Increased fuel needs puts new emphasis on shale oil.

Necessity is the Mother of Invention. Nothing adds to the necessity of finding new fuels like crude oil reaching the $60-70/barrel range and maybe even higher. Long forgotten after the big push in the 1970-80s, shale oil development is getting a new look in the U.S. and worldwide. Ironically,

There is little question that to meet the increasing demand for energy and especially for crude oil products, new, unconventional sources of oil need to be investigated and developed. Demand is up not only in the U.S. where gasoline use is running about 2% ahead of last year but also in almost every developing country. As economies improve, more energy is needed and more sources must be developed to supply the demand. If demand cannot be met with conventional crude sources, then unconventional become important.

Already, tar sands in Canada have become a significant source of crude oil supplying 1 MMB/d out of a total expected world demand in 2005 of 85 MMB/d. Current outlook is for doubling production from tar sands in six to l0 years. Other unconventional sources of hydrocarbons like shale oil, extra heavy oil, methane hydrates and coal liquids become important as short supplies of oil force market prices to skyrocket.

Oil shale should be important because there is so much of it available. And maybe equally as important, the greatest deposits of shale are in the Western hemisphere negating the U.S. dependence on Middle Eastern and other somewhat unreliable supply areas. The World Energy Council estimates the U.S. has over 60% of the world's potentially recoverable oil shale resources and that Colorado alone has resources approaching a trillion barrels of oil--only four times as much as all Saudi Arabia's proven oil reserves! The U.S. taxpayer owns 70% of the resource as most of the reserves are on Federal lands.

With such tantalizing numbers, it is easy to see why there is so much interest in oil shale development. Problem is it is not easy to tear the oil away from the rock. First of all, it is really not oil in oil shale but a substance called kerogen, which with heat and further processing can be made into a somewhat similar oil to distillate fuel oil. Apparently, the kerogen missed the heating cycle normal petroleum receives staying in the ground for millions of years. In the work done 25 to 30 years ago, two major ways of recovering the oil were tested. The oil shale bearing rock can be mined in typical surface and subsurface fashion and the recovered rock heated and the collected oil further processed with hydrogen into commercial products. Also, an in situ method of heating the shale in the ground and collecting the vapors and liquids for further processing was tested extensively. While never tested, consideration was also given to a nuclear in situ recovery system.

Major players in the 70s and 80s who spent billions of dollars on development were TOSCO (The Oil Shale Company), SOHIO (now a part of BP), Amoco (also, now owned by BP), Occidental Petroleum, Exxon and some independents like Superior Oil (now a part of ExxonMobil) and the government's Bureau of Mines. Between the difficulties in developing the technology, the potential high water requirements and some environmental concerns, the economics were too low to justify continued work. Most important was the drop in world oil prices and the fear that uncertain oil pricing made little sense in developing a high priced oil commodity system. At the time of the peak effort (around 1982), the estimated costs to recover a barrel of finished oil product was around $80/B. World oil prices were starting back down and the Saudi Oil Minister was proclaiming they would make crude available forever at $20/B so why look further'?

Now with oil prices around $60/B and the question of whether conventional oil supplies have peaked, renewed interest in shale is ripe especially in light of the high amounts of shale deposits right here in the U.S. and Western Hemisphere. Equally important to the necessity is maybe now the technology and the almost for certain, continued higher crude prices and increased world demand can overcome the difficulties of starting a new industry of oil recovery from shale deposits. Oil from shale shares some of the same characteristics as oil from tar sands, which only a few short years ago was believed an impossible if not uneconomical way to generate oil supplies.

No question, tar sands recovery has matured into a viable, cost effective petroleum business. Current production of oil from tar sands is 25 gal/ton and estimates of oil shale recovery would be around 30 gal/ton from initial resources.

Estimates are shale oil yields would be 0.73B/ton of ore versus 0.53 B/ton for the sands. The mining, extraction, upgrading and stabilization processes for tar sands, while not the same for shale oil, would be the same general steps in bringing oil to market from shale. The high concentration of the resource in the western states of Colorado, Utah, and Wyoming is an advantage and potentially beneficial to the economics. The tar sands recovery makes a good example of why oil shale does have potential. Current thinking is a 10 to 12 year window would be needed for commercialization of shale oil recovery.

Even though the big push stopped in the mid-1980s because the economics were too high and crude prices too low and unstable, some work has continued. Shell Oil has done extensive work in western Colorado and is maybe five years from deciding whether it has a commercial process. Shell's process is an in situ one where the rock is heated in the ground. Shell adds a novel approach in that it also freezes the surrounding rock to channel the vaporized material to outlet wells. The in situ process offers better economics and environmental concerns since there is little earth moving and land restoration costs.

According to reports, Shell estimates it could produce a billion barrels of oil from a square mile area and recover about 60% of the resource from the ground compared with conventional oil drilling that recovers about 30%. Shell estimates it would recover about 3.5 times the energy it consumes in getting the oil out. Shell estimates that once started, it would need around seven years for full production.

The Australians have also done considerable work in developing processes to recover the oil from shale. The Stuart Project, a joint development between a Canadian company and Australians is producing oil in pilot quantities from Australian shales. Based on financial success, plans are to eventually process 125,00 tons/d to give 65,000 B/d of oil products.

The prospects of continued high oil prices present a two-edge factor. The higher prices will no doubt eventually impact world economics but the good side of the coin is that the continued higher prices make it possible to develop new sources of hydrocarbons. The cost to develop shale may be high but as developments are made and more products are produced efficiently, prices will drop. If you do not believe it just look at the tar sands history!