Bloomberg: Exxon, Shell Say Shale Bonanza Stalled by Water, Climate Change

By Joe Carroll

Oct. 16 (Bloomberg) — Exxon Mobil Corp. and Royal Dutch Shell Plc said efforts to tap Rocky Mountain oil deposits large enough to meet U.S. demand for a century have been stalled by subterranean rivers and greenhouse gases.

Shell won’t know until 2009 whether an underground wall of ice intended to shield oil-rich rocks from flowing water will work, project director Wolfgang Deeg said today at an industry conference in Golden, Colorado. Exxon Mobil hasn’t figured out how to contain greenhouse-gas emissions from its planned development to extract oil from shale formations in the region.

The world’s two largest oil companies and Chevron Corp., second-biggest in the U.S., are spending $100 million a year to find a way to turn organic matter in limestone on the western slopes of the Rockies into oil. Prior efforts to exploit so- called oil-shale deposits as large as the combined reserves of OPEC member countries collapsed in the early 1980s, when slumping crude prices made the projects unprofitable.

“I hope it works this time,” Arthur Hartstein, former director of the U.S. Energy Department’s future oil and gas program, said at the industry conference, a shale-oil symposium that’s being held this week for its 27th year. “Before I croak, I’d like to see some oil shale commercially produced.”

The obstacles holding up oil-shale production underscore the challenges the biggest energy companies are facing as the search for new reserves extends to fields previously considered too difficult or costly to exploit. The U.S. government says commercial oil-shale production is at least eight years away.

Dependent on Technology

“This is all dependent on technology and everything else that has to go along with that,” said Foster Wade, the Interior Department’s deputy assistant secretary for land and minerals. “We’re not looking at any of this coming to fruition any earlier than 2015.”

Crude-oil futures rose to a record today at $88.20 a barrel on the New York Mercantile Exchange. Prices have climbed 44 percent this year.

Shell, based in The Hague, plans to produce oil from shale at a cost of about $30 a barrel, Vice President Terry O’Connor said in May. The producer will use rods buried underground to heat the shale to 700 degrees Fahrenheit (371 Celsius), a temperature at which Teflon melts. In about four years, he said, the heat will turn the organic matter into oil that will flow to the surface through wells.

The ice wall will take about a year to form once engineers finish pumping a refrigerant into 136 holes surrounding the shale early next month, said Deeg, the project director. Shell expects the wall to prevent oil from trickling away and to protect the heating rods from being swamped by groundwater.

Ice Wall

“The pipe in one hole didn’t go all the way down,” preventing circulation of the refrigerant, Deeg said. “We pulled that pipe out and put in a new one.”

Once the wall is formed, he said, engineers will break sections to see how fast the wall repairs itself and what happens to nearby rock formations.

Exxon Mobil, which pumps more oil than every member of the Organization of Petroleum Exporting Countries except Saudi Arabia and Iran, plans to shoot particles of petroleum coke into cracks in the shale. The coke, a waste byproduct of oil refining, will be electrically charged to cook the shale with temperatures as high as 1,300 degrees Fahrenheit.

The heat also will convert nahcolite, a natural form of baking soda inside the shale, into trona, a chemical used to make paper, glass and detergents, said Jesse Yeakel, a senior research specialist for Irving, Texas-based Exxon Mobil.

Once oil has been produced from a patch of shale, Exxon Mobil plans to pump water down the wells to bring up the trona, Yeakel said today. The company doesn’t plan an ice wall or any other sort of barrier because it be exploiting zones deeper than underground water supplies, he said.

Prices Triple

Converting the organic matter to oil will create carbon dioxide, a greenhouse gas linked to global warming. Exxon Mobil doesn’t know how or whether those emissions can be captured or reduced, Yeakel said. Exxon Mobil last year joined a European Union study of efforts to store carbon dioxide in empty gas reservoirs.

“We haven’t solved those problems yet,” Yeakel said. “It’s on the agenda for our research program.”

Oil prices tripled in the past five years as demand increased faster than new supplies. Soaring prices will entice energy companies to find new methods for extracting oil from shale, said J.J. Brown, an aide to U.S. Senator Orrin Hatch, a Utah Republican.

“If the economics are in place, and they are, then nothing will stop this from happening,” Brown said at the conference. “It’s inevitable.”

To contact the reporter on this story: Joe Carroll in Chicago at [email protected] .

Last Updated: October 16, 2007 15:56 EDT

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