carbon. They want a
carbon-free world, and that is their position. But let's not confuse
import dependency with that issue. Imported oil does not equate with
oil itself.
Question:I'm Bob Hershey. I'm a consulting engineer. What do we have
to learn from the oil shale experience of Estonia?
Dr. Fine:Estonia has derived and continues to develop oil shale for
electrical power. It burns the shale. It can make a fuel as well, but
shale is around for production into utility—in other words, electric
power, burning it. Estonia is a world leader in that respect.
Estoniajust entered into an agreement with Jordan to develop Jordanian
oil shale and so on. That's why I introduced the question of signing
an agreement with Brazil, getting President Bush to enter into two
agreements, one for sugar and one for shale, and then staking out,
under existing law, technology sharing and agreements and
co-development in Brazil. But we have much to learn from Estonia and
the tar sands issues and others. There are many co-products.
One co-product, by the way, from Colorado shale is trona—soda
ash—which was called nahcolite. The mineral byproduct is very valuable
in terms of fertilizer and other products. There is an enormous
co-product. It was interesting: The Bureau of Land Management looked
at the Exxon application. Exxon wanted a lease, and Exxon did not put
down its data, did not surrender data or interest in the co-product,
and they didn't get the lease. So there is a valuable co-product in
it: soda ash, nahcolite.
Question:My name is Richard Ranger. I'm with the American Petroleum
Institute. How do you respond to the contention that the main reason
shale has not been developed has been because of economics, because of
price, because of the cyclicality of crude oil prices, which at a
couple of points, perhaps, reached points where companies were induced
to invest in shale technologies as they understood them and then
backed away, given downward price cycles. I think part of the response
is your proposal to purchase shale oil production, or kerogen
production, as you outlined in your talk, but it seems like you're
describing history in a more complicated manner; if this had been
economic to produce, it would have been produced.
Dr. Fine:You introduce the whole history, really, in the question. In
the 1960s, Stewart Udall called for shale leases. There was no
interest from industry; American industry was not interested at that
point, because crude oil was $3 per barrel. So the industry itself,
looking at its assets and opportunities on a world scale by the 1960s,
had to compare its rate of return from other opportunities against
shale.
Why did shale fail in 1982? Why did Exxon close down its operation in
Colorado? The slope of supply, the Saudi output up through the 1980s,
again took the price down where it was not economic against other
opportunities. What's interesting about that is what was economic in
shale then and what is economic today. There are some studies still
around, dated in the 1970s, which say that shale needs $70 a barrel to
be economic and compete against conventional oil. But in testimony in
the House Resource Committee in 2005, Shell said it could do business
at $25 per barrel.
So we're in a period when the industry has to essentially take some
risk. What's the risk of price? How do you evaluate forward prices
against risk at this point? The shale story that I see in all cases
that I presented today is that it will return industry a minimum of 15
percent return on investment, ROI. That will be indeed possible at
prices, we'll say, over $40. And if you see oil going down to $40, as
some analysts do, it is economic.
One of the things that the shale oil industry will look at will be a
floor price to reduce market risk after years of price volatility.
That will be interesting to see, but I think, at this point, the
consensus is that the price of oil has reached a plateau. Are we going
to go back to the days of $20 oil? If you see that, then you don't
invest in shale. But if you see oil at $40 plus, then I think the
industry has a real candidate in oil shale.
Daniel Fine, Ph.D., is co-editor of Resource War in 3-D: Dependence,
Diplomacy and Defense and currently associated with the establishment
of a new energy policy center in New Mexico.
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
"Civilization is the interval between Ice Ages." -- Will Durant.
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMcharter.net
.
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| User: "Gogarty" |
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| Title: Re: Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy |
05 May 2007 07:57:00 AM |
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In article <hj0o33teg1qmjo01141k4nu6j3ck53vn20@4ax.com>,
daranc@NOSPAMcharter.net says...
(Big snip)
Oil shale poses a bunch of problems in a competitive enregy world, not
that I am knocking it.
It is a mining operation. The infrastructure required is vast and the
waste problem enormous. So long as it is cheaper to drill a hole in the
ground and recover liquid petroleum it can't compete. With subsidies?
Sure.
.
