Houston Chronicle: Shale oil’s time may have arrived: Experts cite new technology, high crude prices

By JOE CARROLL
Bloomberg News
June 3, 2007, 1:31AM

Colorado and Utah have as much oil as Saudi Arabia, Iran, Iraq, Venezuela, Nigeria, Kuwait, Libya, Angola, Algeria, Indonesia, Qatar and the United Arab Emirates combined.

That’s not science fiction. Trapped in limestone up to 200 feet thick in the two Rocky Mountain states is enough so-called shale oil to rival OPEC and supply the U.S. for a century.

Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. energy companies, and Royal Dutch Shell are spending $100 million a year testing new methods to separate the oil from the stone for as little as $30 a barrel. A growing number of industry executives and analysts say new technology and high prices make the idea feasible.

“The breakthrough is that now the oil companies have a way of getting this oil out of the ground without the massive energy and manpower costs that killed these projects in the 1970s,” said Pete Stark, an analyst at IHS, an Englewood, Colo., research firm. “All the shale rocks in the world are going to be revisited now to see how much oil they contain.”

The U.S. imports two-thirds of its oil, spending $300 billion a year, or 40 percent of the record trade deficit. Every $10 increase in a barrel of crude costs an American household $700 a year, according to the Rand Corp., founded in 1946 to provide research for the U.S. military. Oil prices have risen 63 percent since 2004 and higher fuel costs have slowed growth in the world’s largest economy to the lowest in four years.

The last effort to exploit the Colorado and Utah shale fields foundered in the 1980s after crude prices tumbled 72 percent, resulting in a multibillion-dollar loss for Exxon. Techniques developed to coax crude from tar sands in Alberta, 1,600 miles to the north, may help the U.S. projects’ engineers.

Cooking the shale

“The potential for shale is large,” said Joseph Stanislaw, senior energy adviser for Deloitte & Touche and co-author with oil analyst Daniel Yergin of The Commanding Heights: The Battle for the World Economy. “Assuming the technology proves out, the size and scale of the reserves are significant.”

Energy providers are investing in shale oil production because the reserves are large enough to generate higher returns than smaller fields in Oklahoma and Texas, where output is declining after eight decades.

Shale is also a more attractive investment than new U.S. refineries, which Shell and Chevron say may lose money as rising use of crop-based fuels such as ethanol lowers domestic gasoline demand. Exxon says it isn’t interested in building new fuel plants in the U.S. because the company expects North American fuel consumption to peak by 2025.

“You’re going to build refineries where demand is increasing, and that’s the developing world,” Scott Nauman, Exxon Mobil’s manager of economics and energy planning, said in a May 18 presentation at a University of Chicago oil conference.

Shell’s project

In the high desert near Rifle, Colo., Shell engineers are burying hundreds of steel rods 2,000 feet underground that will heat the shale to 700 degrees Fahrenheit, a temperature at which Teflon melts.

The heat will be applied for the next four years to convert the hydrocarbons from dead plants and plankton, once part of a prehistoric lake, into high-quality crude that is equal parts jet fuel, diesel and naphtha, the main ingredient in gasoline.

Chevron, which helped build the Saudi Arabian energy industry when it struck oil in the kingdom in 1938, plans to shatter 200-foot thick layers of shale deep underground, said Robert Lestz, the company’s oil-shale technology manager.

Rather than using heat to transform the shale into crude, Chevron plans to saturate the rubble with chemicals to convert it. The method will reduce power needs and production costs, Lestz said.

Using chemical reactions to get oil from shale also means fewer byproducts such as ash and fewer greenhouse gases, he said.

‘Brute force’

Chevron scientists are working with researchers at the Los Alamos National Laboratory in New Mexico to determine which chemicals work best for converting shale to crude oil. Shell’s heating technique amounts to “a brute-force approach,” said Lestz, who is based in Houston.

Raytheon Co., the maker of Tomahawk missiles and the first microwave ovens, is developing a process that would use radio waves to cook the shale.

Irving-based Exxon Mobil plans to shoot particles of petroleum coke, a waste byproduct of oil refining, into cracks in the shale. The coke will be electrically charged to create a subterranean hot plate that will cook the shale until it turns into crude.

“These are quite remarkable technological approaches,” said Jeremy Boak, a geologist at the Colorado School of Mines in Golden, who spent 11 years cleaning up radioactive waste and disposing of weapons-grade plutonium at U.S. government sites. “The oil companies don’t have the exploration problem of finding resources to drill. We know the oil is here. It’s just a matter of getting it out.”

U.S. oil shale deposits likely hold 1.5 trillion barrels of oil, according to Jack Dyni, a geologist emeritus at the U.S. Geological Survey. All 12 OPEC countries combined have proven crude oil reserves of about 911 billion barrels, led by Saudi Arabia, with 264.2 billion barrels, according to statistics compiled by BP.

Skeptics of the potential for shale oil include Cathy Kay, an organizer for the environmental group Western Colorado Congress, who says the techniques will drain water supplies, scar the landscape and require so much power the skies will be choked with smoke from coal-fed generators.

“They are going to do absolutely massive environmental damage,” said Kay, a South African native who’s been spearheading the Grand Junction, Colo., group’s anti-shale campaign since September.

“Why don’t these companies invest these giant sums of money developing the cheapest, cleverest solar panel or geothermal process, instead of chasing this elusive oil?” Kay asked.

Shell, based in the Hague, estimates it can extract oil from Colorado shale for $30 a barrel, less than half Friday’s close of $65.08 for light, sweet crude on the New York Mercantile Exchange.

Comments

VOICES OF HOUSTON

 johnadonovan wrote:

The question is can the public trust Big Oil to respect and protect the environment in the quest for extracting oil shale on a commercially viable basis?

Their track record does not exactly inspire confidence bearing in mind that we have already witnessed the Exxon Valdez oil spill environmental disaster. BP is currently in the dog house because of huge oil leaks in Alaska due to badly maintained pipeline and the Texas City oil refinery explosion resulting in multiple deaths and injuries.

The environmental track record of Royal Dutch Shell is also suspect to say the least, bearing in mind the tragic explosion at a Shell Oil refinery in Norco in which six people lost their lives, Clean Air Act violations, repeated environmental infringements in Louisiana, a pipeline rupture in Washington State which resulted in an explosion and more deaths, repeated multimillion dollar fines for groundwater contamination, more fines for unauthorised venting and flaring of gas. Details can be found on Wikipedia at http://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shell

However, in view of the uncertainty of supply from foreign sources and dwindling global reserves, there seems little choice but to permit Big Oil to pursue the goal of commercially viable extraction of oil shale, but please only with strict oversight.

Posted by John Donovan, co-owner of the website http://royaldutchshellplc.com/

6/3/2007 6:03:07 AM

http://www.chron.com/disp/story.mpl/business/energy/4856341.html

This website and sisters royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, and shellnews.net, are owned by John Donovan. There is also a Wikipedia segment.