Squaring the Culture

If you let the market do its job, sooner or later it will come through.

We’ve known for the better part of a century that there’s a significant amount of oil in the shale deposits in the Rocky Mountains. However, we’ve not developed those reserves, and with good reason. The process of breaking the oil out of the shale has required that the shale be mined (as in “strip mine”) and shipped to a retorting facility, where the rock is ground into tiny bits and heated, which extracts a substance called “kerogen” from the rocks. The kerogen then gets hydrogenated (using lots and lots and lots of water — and water is scarce out west) to refine it into gasoline or jet fuel. The shale residue, which now takes up more volume than it did when it was mined, has to be trucked back to the site and redeposited, where it will leach all sorts of fun chemicals into whatever ground water it can reach. Sweet, huh? And all this mess produces oil that’s only profitable so long as the price of crude oil on the world market stays above something like $60/barrel, which nobody thinks it will for more than another year or two. So, we don’t want to do that. But read on, and if you make it to the end of the article, you’ll see that there’s hope…

The estimates that have been floating around the Internet say that the oil shales out west contain upwards of 800 billion — that’s with a “b” — barrels of oil. However, a 2005 study entitled Oil Shale Development in the US by the Rand Corporation has a somewhat different picture:

Estimates of the oil resource in place within the Green River Formation range from 1.5 trillion (Smith, 1980; Dyni, 2003) to 1.8 trillion barrels (Culburtson and Pitman, 1973; Federal Energy Administration, 1974).2 About 1 trillion barrels (Smith, 1980; Pitman, Pierce, and Grundy, 1989) are located within the Piceance Basin, meaning that this 1,200 square mile area in western Colorado holds as much oil as the entire world’s proven oil reserves (BP Statistical Review, 2005).

Did you get that? It could be closer to 2 trillion barrels. The Wikipedia article on oil reserves lists proved reserves of the twelve largest oil-producing nations, as of 2007, at roughly 1.2 trillion barrels. We may have almost one and a half times as much oil as the rest of the world knows it has, combined, embedded in shale in Wyoming, Colorado, and Utah . Take a moment to absorb that, during which moment cussing and low whistling are permitted. Holy shit. (Sorry.)

Do you think, perhaps, that there’s some incentive for serious research to address the question of how to get this oil out of the rock?

And now, take another moment read this rather poorly formatted report from an investment newsletter called The Daily Reckoning. The formatting is irritating, but the content corresponds to the Rand report (or you could read the Rand report itself, but it’s a lot longer), and it indicates — get this — that Shell Oil Company has developed an in-situ extraction process that produces shale oil that’s competitive at around $25/barrel, without disturbing the rock and without contaminating surrounding areas. The process has been tested on small sites in the Piceance Basin and appears to work, with Department of Energy scientists agreeing that the technology is promising.

Let me translate the hard words, in case you’re not familiar with them. “In situ” means that they extract the oil from the rock while it’s still in the ground, without mining it. “Competitive at around $25/barrel” means that so long as the price of crude oil on world markets remains above $25/barrel (it’s currently more than $120/barrel), they’d be making a profit by selling their oil. Twenty-five dollars a barrel is not unusual for oil production; it’s about the cost of producing oil in some of the older wells in the US that require steam or CO² enhancement.

This is fantastic news.

The process described by The Daily Reckoning and the Rand Study is pretty interesting. It involves drilling a bunch of holes into the rock, 15 to 25 holes per acre, and inserting heating elements into the holes. They freeze the ground water surrounding the site to prevent oil from leaching out. Then, they heat the elements for 2-3 years, until the shale is about 700ºF, at which point the oil in the shale gets converted to a liquid that is gathered in collection wells within the heated zone. It takes a boatload of electricity, and building a power generating plant is part of the site preparation (coal, natural gas, or nuclear,) but the resulting oil is a light, sweet crude that’s ready for the refinery and contains no garbage that needs to be discarded, and the net yield is about 6:1 — they get about 6 times the energy they put into the process.

From the Rand report:

The footprint of this approach is exceptionally small. When applied to the thickest oil shale deposits of the Piceance Basin, drilling in about 150 acres per year could support sustained production of a half-million barrels of oil per day and 500 billion cubic feet per year of natural gas.

It’s not ready for prime time yet. They still have to prove that the ground-freezing technique will prevent leaching from the heated site. Ground-freezing has been in use for years in construction zones, with deep barriers being sustained for years without any problem, but Shell has to prove that the surrounding ground water remains isolated from the heated products, and that will take some time. The Rand study suggests a time line allowing large-scale recovery — meaning that the plant is constructed, the ground heated, and the oil flowing at large-scale volumes — within about 20 years.

If the Congress doesn’t allow access to these resources when the process gets perfected, it’ll be time to haul some shotguns to Washington.

Is the free market powerful, or what?

Blue Crab Boulevard has posted an essay discussing the same process, based on an article in the Denver Post.