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| User: "Captain Compassion" |
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| Title: Re: Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy |
05 May 2007 12:27:45 PM |
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On Sat, 05 May 2007 08:57:00 -0400, Gogarty <Gogarty@Clongowes.edu>
wrote:
In article <hj0o33teg1qmjo01141k4nu6j3ck53vn20@4ax.com>,
daranc@NOSPAMcharter.net says...
(Big snip)
Oil shale poses a bunch of problems in a competitive enregy world, not
that I am knocking it.
It is a mining operation. The infrastructure required is vast and the
waste problem enormous. So long as it is cheaper to drill a hole in the
ground and recover liquid petroleum it can't compete. With subsidies?
Sure.
Certainly at oil at $20 a barrel it can't compete but at a stable
market price at $60 then it can. Shell says it cal male a profit at
$25 to $30 a barrel. It can be a strategic resource. Fill the National
petroleum reserve with oil from shale.
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
"Civilization is the interval between Ice Ages." -- Will Durant.
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMcharter.net
.
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| User: "Veri Tassiter" |
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| Title: Re: Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy |
05 May 2007 12:42:40 PM |
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In article <hj0o33teg1qmjo01141k4nu6j3ck53vn20@4ax.com>, Captain
Compassion <daranc@NOSPAMcharter.net> wrote:
April 26, 2007
Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy
by Daniel Fine, Ph.D.
Heritage Lecture #1015
Delivered on March 8, 2007
http://www.heritage.org/Research/EnergyandEnvironment/hl1015.cfm
I'm pleased to be invited to The Heritage Foundation and to develop
with Heritage and in Washington what might be called the "shale
story," which currently is almost silent with regard to national
policy and world petroleum. Earlier on, I edited a book on the
resource war in the Reagan Administration. It was based upon how to
understand, how to conceptualize strategic resources: oil, gas, and
hard-rock minerals. I'm currently based both on the East Coast and in
New Mexico, participating in the New Mexico energy model for the
country and maybe the world.
---------------------------------
But OPEC and the PetroProfiteers will continue to set the price of oil
just below the marginal price of shale, sand, or any other
petro-source.
----------------------------------------------------------------
.
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| User: "Captain Compassion" |
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| Title: Re: Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy |
05 May 2007 08:14:23 PM |
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On Sat, 05 May 2007 10:42:40 -0700, Veri Tassiter <netpost@pochta.ru>
wrote:
In article <hj0o33teg1qmjo01141k4nu6j3ck53vn20@4ax.com>, Captain
Compassion <daranc@NOSPAMcharter.net> wrote:
April 26, 2007
Oil Shale: Toward a Strategic Unconventional Fuels Supply Policy
by Daniel Fine, Ph.D.
Heritage Lecture #1015
Delivered on March 8, 2007
http://www.heritage.org/Research/EnergyandEnvironment/hl1015.cfm
I'm pleased to be invited to The Heritage Foundation and to develop
with Heritage and in Washington what might be called the "shale
story," which currently is almost silent with regard to national
policy and world petroleum. Earlier on, I edited a book on the
resource war in the Reagan Administration. It was based upon how to
understand, how to conceptualize strategic resources: oil, gas, and
hard-rock minerals. I'm currently based both on the East Coast and in
New Mexico, participating in the New Mexico energy model for the
country and maybe the world.
---------------------------------
But OPEC and the PetroProfiteers will continue to set the price of oil
just below the marginal price of shale, sand, or any other
petro-source.
----------------------------------------------------------------
Oil sand is profitable at $20 a barrel. That's why Canada is getting
rich.
--
There may come a time when the CO2 police will wander the earth telling
the poor and the dispossed how many dung chips they can put on their
cook fires. -- Captain Compassion.
Wherever I go it will be well with me, for it was well with me here, not
on account of the place, but of my judgments which I shall carry away
with me, for no one can deprive me of these; on the contrary, they alone
are my property, and cannot be taken away, and to possess them suffices
me wherever I am or whatever I do. -- EPICTETUS
"Civilization is the interval between Ice Ages." -- Will Durant.
"Progress is the increasing control of the environment by life.
--Will Durant
Joseph R. Darancette
daranc@NOSPAMcharter.net
.
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