Sunday, September 16, 2012

Tar sands, oil shale, and heavy oil: Why the conventional wisdom about unconventional oil is likely to be wrong

This is the third of a six-part series introducing readers of The Christian Science Monitor to concepts useful in understanding the Resource Insights blog. Selected posts from Resource Insights are now appearing regularly on the Monitor's Energy Voices blog. To read the previous installments of this series click on the following: Part 1, Part 2

In the old days, that is before 2010, the oil industry used to regale the public with tales of plenty that revolved around what is commonly called "conventional oil." Conventional oil refers to oil in a liquid state occurring naturally and coming from a well on land or water. It's what most people think of when they think of oil. And, this category of oil is relatively easy to extract and refine using longstanding conventional techniques. The industry assured us that there was plenty of conventional oil in the Middle East, Russia and elsewhere to supply us for decades to come.

Then in its 2010 World Energy Outlook, the International Energy Agency announced that the peak in the rate of production of conventional oil had already arrived, probably in 2006. There was some good news, however. Production of so-called "unconventional oil" would grow considerably over the coming decades and allow total oil production to rise. This unconventional oil includes oil derived from the Canadian tar sands, from heavy oil deposits in Venezuela and elsewhere, and from so-called oil shale. It also includes oil products obtained from coal through coal-to-liquids technology and those obtained from natural gas using gas-to-liquids technology. Some people include tight oil (often mistakenly referred to as shale oil) as part of the unconventional mix, though once out of the ground it is typically refined in the same way as conventional oil.

Signal qualities of unconventional oil are that it is expensive and difficult to extract and refine. This has so far meant that in most cases only high oil prices can justify its extraction. And, this means that it is going to be hard for unconventional oil to make up for the decline in the rate of conventional oil production. And, rate is the key metric. As I am obliged to remind people again and again, it is the rate of oil production which matters much more than the size of the resource. The global economy is entirely dependent on continuous flows of energy and raw materials. Oil is absolutely central because it provides one-third of the world's energy and more than 80 percent of its transportation fuel. Very few things of consequence move in the world economy without the assistance of oil.

When we think of conventional oil, we can picture gushers which are evidence of highly pressurized underground reservoirs that send oil to the surface without any pumping. Nowadays, blowout preventers have eliminated gushers except in the case of an accident such as the BP Gulf of Mexico oil spill. As oil is produced from a well, the pressure declines and eventually the remaining oil must be pumped to the surface. The general category for this type of oil is light sweet crude. "Light" means it flows and flows quite readily. "Sweet" means it contains little sulfur, and this makes it compatible with conventional refineries which are designed to process low-sulfur oils. (Sulfur, you may recall, is routinely removed from motor fuels to help prevent acid rain which occurs when sulfur from vehicle exhaust and other sources mixes with moisture in the atmosphere to form sulfuric acid.)

Now, unconventional oil can be entirely different. Tar sands, for example, are a mixture of sand and bitumen, a thick, gooey hydrocarbon that is often used to make asphalt. The bitumen is separated from the sand using hot water. Essentially, the bitumen moves to the top and is skimmed off. This is obviously water-intensive; but it is also energy-intensive since the sands must first be mined and transported to a separation facility. Then, enormous separators filled with water heated using natural gas start the separation process. That process is repeated to get up to 90 percent of the bitumen out of the sand.

But we don't yet have oil. The bitumen must be put through another energy-intensive "upgrading" process that typically strips the hydrogen off natural gas molecules and makes them available to the bitumen under great pressure and heat using the proper catalysts. Finally, the sulfur must be removed. Then, and only then, do you get something that resembles what we call oil. In fact, it is referred to as syncrude--short for synthetic crude--because it is not naturally occurring and must be manufactured.

As you might intuit, ramping up tar sands production has been easier said than done. Energy writer Chris Nelder noted the gap between projected and actual production: "Let's remember that tar sands production was projected to grow from 1 mbpd [million barrels per day] in 2006 to 2.8 mbpd in 2012, but actual production is currently just 1.6 mbpd," he wrote citing a Canadian Association of Petroleum Producers forecast from 2006. Promises of 5 mbpd by 2030 ought to be taken with a grain of salt. And, 5 mbpd needs to be put in the context of a world that according to the U.S. Energy Information Administration (EIA) is projected in 2030 to consume 108 mbpd of so-called "total liquids" (which include not only oil, but biofuels and natural gas plant liquids such propane and butane.) I have my doubts that we will reach either 5 mbpd from tar sands production or 108 mbpd in worldwide production of liquid fuels given the difficulties of producing unconventional oil.

