D. Dowd Muska


A Comeback for That ‘70s Oil?

July 25, 2013

Get thee to Utah, Daryl Hannah.

On second thought, an over-the-hill starlet, all by herself, can’t stop the latest “threat to the environment.” This’ll need to be an all-ding-a-lings-on-deck op -- trust-fund babies, liberal “documentarians,” scaremongering “scientists,” and MSNBC’s entire primetime lineup.

It might even require Ed Begley, Jr.

In the Beehive State, an Estonian company is looking to do something that was tried, unsuccessfully, decades ago: profitably extract oil from rocks. And it’s not alone. After a plethora of false starts, a thriving oil-shale industry is now possible.

Before we get to specifics, let’s clarify terminology. The “shale oil” of the Eagle Ford (Texas) and Bakken (North Dakota-Montana) formations is misnamed. As energy analyst Robert Rapier explained, the crude tapped by fracking “actually exists as oil, but the shale does not allow the oil to flow very well.” That’s why people in the business -- as opposed to ignorant entertainers, lazy reporters, payola pundits, and grandstanding pols -- call it “tight oil.”

“Oil shale,” to those who know what they’re talking about, means rocks that contain kerogen, a waxy compound that, as Rapier summarized, “was not subjected to high enough temperatures and pressures to convert … completely to oil.”

A 2012 report by the Government Accountability Office described the location and potential: “The Green River Formation -- an assemblage of over 1,000 feet of sedimentary rocks that lie beneath parts of Colorado, Utah, and Wyoming -- contains the world’s largest deposits of oil shale. [The United States Geological Survey] estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions.”

To put 1.5 trillion barrels in perspective, Washington’s energy bureaucrats estimate Saudi Arabia’s reserves to be 267 billion barrels.

No, that’s not a misprint. Kerogen from America’s Rockies can produce more than five times what the world’s largest oil producer (and exporter) has under its sand.

Unfortunately, “unconventional” oil, whatever its configuration and wherever it is found, deserves its moniker. Tight oil is difficult to tap, but shale presents a tougher challenge. It must be heated in place -- at a minimum of 650° F -- or mined and hauled away to a processing facility. Neither method is cheap, and there are legitimate environmental concerns, such as water usage and habitat loss.

In the ‘70s, when Persian Gulf boycotts, domestic price controls, and bad monetary policy sent petroleum soaring, billions of dollars of subsidies and private investment began to gush into shale projects. Nearly all the oil “majors,” including Occidental, Chevron, Mobil, and Texaco, headed into the Green River Formation. There were skeptics, but optimism reigned. In 1980, an Exxon executive told The New York Times that shale was “competitive with imported oil today.”

He was wrong. Big time. Infrastructure costs soared, and deadlines slipped. And as The Wall Street Journal noted, the “tantalizingly plentiful but difficult-to-access resource [was] largely abandoned after oil prices crashed in the early 1980s.”

Times change. Black gold began its painful march toward triple digits a decade ago, and few experts believe that 42 gallons of West Texas Intermediate will ever tumble back to $30. Declining demand in Europe and North America will apply a downward force, but it’s likely to be more than offset by demand growth in Asia, Africa, and South America. And there are no signs that the Middle East’s lunatics will stop slaughtering each other. Perhaps the Era of Cheap Oil is indeed over.

That’s why shale is getting another look. Enefit American Oil, a subsidiary of the government-owned Eesti Energia, is moving forward with a project in the Uintah Basin. The Estonian company’s environmental-development manager told the Deseret News earlier this month that in contrast to the Soviet days, Enefit will employ technology marked by “higher efficiency, larger reuse and recycling of byproducts and waste, [and] better pollution control monitoring and reporting.” Construction is slated to begin in 2017; oil production in 2020.

It gets worse, ecochondriacs. Block Enefit, and there’s Shell’s shale to sabotage. In next-door Colorado, the Anglo-Dutch multinational has conducted six pilot projects, and boasts of “a very active R&D program and other activities currently underway.”

A viable shale industry is no sure thing. The economics have to work. (Happily, the loan guarantees of the Carter-Reagan years are gone.) Worker safety is essential. And environmental permitting will be grueling.

But have a good thought for the folks pursuing oil shale -- and pay scant heed to their scatterbrained, camera-seeking opponents.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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