Our Take on Oil Shale

We're going to be devoting quite a bit of coverage to oil shale in the weeks to come, primarily because I'm preparing a report on oil shale and other unconventional fossil fuels, and also because I'm doing a series of articles on the subject for a petroleum journal.

Now I happen to think that oil shale is a vitally important resource, but my views on the matter are far from constituting the general wisdom. Say the words oil shale and many if not most energy industry insiders will reflexively think boondoggle. For individuals in this business beyond a certain age oil shale is a joke, while for lay persons the words are nearly meaningless. And, interestingly, oil shale scarcely enters into discussions of national energy policy at all despite the fact that recoverable barrels of oils from this source are in the hundreds of billions of barrels minimally.

So what gives here? Why isn't oil shale on the national agenda when it constitutes such an immense untapped source of hydrocarbons? Why all this talk about drilling thousands of feet down in the Gulf of Mexico or opening the Alaskan Wildlife Preserve when the amounts of oil recoverable by either expedient are significantly less?

Anyone seeking a long answer should seek out a long out of print book called "The Elusive Bonanza" by Chris Welles. Welles, now retired, later became a senior editor at Business Week, but in 1970 when the book was published he was a young guy with a family to support who had just been fired by Life Magazine after writing a series of hard hitting articles on oil shale that happened to have ruffled a lot of feathers.

In his book, which, by the way, is an excellent reporting job, Welles goes through the whole dismal history of oil shale. He starts with the first commercial exploitation, which goes back to Revolutionary times, and proceeds through to the twentieth century when one oil company after another secured leases on Federally owned deposits, dug mines and set up plants, and then abandoned its project when the economics proved unfavorable vis a vis those for extracting and refining conventional crude. The failure of the oil shale program involved many factors, including land use issues, stubborn technical problems, and more, but the reasons for the fiasco mostly have to do with operational costs, environmentalism, and the reluctance of successive Presidents to open Federal lands to oil company exploration.

After Welles wrote his book, oil shale received renewed attention due to the oil crises of the seventies and early eighties, but Exxon, the most heavily invested firm in oil shale recovery, abandoned a one billion dollar project in the early eighties due to collapsing crude oil prices, and that was pretty much the end of it. Shell continued to experiment with improving recovery techniques, but the Federal government funded no additional research and the whole long misbegotten oil shale episode of the twentieth century became a part of the mining lore of the West, one with the Leadville and the Lost Dutchman mine and all of the other get-rich-quick extravaganzas that ultimately left nothing but ghost towns.

Right now oil shale is just starting to heat up again, and yes it has to do with pain at the pump, war in the Middle East, and all the usual suspects. This latest oil shale resurgence isn't white hot yet, but it's starting to smolder. The current uptick could be the beginning of yet another fiasco, and some say it will be, but I don't happen to think so. With oil at $60 a barrel and up the economics now look promising.

Oil shale economics are arguably similar to or perhaps even better than those associated with tar sands, and tar sand exploitation is thriving. Why the tar sands have emerged first is a story in itself, but it's largely a matter of government incentives—boondoggles, if you will, but boondoggles that have ultimately redounded to the benefit of Canada.

Something to Chew On

In the course of researching oil shale, I interviewed one oil shale startup executive on background. He devoted a lot of time to talking about a competitor, Shell Oil, and to their fairly unique approach to producing liquid fuels from low grade hydrocarbon feedstocks like oil shale and bitumen. What he told me got my attention.

The usual approach to producing refined fuel products from the gunkier hydrocarbons like oil shale and bitumen is to cook them quickly to release the lighter oils—a process known as pyrolysis. The product of pyrolysis, regardless of feedstock, is almost invariably an oil that requires a lot of additional and costly processing which will generally entail high heat and pressure, plenty of hydrogen, and expensive catalysts. All of this has conspired to keep the cost of refined products from low grade sources rather high.

Shell's approach, developed by chief scientist, Harold Vinegar, has been to mimic geological processes for producing complex hydrocarbons, in other words to apply sustained low heat and pressure for a span of months or even years to the deposit to be harvested—sort of an industrial crock pot, if you will. To be sure, the process is vastly accelerated compared to the natural formation of light petroleum from biomass, but according to my source, production is greatly simplified because relatively little additional refining is required, and because the expenditure of energy is actually less than for traditional techniques. My source claims that the approach is valid for biomass as well as for young fossil fuel sources such as oil shale, and that it will obsolesce the high heat, high pressure techniques over the course of time.

Obviously, I can't cite this individual, but his credentials are mightily impressive as his knowledge of both alternative fuels and heat engines.

And of course the fact that Shell is backing this approach demands attention as well. Shell has deep expertise in both biofuels and unconventional fossil fuels and has much intellectual property in both areas. Among the major oil companies, Shell commands the most formidable arsenal of extraction and processing techniques for liquid and gaseous fuels of all sorts. When Shell invests serious money in a given approach, one takes notice.