Perhaps the most egregious exaggerations are saved for deposits of so-called oil shale. I say "so-called" in this case because oil shale is neither shale, nor does it contain oil. The designation was created to attract investors. Oil shale is, in fact, organic marlstone containing kerogen, a waxy hydrocarbon. Like tar sands, it must be extensively processed to yield what we call oil.

Writers and analysts abound who will cite astronomical figures for oil contained in America's oil shale deposits which are found in Colorado, Wyoming and Utah. An article in The New American claims that there are 3 trillion barrels of oil contained in the oil shale of those three states, nearly twice the known reserves of oil worldwide. Of course, it isn't oil; it's kerogen, which the author doesn't appear to understand. The article cites testimony from a representative of the General Accountability Office, the nonpartisan research arm of the U.S. Congress. The witness says half that number may be "recoverable." As I am obliged time and again to remind people, recoverable isn't the same as economically recoverable. It is possible to recover rocks from the Moon. But we would never think of transporting rocks from the Moon to the Earth to make roadway aggregates.

So, just how much oil from oil shale is currently available for purchase on world markets? The answer is none. There are some pilot projects which produce small quantities for research purposes, but that is all. Here it is important to review the difference between "resources" and "reserves." The writer of the articles above refers to 3 trillion barrels of reserves. But, reserves are what can be produced at today's prices from known fields using existing technology. By that definition the oil reserves of America's oil shale fields are exactly zero.

Resources, on the other hand, refer to the amount of something thought to be in the ground based on rather sketchy evidence. By that definition there is still no oil contained in America's oil shale. What's thought to be there are 3 trillion barrels of kerogen imbedded in rock, which, as I said, must go through extensive processing before it can become oil. Since the early 1980s oil companies have tried to commercialize the production of oil from this kerogen-rich rock, but have so far been unsuccessful. So complex and difficult is the task of extracting and processing kerogen that the EIA has estimated that even under its high oil price scenario, the United States will produce no more than 140,000 barrels per day of oil from oil shale by 2030. That's a drop in the bucket compared to the country's projected needs of about 15 million barrels per day.

Heavy oil, on the other hand, is actually being extracted in many places around the world. While the resource base for heavy oil is actually much larger than for conventional oil, typically a much lower percentage of any reservoir can be extracted. Historically, the recoveries from conventional oil reservoirs have averaged around 35 percent. The percentage for heavy oil can be as low as 5 percent though many reservoirs yield a considerably higher percentage. The point is that while people can quote large numbers for heavy oil resources, these need to be paired with an awareness that we simply cannot get nearly as great a percentage of those resources out of the ground economically as we have conventional oil.

Heavy oil is what you probably imagine it to be: a highly viscous hydrocarbon-rich liquid that flows only with difficulty. Though it can in some cases simply be pumped from the ground, often it is heated with steam or by other means to make it flow better. That, of course, increases the cost of extraction over conventional crude. And, heavy oil operations face a double handicap. Not only is heavy oil more expensive and difficult to extract, but it commands a lower market price than conventional crude because it is more difficult to refine. For example, Canadian Heavy Crude Oil futures contracts traded in New York sell at around a $10 to $20 discount to the U.S. benchmark West Texas Intermediate, a high-quality conventional crude. (Prices are actually quoted as the difference in price between the Canadian and U.S. oil, in this case a negative number.)

There is yet another impediment to heavy oil production which has nothing to do with physics or economics. By far the largest deposits are located in Venezuela. But the current administration has mismanaged the government-owned oil company, PetrĂ³leos de Venezuela, SA (PDVSA), which dominates oil development in the country. President Hugo Chavez's government has used revenues from PDVSA to fund social welfare programs to address the needs of the country's many poor. But this has led to a lack of investment in Venezuela's oil infrastructure and a consequent fall in oil production.

Thus, for various reasons the all-important rate of production for heavy oil may not over time be able to do much to fill the gap left by the continuing decline in the rate of conventional oil production.

