Marketplace again derails oil shale as the fuel of the future
It was surprising to some, perhaps inevitable to others, Shell’s announcement Tuesday afternoon that it would shutter its oil shale research and development project southwest of Meeker and deploy financial resources elsewhere to bolster its energy portfolio.
Shell, after decades of research and millions of investment dollars, was the most public face of the latest effort to develop a commercial oil shale industry before becoming the second major energy company to exit. Chevron, another holder of a research, demonstration and development lease on federal lands, did so last year.
Both surrendered to the age old bugaboo that’s kept the lion’s share of “the rock that burns” buried underneath northwestern Colorado, northeastern Utah and southwestern Wyoming, despite a century of extraction efforts. Whatever the price of a barrel of conventional crude oil (now north of $100), no matter how high the price of a gallon of gas (now around $3.50) whatever the latest technological advances, it always costs incrementally more to pull usable fuel out of even the richest oil shale deposits.
I’d had a bit of a heads-up and a dozen or so hours to think about this latest chapter of oil shale history before Shell’s Carolyn Tucker made it official. Here’s what came to mind.
The administrations of George W. Bush and Barack Obama, along with three Colorado governors both Republican and Democrat, all got one thing right. Research and demonstration should come first. Private enterprises, given access to federal oil shale deposits, can test theories and technologies and, if successful, potentially gain access to additional acreage for commercial production. Some are continuing those efforts. Chevron and Shell see more profitable opportunities elsewhere.
Thankfully, changes in the RD&D process via former Interior Secretary Ken Salazar buffer us from otherwise bad consequences. Previous allowances for speculative commercial leasing might have seen both Shell and Chevron exiting with a portfolio of unused leases potentially totaling millions of federal acres. It’s also telling that neither Shell nor Chevron cited those new rules as reasons for their exit announcements.
Today’s oil shale industry is also the victim of unrealistic expectations driven mostly by partisan politics.
Shell representatives like Tucker and Tracy Boyd, Chevron’s Carey Baird, AMSO’s Roger Day and Alan Burnham, even Glenn Vawter of the National Oil Shale Association, have all said consistently that large scale commercial production from oil shale would be at least a decade away, likely longer.
But it’s been elected officials, most specifically Reps. Scott Tipton and Doug Lamborn along with the Utah congressional delegation and House Energy and Natural Resources Committee chairman “Doc” Hastings, who’ve touted oil shale as the ready answer to everything from budget shortfalls to transportation funding, who’ve presented unrealistic estimates of potential jobs and lower gas prices.
They’ve been aided in saddling industry with those artificial expectations by county commissioners and other local government officials as well as too many sideline cheerleaders, among them, local industry-funded group ECCOS, Environmentally Conscious Consumers for Oil Shale.
As with other extractive industries ultimate success is hostage to many factors beyond the control of individual companies.
The best example might be a phenomenon that’s also slowed natural gas exploration in northwestern Colorado. That would be burgeoning production of oil and gas from shale plays in North Dakota, Pennsylvania, Texas and northeastern Colorado. There’ll be 60 percent more oil produced from just the Bakken Formation in North Dakota today (875,000 bbls. was the July daily average) than the 550,000 bbls. /day projected to be produced under the mid-range commercial oil shale scenario industry officials say would take several decades to achieve.
Those new sources were on no one’s radar when Shell was beginning its research into in-situ technologies. They certainly are now, given the concurrent announcement from Louisiana’s governor on Tuesday that his state had reached agreement with Shell on locating a $12.5 billion facility to convert the glut of natural gas into diesel, jet fuels and other liquids that were also potential products to be produced from oil shale.
That’s a timely example of how big energy companies like Shell and Chevron reallocate financial resources in the ever-changing world-wide energy market. And why production from high-cost resources such as oil shale will always be vulnerable to more accessible, cheaper conventional fuels.
We also didn’t have the Prius or the Volt when Shell began its research decades ago. Energy efficiency prompting flat, not skyrocketing, demand wasn’t a national effort. Alternatives such as wind and solar were as technologically iffy as melting rock to get oil. Electrical power was overwhelmingly coal-fired, not subject to renewable standards. Who’d have predicted auto manufacturers would embrace a CAFÉ standard that will boost fleet averages to 54.5 mpg by 2025?
Oil shale is not dead. AMSO continues work on its northwestern Colorado RD&D project. Its partner, TOTAL, is also active in Utah’s more accessible and less rich oil shale deposits where Red Leaf, Enefit and others seek to pull the genie out of the bottle via more conventional methods. Shell and Chevron retain their in-situ research and technologies should conditions change. Exxon-Mobil and others will do research and development on a second round of leases.
But it’s the ever-evolving marketplace, the much-revered bottom line, that remains a consistent and so-far insurmountable hurdle to a commercial oil shale industry.