Oil Shale - the Numbers

We have recently formed a relationship with a trade publisher and event organizer with whom we have worked before. We cannot disclose the name of this individual yet, but we can say with confidence that this will provide us with much needed marketing expertise and support.

I am in the process of preparing a study of the oil shale industry for this publisher, hence the relative paucity of entries in Juice of late. In this latest installment, I am discussing cursorily some of what I have turned up in my research.

One pretty obvious fact I've discerned is that the idea of large scale production of America's oil shale resources has engendered a lot of opposition, some of it coming from unexpected quarters. The effectiveness of this opposition will of course have a major bearing on how, when, and if the industry develops.

Oil Shale's Bad Vibe

During the false dawn of oil shale in the late seventies and early eighties, the nascent industry made plenty of enemies. And not surprisingly. Many of the mining and retorting techniques that were extant at the time used copious amounts of water, a scarce commodity in the Green River area where most of the oil shale was located, and they also produced lots of groundwater contamination. The environmental movement was arguably less powerful then than now, but it took notice and protested.

Exxon's decision to close its Colony Project operation and fire thousands of workers didn't help oil shale's image much either. And then there was a vocal contingent of fiscal conservatives who objected to government funding of oil shale research and who asserted that oil shale was a boondoggle. Many in that same camp maintained that the whole thing was a chimera and that oil shale was fundamentally uneconomical as a fossil fuel resource and should be left undisturbed in the ground.
My assumption is that oil shale's bad vibe become essentially irrelevant when and if the industry demonstrates that it can significantly undersell and out produce the operators of conventional oil drilling and refining facilities.

Whether they can is the subject of the next section.

Cost Analysis, Anyone?

Who knows how much it costs to produce oil shale? The short answer is no one who hasn't actually produced it commercially.

Here I might mention that many environmental opponents of the oil shale industry like Randy Udall who wrote a book on the subject called the Illusive Bonanza think oil shale is a big loser that can never serve as a source of liquid fuels. Udall compares oil shale unfavorably with biomass, pointing out correctly that the energy content of the rock by weight is extremely low, and that the energy expended to process the fuel might exceed its energy content, ironically, the same argument raised against ethanol.

Is he right? Few oil geologists would agree with that assessment, but then most would hesitate when asked to cite the economics of this resource. The purveyors of new processing technology, and they are over thirty in number, are quick to assert that their respective technologies offer the prospect of oil from oil shale at under thirty or even twenty dollars a barrel, but absent real production facility, such assertions are almost meaningless.

So what objective third party information is there out there? Or if that's not available, what other means do we have for arriving at some conclusions?

The evidence is scanty, no question, and the situation of the potential investor or backer is made much more complex by the fact that so many experimental technologies have been developed while no standard processing methodology has ever been established. So what, if anything, works? And what definitely doesn't work?

It turns out that if we cast our eyes around the entire globe and go back in time we find scattered enterprises that actually produced motor fuel from oil shale and sold it for a profit for a number of years. I am aware of four such entities.

Scotland, China, and Australia had small but viable oil shale liquid fuels industries during the first half of the twentieth century, and Brazil has one now. Indeed, prior to the Communist takeover in 1948, a third of China's oil production was derived from oil shale. Oil shale, it seems, could, at the very least, meet the needs of local markets for a time, but the flood of Middle Eastern oil and the drop in constant dollar oil prices throughout most of the latter half of the twentieth century, killed the oil shale pioneers.

I have not undertaken a full scale historical investigation of Scottish, Chinese, and Australian facilities, but I have to assume that the technologies utilized were fairly primitive and probably less efficient than those developed by the major oil companies for pilot projects in Colorado in the nineteen seventies. All I know is that the first generation of commercial oil shale producers managed to stay in business, not for years, but for decades, and apparently without any subsidies.

Fortunately, we know more about the American experience because the National Labs and the Bureau of Mines were closely involved and did perform independent assessments of the various retorting technologies developed by the big producers. Their finding was that the best of Carter era technologies bore production costs of over $60 a barrel for refined liquid fuels. In an era of $100 a barrel oil, which soon may be upon us, that kind of cost might pass muster, but it's way more than the production cost for tar sand and probably for coal to liquids.

Of course, tar sand recovery costs were high as well when the resource was first explored in the seventies, and they've since descended to below $20 per barrel. Will the same thing happen with oil shale?

I wish I could answer that definitively now. I expect to know when I've completed my study.

What can be said is that the two hydrocarbon resources are somewhat comparable, especially if one is dealing with mining and surface processing. Both must be dug out of the ground, crushed, and conveyed to a reactor where they are subjected to heat and pressure. Both have fairly similar energy content by weight, though Colorado oil shale may be two, three, maybe even four times richer. Still, we're talking about processing a lot of rock to get a relatively small amount of oil—no more than one barrel per ton in most cases.

No one has ever published a detailed energy budget on mining oil shale, but it is a hard rock whereas tar sand is of fairly loose consistency, and so undoubtedly more energy is required to pulverize oil shale. Processing also requires somewhat higher temperatures and pressures, and the resulting oil requires more extensive hydro-treating to produce refined products. On the other hand, oil shale contains abundant amounts of elemental carbon which may be used to provide process heat. My suspicion at this point is that oil shale production is inherently more expensive than oil sand production. But a conclusive determination must await further investigations.