Transforming coal into liquid fuels suitable for vehicles also falls into the unconventional category. The Germans perfected this process during World War II when they lost access to oil. But for now, only South Africa produces an appreciable amount. Here's what I wrote previously about coal-to-liquids production:

Turning coal into liquid fuels for vehicles is now done mostly in South Africa, a holdover from the days of apartheid when the South African government feared an oil embargo could leave the country without fuel for transportation. Turning coal into gasoline and diesel is extremely dirty and extremely expensive. But South Africa paid for the equipment to do so long ago and now must simply pay for domestic coal to supply its coal-to-liquids refineries.

As for processing natural gas into liquid fuels using gas-to-liquids technology, it is capital-intensive and currently only suitable for turning what is called "stranded gas"--natural gas that would otherwise be flared into the atmosphere--primarily into diesel.

I should say a few words about tight oil because it is often mistakenly referred to as shale oil, even though that term is more properly interchangeable with oil shale. Tight oil does indeed come from deep shale deposits, and it is released through hydraulic fracturing or fracking, the same process that is causing so much controversy when it is used to release natural gas from deep shale. Tight oil does not really fall into the unconventional category since it produces oil that is suitable for conventional refining.

While hydraulic fracturing is not new, the particular form of it used to make tight oil deposits flow has only been in widespread use since 1998. This form has made previously uneconomic deposits of oil in such places as North Dakota profitable to extract. U.S. oil production has risen recently as a result. But the EIA projects that production of such oil in the United States will top out in 2030 and then decline even as overall U.S. oil production hits a secondary peak earlier in about 2020 and then starts to decline. (The United States hit its all-time oil production peak in 1970.) Total "recoverable" resources of tight oil in the United States--remember, they're not necessary economically recoverable--are put at 24 billion barrels, or the equivalent of 288 days of world supply. Based on what we know today, tight oil production will not do much to overcome the loss of other conventional oil production worldwide.

Finally, there is the seemingly esoteric question of Energy Return on Investment (EROI). Simply stated, it takes energy to get energy. More than a century of cheap energy has made us forget this critical fact. As we exploit ever more difficult-to-get energy resources, we are obliged to spend ever increasing amounts of energy to get them. When the EROI of a seeming energy resource reaches one--that is, when it takes one unit of energy to obtain one unit of energy--that resource ceases to be a source of energy.

The United States is thought to operate at an EROI for all energy sources of about 40 to 1. It is hard to imagine running the country entirely on fuels such as oil from tar sands which has an EROI between 5.2 and 5.8 to 1. For oil shale there is little to go on since there are no commercial-scale operations. But available estimates tell us something about why this resource has never been successfully commercialized. Reported EROI ratios are between 1.5 to 1 and 4 to 1. Compare this to between 12 to 1 and 18 to 1 for oil imported into the United States.

As we as a species continue to exploit energy resources that are more and more energy-intensive to extract, we will find out the true meaning of "net energy." That is the energy left over after we find, extract, refine, and deliver energy to its user. Net energy is what everything in society except the energy industry runs on. Right now in the United States, if the 40 to 1 ratio for EROI is correct, then about 2.5 percent of our energy is spent getting energy. That leaves plenty for all the other things we want to do.

But if we come to rely on an array of low EROI fuels, we may soon find that vast portions of our economy must now be occupied with energy gathering. A drop to a 10 to 1 average EROI implies that 10 percent of the economy would be devoted to energy extraction. That's four times the current size of the energy sector in the United States. A drop to 5 to 1 implies that 20 percent of the economy would be involved in energy extraction. This progression is called the "net energy cliff", and it augurs enormous changes in the way we structure our economy and our lives if it comes to pass.

Those changes are, in fact, already happening as we realize that unconventional oil won't be cheap. It's unlikely to be plentiful either because unconventional oil will be challenging to produce at the same high rates we've been producing conventional oil. And, the low EROI of unconventional oil should tell us that we cannot count on it to provide as much energy to society as we are used to from much higher quality fuels.

All of the foregoing flies in the face of the (wildly misleading) conventional wisdom about unconventional oil. But if we are to make intelligent policy and personal decisions about energy, we will be better prepared if we work with the available evidence rather than relying on the oil industry's pronouncements of wonders yet to come.


Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

17 comments:

DiscoveryAlarm.Com said...

http://en.wikipedia.org/wiki/Kerogen

Confusing. Oil shale = Kerogen! The difference is only the maturity of the layer (having experienced temp/pressure)?

DiscoveryAlarm.Com said...

Oil shale not available? Estonia runs on it...

http://en.wikipedia.org/wiki/Oil_shale_in_Estonia

Kurt Cobb said...

DiscoverAlarm.com implies that there are only minor differences between kerogen and crude oil. If this were true, it would be easy to process it into what we call oil. While it's true that kerogen can be characterized as "immature" oil, that simply means that given perhaps a few more million years and more pressure and higher temperatures, it could turn into what we call oil.

In order to speed up this process, we are obliged to use high heat (typically 800 to 900 degrees F) and high pressure to process it. Normally, hydrogen must be added to create something light enough to be called oil. And, these days that hydrogen usually comes from natural gas. It's a very energy-intensive and water-intensive process and too expensive, it turns out, even with oil at $100.

But I haven't even mentioned that the rock containing the kerogen must mined first, and that takes considerable energy as well. There are in-situ methods of heating the kerogen, most notably one developed by Shell which involved creating a freeze wall around the area to be heated. This is done by essentially refrigerating the ground to the depth of the operation. That process uses lots of electricity. The freezing prevents the movement of water from the in-situ site into aquifers outside of it. Heaters are then inserted down drillholes to heat the kerogen in place.

Shell has put this experiment on hold and isn't pursuing further development at this time. Apparently, the company cannot see a way to make this technology competitive even in the current high-price environment.

In Estonia, oil shale is used primarily for the production of electricity from directly burning pulverized shale. And, perhaps it would be used that way in the United States were it not for the ready availability of coal and natural gas, something Estonia is not rich in.

While Estonians have long experimented with producing liquid fuels from oil shale, they have had only limited success. And, it's not likely that their state-owned liquid fuel operation would have been profitable as a standalone without the subsidy provided by electricity production. We may find out as the Estonians appear to be building another standalone plant.

The quantities so far, however, are miniscule compared to world consumption (about 3.4 million barrels annually from what I can find) versus about 31 billion barrels of worldwide oil consumption.

To date every attempt to produce oil from oil shale on anything but a minor scale has not been feasible. While we can't say what costs Estonia's producers of oil from oil shale experience, it is worth noting that the U.S. Energy Information Administration reports that oil consumption in Estonia in 2011 was 23,600 barrels per day. Production was 7,700 barrels per day. That means that Estonia was importing 15,900 barrels per day or about 2/3 of its oil into a country with vast oil shale deposits.

Anonymous said...

Good stuff Mr. Cobb; I'm happy to see that major publications like CSM are beginning to cover energy issues in greater depth. I'm sure you noticed the McClatchy syndicate's coverage of peak oil last month.

One question: You mention that the US economy's overall EROI is approximately 40:1, and that the EROI of oil imported by the US is 12-18:1.

This implies that the EROI of the non-(imported oil) component of the US economy is greater than 40:1.

Could you elaborate on this? Is it our domestic coal supplies that are providing EROI of greater than 40:1?

Kurt Cobb said...

Thanks to Anonymous for your kind words. And, I did see the McClatchy series and was very heartened by it.

To answer your question, I don't have hard data on U.S. domestic oil EROI, but I would expect it to be lower than imported oil since much that oil still comes from places such as Mexico and the Middle East where EROI remains high for previously discovered oil.

Your suspicion about coal is correct, though. Coal at the mine mouth can have an EROI of 80 to 1 when it is used to generate electricity. And, this is coal's primary use in the United States where it provides the fuel for half of all electricity.

Hydropower also has a high EROI, but is very site dependent. I've seen an average for the U.S. of 40 and another of 100. An average of these two estimates puts hydro far above the overall U.S. EROI.

yvesT said...

