Shell shutdown doesn’t shake oil shale industry

Some companies pursuing oil shale projects in Colorado and Utah voiced confidence in their efforts Wednesday even as they absorbed the news that Shell is shutting down its undertaking in Rio Blanco County.

Among them is American Shale Oil LLC, which holds a federal research, development and demonstration lease in Rio Blanco County and is working to develop oil shale in-situ, meaning in place underground.

“AMSO’s still committed to its project. We still believe (oil shale) is a viable resource using our approach” to develop it, said Claude Pupkin, chief executive officer of Genie Energy, which owns a 50 percent interest in AMSO.

In northeastern Utah, Red Leaf Resources continues to move “full-speed ahead” with its project, with the next goal being a commercial demonstration of its surface-mining and processing approach to develop oil shale, said CEO Adolph Lechtenberger.

“Everything we look at in our technology says it’s certainly economic at today’s oil prices,” he said.

Shell said this week it is ending its in-situ Colorado oil shale project, which it began in 1996. Shell has been a leader in oil shale research in the region and owns three federal RD&D leases in Rio Blanco County. Shell said it had decided to focus on other opportunities and assets in its global energy portfolio, including oil shale projects in Jordan and Canada.

Last year, Chevron, which also holds a federal RD&D lease in Rio Blanco County, also said it was ending its oil shale project.

ExxonMobil, which recently was granted a federal RD&D lease in Rio Blanco County for an in-situ project, declined to react to Shell’s decision, saying it doesn’t comment on the activities of other companies. But spokesman Patrick McGinn said it is continuing lab-based work on its process.

Different barrel of oil

ExxonMobil is hoping to fracture shale, fill fractures with conductive material and then heat the shale with an electric charge to produce oil.

“We are concentrating our efforts on developing additional improvements in thermal and electrical process efficiency to further improve the economic and environmental factors of any commercial development.

“Field experiments to test new developments could be conducted at either (the company’s Parachute-area) Colony Mine or the ExxonMobil RD&D lease in Rio Blanco County. We do not anticipate field tests in 2013,” he said by email.

Lechtenberger said it’s unfortunate to see a player of Shell’s size pull out of Colorado.

“They’ve done a lot of good work over the years and made pretty good strides,” he said.

But he added, “I think we’re going after a different barrel of oil than Shell was going after.”

Shell was targeting shale deep underground, he noted.

“Our technology is going after shale closer to the surface, easier to mine, with a lower cost to remove,” he said.

Enefit also is working on a surface shale project in Utah. Lechtenberger said he thinks the deeper-shale projects in Colorado “are going to be a challenge. I think they’re going to be capital-intensive and they’re going to take good technology to do it.”

Companies pursuing the in-situ process in Colorado are targeting the heart of what is the world’s largest oil shale resource and extends into Utah and Wyoming. They also say their approach will result in fewer surface impacts.

AMSO has been working through some challenges with heaters for its project and is currently evaluating alternative heaters it can use.

Pupkin said it’s important to note that Shell isn’t pulling out of oil shale altogether.

“They have a very active project ongoing in Jordan and our understanding is that it’s because Jordan not only has very attractive oil shale but they’ve put in place a regulatory framework that makes investment projects capital-attractive,” he said.

Regulatory uncertainty

Jeremy Boak, director of the Center for Oil Shale Technology and Research at the Colorado School of Mines, said the last he heard Shell has more than 200 people working on oil shale in Jordan. Worldwide, it has spent hundreds of millions of dollars on oil shale, he said.

“They’re clearly not abandoning oil shale as a concept. They’re just deciding that Colorado is not the place they want to do it right now even though it’s (home to) the world-class resource.”

Pupkin said he thinks the regulatory uncertainty related to the Bureau of Land Management’s changing position regarding royalties and other oil shale rules contributed to Shell’s decision. Shell has voiced concern over that uncertainty in the past but didn’t specifically cite it this week.

The BLM also has sharply reduced the amount of land potentially available for oil shale leasing in the three-state region, and particularly in Colorado.

“We think that the Obama administration has taken a pretty negative approach towards oil shale,” Pupkin said.

Jeff Hartley of Red Leaf Resources noted that his company doesn’t face the constraints Shell faced with BLM lands because it is working on school trust lands instead.

Viable technologies

Chevron spokeswoman Cary Baird said she doesn’t believe her company raised regulatory concerns as an issue when it made its oil shale decision. Rather, it was just a matter of prioritizing what opportunities to invest financial and human resources in at a global level, she said, somewhat echoing Shell’s reasoning.

“There are difficulties occasionally in getting good, qualified people to work on different projects and when you have a global portfolio it makes it more complicated,” she said.

Shell’s decision comes as companies are using hydraulic fracturing to produce growing amounts of natural gas and oil. Shell just this week identified a location for a $12.5 billion natural-gas-to-liquids facility it hopes to build in Louisiana.

“When you compare the challenge of oil shale to the viability of these other sources, Shell like Chevron decided to place their focus on viable technologies and viable business models,” said David Abelson, oil shale policy advisor for the Western Resource Advocates conservation group.

 

He said he wasn’t surprised by Shell’s announcement, and that it’s learned what other companies have learned over a century about the “extremely challenging” economics of developing oil shale.

“Shell has always said that this is a research project and they always talked about it being a heavy lift to create a viable fuel and what they learned is what Chevron learned,” he said.

He said Shell hasn’t been among the strongest boosters of oil shale.

“It was the elected officials that got ahead of Shell and claimed the viability of these technologies,” he said.



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