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Oil Shale - the Third Boom
Submitted by Dan Sweeney on Mon, 2007-07-23 23:55.
Our previous posting on oil shale dealt with relatively ancient history—oil shale up to the nineteen sixties. Now we will enter into the real boom years, or, rather bubble years, since much money was lost and none was made during this at once exuberant and desperate period.
When we left off in our account, the good old US of A had just been rocked by a couple of energy crises. Crisis number two was well underway and people were saying dark things about dependence on foreign oil just like they are today.
This, I should explain to my younger readers, was taking place in the depths of the Carter Administration, a strange time indeed, and one made memorable by disco music, platform shoes, cocaine, and austerity, or keep on dancing and doping 'cause the world might end at two in the morning.
Cocaine prices were holding relatively steady back then, and maybe even dropping, but oil was up beyond $80 per barrel in constant dollars and coffee beans were fearfully expensive as well. Maybe the Arabs in Yemen were withholding part of their coffee crop as well as slashing petroleum production, though I haven't figured out how to blame them for platform shoes. One of my friends actually did blame Arabs for disco, but I don't see how it tracks.
The war between Iran and Iraq, which was mostly what was pinching the oil supply, raged on and on, reaching its climax at the Battle of Fish Lake which was reminiscent of the Marne during World War I. People started looking at oil shale like a prisoner looks at the guy in the cell next to him and thinks, hey, he doesn't look half bad. It's not necessarily what you really want to do, but, goddamnit, it's available.
For most of the seventies oil shale had been quietly ramping up on the pilot level. Unocal produced a couple hundred thousand barrels, a company named Paraho made some barrels, Shell bought some land and started working on the in situ process they're still working on today, a company called Tosco formed for the expressed purpose of commercializing oil shale, Arco got involved, and, finally, Exxon bought out a bunch of smaller players who were working a claim at Parachute Creek, Colorado, and announced it was going to spend billions to jump start the industry.
So as they said back in the disco seventies, can you dig it? Well, a lot of people dug it.
So what actually transpired in the oil shale fields of Colorado during those fateful years?
It turns out that Exxon, which wasn't yet ExxonMobil, but was the biggest independent oil company in the world and the only one of the early players on a fast track to commercialization, decided to deploy the same marginal technology that had lost money for Tosco when it was busy working the Parachute Creek claim, a property which was also known as the Colony Project. According to Brent Fryer, the chief mechanical engineer on the project, Exxon was banking on oil prices continuing to shoot up through the eighties. Obviously, they didn't, and Exxon closed down the plant abruptly in May of 1982. The company is reputed to have lost more than a billion dollars on the Colony Project.
Exxon had gone so far as to have constructed a company town called Battlement Mesa to house the more than 2,400 employees they hired for Colony, and that was quickly abandoned as well and sold to a developer of retirement communities. One wonders if any of the erstwhile employees of Exxon chose to spend their golden years there.
After Exxon abandoned Colony only Shell among the majors chose to continue researching oil shale in Colorado. Oil Shale was essentially over in the U.S., over and done with.
From one perspective the seventies experiment was a fiasco. After all, nobody prospered and none of the ventures led to anything except possibly Shell's and we don't know that for certain yet. But during the course of all of the pilots a good deal of information was accumulated. People learned that the more established technologies used one hell of a lot of water in region not blessed in that regard, contaminated the water table, and, when surface processing was employed, left unsightly tailings scattered over the landscape. Indeed, oil shale appeared to offer the worst of all possible worlds, lots of pollution and environmental degradation, high capital and operational costs, a product skew inclined heavily toward diesel and kerosene rather than gasoline, and the consumption of a lot hydrogen and natural gas in the retorting and refining processes.
At the time Exxon bailed, no one could plausibly advance short term economic arguments for continuing. With conventional oil production ramping up after the travails of the seventies, shale oil wasn't even in the mix. You could use the stuff for paving roads as a substitute for asphalt but that was about it.
Now here's what's really strange. In Canada during the same period and for the same reason, a bunch of companies began trying to harvest the tar sands, which, incidentally are now producing over a million barrels a day at a good profit. Back in the seventies, the Canadian companies involved in tar sand prospecting had no more luck in producing oil from oil sand profitably than the oil shale guys did here in the United States, yet they persisted long after conventional oil prices had plummeted—this at a time when Canada's own conventional oil production was increasing rapidly and making tons of money for the stakeholders. Still the tar sand guys persisted, and they got the government of Alberta to subsidize their efforts generously year after year over the course of two full decades. And these were small companies, not guys in a position to buy elections, not that that's so easy to do in Canada's parliamentary democracy unlike here.
And eventually it all paid off. Canada, thanks to tar sand is one of the world's largest producers of oil and is said to have the largest proven reserves now that the petroleum consultancies are counting heavy oil in their totals. So the Canadians got energy security and we in the lower forty-eight did not.
Would a similar effort to develop oil shale have paid similar dividends? That, my friends, is the question on a lot of lips, and it's not easy to answer. Oil shale is a richer resource than tar sand, yielding more oil per ton and lying in denser deposits. On the other hand, considerably more thermal energy is required to liberate kerogen from the rock than to cause the bitumen in tar sand to flow, and determining the energy balance for oil shale is difficult because almost all of the production processes are proprietary and pre-commercial and of course they're so diverse.
And one also must contend with the fact that any environmental damage caused by oil shale operations will occur in a much more populous area than Alberta's frigid tar sand fields, and many more oxes stand to be gored. How do you put a price to that? How do you measure the liability and how much do you have to pay to lessen it?
We'll discuss such issues further in the next installment.