Meanwhile ,
- 99% of US citizens do not even know, haven't been informed, that they have passed their oil production peak in 1971.
- They have been told that the first oil shock was due (or linked to, if you refer), the "Arab embargo", and was a "cartel agressive initiative from OPEC" when :
- the first oil shock is the direct consequence of the US oil production peak
- fuel shortages started in the US in 71
- The majors needed higher oil prices to start Alaska, GOM, North Sea
- US diplomacy SUGGESTED/PUSHED FOR the oil price rise (james akins in particular)
- the so called "embargo", although still the typical label used in oil price history little graphs, was a complete non event, lasted around 3 months, wasn't even
effective from Saudi Arabia towards the US (tankers going from Saudi Arabia through Bahrain towards the US Army in Vietnam in particular)
- The embargo was a very practical thing for :
- The US government to "cover up" 1971 oil shock or "put the blame" on OPEC
- The Arab rulers and Saudi Arabia in particular to show the "Arab street" that they were "doing something for the Palestinians"
- the Iraq war was of course about oil and planned before 911 (under over optimism regarding its outcome)
- Although many countries have set up serious volume based gas tax after the first oil shocks (that have been effective, you just have to compare average mpgs),
the US did almost nothing, they even moved to SUVs in the eighties or nineties
- etc, etc

Key text about this "The oil crisis : this time the wolf is at the door" Akins 1973 paper :
http://www-personal.umich.edu/~twod/oil-ns/articles/for_aff_aikins_oil_crisis_apr1973.pdf

Also see Akins interviews (and Yamani, Nicolas Sarkis) interviews in below 2nd part for instance :
http://parolesdesjours.free.fr/petrole.htm

DiscoveryAlarm.Com said...

Thanks for the reflection Kurt Cobb. I recall a presentation by Shell on the freezing kerogen/shale project. EROI was around 2-3:1 But the scalability is huge.

DiscoveryAlarm.Com said...

Some information about Enefit. Their goal is 30k bbl/d in 2016. Pretty tough projection if you ask me. As long as the oil price stays high, and gov. remains involved it might just work out.

https://www.energia.ee/-/doc/10187/pdf/concern/non-deal_roadshow_presentation.pdf

Jeremy Boak said...

It is hard to tell where to begin on the misinformation provided by Mr. Cobb. If he insists on calling it "so-called" oil shale because it does not contain oil, what does he call wine grapes? Not all oil shale is marlstone. Mr. Cobb should not hold forth on geology he does not understand. Most of the Chinese oil shale is actually argillaceous "shale." If he is bothered by calling it shale, perhaps he should say the same for shale gas and the "so-called" tight oil deposits (have you ever seen any oil that was tight?), which are no more "shale" than oil shale, and would be poor targets for fracking if they were. Oil shale is a rock. Shale oil is a product of retorting that rock. The terms are not interchangeable except for those fundamentally ignorant of petroleum.

It is wrong to assert that Shell has put its experimentation on hold. They have completed one experiment and are in preparation stages for another, and continue research on engineering aspects in other parts of the country.

The scale of the U. S. resource is very large - 4.2 trillion barrels of oil producible by a standard method. However, only about 900 billion barrels of that are rich enough to be likely producible, and only 400 billion barrels are rich enough that it is highly likely they could be produced at current prices with technology either existing or in development. But there are oil shale reserves in Brazil, China, and Estonia.

Estonia has been producing commercial quantities of oil from oil shale for decades, as have China and Brazil. Estonia's fuel comes both from Enefit and VKG (a private company). It is true that the quantities are small. Enefit is producing oil from its new oil shale plant in Estonia, and VKG has been producing from a new plant for several years. Enefit has plans for essentially identical plants in Jordan and Utah, and is currently performing tests on Moroccan oil shale.

Shell's estimate of energy return on investment is 3.5-5:1, higher than any estimate cited by Mr. Cobb. Other companies have suggested EROI of up to 11:1. These are apparently unimportant to Mr. Cobb.

Mr. Cobb also passes on stale myths about water and cost. While industry estimates suggest 1-3 barrels of water required for one barrel of oil, with further reductions possible. This compares favorably with 4-8 barrels of water for a two-liter bottle of sweetened cola, and tens to hundreds of barrels for many forms of biofuel.

Current estimates of prices required for reasonable return on investment for oil shale range from $38-80/barrel. Wind energy producers still claim they need very large per unit energy subsidies decades after we started building wind turbines.

Only one effort to bring major production of shale oil in line was predicated on high oil prices supported mainly by the OPEC cartel. Current high prices could make oil shale feasible at levels that top EIA's projections.

Mr. Cobb's research on oil shale is dated, spotty, and on some subjects, consists simply of parroting the mythology of opponents of oil shale development. It is always challenging to bring new energy resources on line, but conventional oil required steadily increasing levels of effort to continue to grow at 9% per year for fifty years to bring U. S. production to the one million barrel per day level. No energy resource will be any easier to bring to that level.

Jeremy Boak, Director
Center for Oil Shale Technology and Research
Colorado School of Mines
Viewpoints are mine, not those of the Colorado School of Mines

yvesT said...

Impressive how above comment gets censored on Energy Bulletin, obviously the average "make it feel good" American peak oilers, are totally unable to consider the oil history in a rational way anymore, and James Akins for instance, should definitely be forgotten (after having been fired from US diplomacy in 1975), although obviously one of the guy that knew the most about the recent oil history, and was honest about it...

yvesT said...

@Jeremy,

For you information, OPEC is not a cartel at all and these days even less than ever.

Anyway talking of "cartel" about raw material production (that is extraction) doesn't make sense.

Especially when :
-said cartel hasn't the monopol on production at all
-mot of its members are at full possible production rate
-this for their national budgets

If oil market has once been dominated by a cartel, it was of course during the "seven sisters" period.

Moreover let's remember that the first oil shock was about :
- producing countries wanting to have a higher share of revenues per barrel produced on their territories (ever heard of Mossadegh and operation Ajax in 53 ? )
- the US having just passed its oil production peak in 1971, and as a consequence western majors needing a higher price to start more expensive plays : Alaska, GOM, North Sea. This being also necessary to keep a higher market share.
- the US diplomacy (Akins/Kissinger) HAS PUSHED OPEC members for higher oil prices (made effective through quotas)

I guess you also don't remember that the counter oil shock (especially after 85) was a lot about Reagan making a deal with the Saudis in order for them to increase their prod, lower the price, with the objective of bringing the USSR down, wich worked (cut their revenues by 2/3).
Sure there was also other things like the Iran/Iraq war and the budgets associated.

Moreover one can wonder, if you work in the "high tech expensive oil plays" industry, why you would complain about high barrel price ? A bit strange ...

Overall one could for sure expect a bit more honesty about the recent let's say post WWII oil history from Americans, that's for sure. Had the American public known that the first oil shock was about the US oil production peak, maybe things would be a bit different these days.

craig moodie said...

Seems to me Mr. Boak is talking his book. Hell of a thing to be out of work due to ones pseudo-technology being exposed for what it is.

craig moodie said...

Dear Mr Cobb,
I don't know if you are familiar with an article written by Nicole Foss several months ago on 'shale plays'. Her take is that most gas 'plays' are mere financial speculation and are not economically viable due to rapid depletion and multiple drilling required.
I live in South Africa and there is a huge controversy raging at present regarding 'fracking' in the Karoo. To date resistance to 'fracking' has emanated from environmental groups.
Shell Oil are the prospective developers.
If what Nicole is correct in her assessment what benefits would Shell gain by pursuing an economic black hole known as 'fracking', unless the 'financial play' that exists in the US can be extended to RSA.
Your comments would be appreciated.

Kurt Cobb said...

I welcome Mr. Boak's comments, and he should know that I am always open to new information. For some reason he labels me an "opponent" of oil shale development. I'm not an opponent so much as I am skeptical about whether oil shale and other unconventional sources of oil will be able to make up for the decline in the rate of production of conventional oil. So far the answer is "just barely" as worldwide production of crude plus condensate since 2005 has remained on a bumpy plateau despite record average prices for crude. If this is what happens under a high price scenario, I fear that unconventional flows will simply not come on fast enough to prevent a drop in overall oil production. This is my central point.

Mr. Boak and I actually agree on several things. Oil from oil shale has a low EROI compared to other fossil and some nonfossil energy sources. It takes a considerable amount of water to process. And, it will likely provide some amount of liquid fuel to world markets in the future.

We can quibble over numbers. He says there are 900 billion barrels of oil-equivalent in America's oil shale deposits. I'll take his word for it. But I am concerned as I said in the piece again and again primarily with the rate of production. This is far more important than the size of the resource when it comes to the stability of society. He claims that oil prices between $38 and $80 a barrel are sufficient to allow profitable conversion of oil shale into usable oil. But the evidence would suggest otherwise. Oil has been around these levels time and again for years and yet investors are not flocking to invest in oil shale projects.

He tells us correctly that oil from oil shale has been produced in Estonia, which has large deposits, for a long time. But it has been produced under the aegis of the state electricity monopoly (which burns pulverized oil shale to generate power) and therefore has essentially been subsidized. Nothing wrong with that since Estonia may have reasons to want to make itself less susceptible to oil shocks even if there is a cost for doing that. It's worth noting that in 2011, despite its huge oil shale deposits, Estonia imported 2/3 of the oil it consumed according to the U.S Energy Information Administration (EIA). Certainly, the country knows how to process oil shale to get oil. Whether it can do this in an economically competitive manner seems questionable.

No doubt the technology for processing will improve. Whether it can scale up at all or scale up quickly enough to avoid a downturn in the rate of world production is an open question. Given the record to date, I think it would be foolish for public policymakers to count on this. And the low EROI will prove problematic for a world used to high EROI fuels.

I am intrigued by Mr. Boak's analogy concerning wine grapes for it demonstrates my point about oil shale perfectly. Wine grapes contain absolutely no wine. In fact, considerable effort must be undertaken--harvest, fermentation, the addition of various wine-making chemicals, bottling--in order for those grapes to become what we would call wine. And, so it is with oil shale. Incidentally, I'm not the only one who finds the name troublesome. Let me quote from an EIA report entitled "Expectations for Oil Shale Production" published in 2009: " 'Oil shale' is, strictly speaking, a misnomer in that the rock is not necessarily a shale and contains no crude oil."

Kurt Cobb said...

Mr. Moodie,

As regards shale gas in South Africa, I suspect that Shell will be far more careful with its money than American independents have precisely because it is Shell's money. American independent drillers (as opposed to the large integrated oil companies) raised money from many unsuspecting, but surprisingly sophisticated investors to finance much of their drilling here through individual well participation agreement. This avalanche of capital made possible the huge overdrilling and then overproduction of natural gas which you are now seeing in the United States. A lot of money was simply squandered as natural gas prices plummeted. But, of course, the drilling company managements in many cases made out quite well!

I suspect Shell will be much more careful to check out which areas are likely to be profitable before drilling many wells.

On the other hand, if you oppose such drilling and Shell finds that drilling profitable, then you will have your hands full as have activist in this country. Wealthy oil and gas companies have been able essentially to buy legislators and get them to do their bidding when it comes to shale gas.

Uncle John D said...

I'm not going to argue who has it right and who has it wrong Mr. Cobb. Lets just stipulate that there are plenty of new ideas and many dynamics and unknowns to think about, discuss, and explore. I do, however, believe it is wrong to avoid the discussions, or to attempt to kill the participants because of a sense of opposition or proponency.

A couple of points I'd like to make:

Any person or production company or scientific institution investigating the beneficial development of unconventional energy resources is constrained by the very nature of their capability and holdings. You are skeptical about "scaling up" unconventional oil resources to a rate of production that would minimize the instability to society. I agree because as things are run now, resource ownership and governments would simply get in the way. Even a great producer company like Shell is stuck with the resources and technical know-how they have on hand, together with all the physical quirks of that location. Its not a wide open or uniform playing field at all.

Technical know-how is held tightly to the vest. Everyone rows their own boat in their own little pond for their own reasons.

Are there solutions or a path to take? Maybe.

A coherent national energy policy may help with the government obstacle.

What if the resources were unlocked to allow a "small producer" to engage his wits and sweat, like was done in the early days? Probably not efficient, but a means to some level of production nevertheless.

What if the multi-nationals engaged in unconventional oil production pooled their holdings and technical capabilities? An American-sponsored joint venture of massive scale and combined resources put to work with a goal of energy independence.

Very impractical ideas given today's operating climate I'd say...but if there is a direction to take I think it has to look something like this.



William Bailey said...

Some have used the terms "oil shale " and "shale oil" to distinguish between the kerogen resources in Colorado and elsewhere and oil extracted from shale now using horizontal drilling and hydraulic fracturing. This is awkward but it is also a little inaccurate to say the latter is synonymous with "tight oil". Tight oil refers to oil in any very low porosity/permeability formation, including, for example, the lenticular tight sands in the Piceance Basin of Colorado.