This morning I received a very disturbing email.
There was no virus attached or any immediate physical danger in it. This email was worse. It was from a reader of mine who forwarded another email she received that morning. After giving it a quick read, I shook my head in disbelief.
In it, she was offered a quick and easy solution to end the U.S. dependence on foreign oil. The dangerous part, however, was that she would have lost her money had she invested in their advice.
What was the answer they were touting as the end of all our troubles?
The Green River Basin oil shales.
If I had received the email, I would've just laughed and forgotten about it. But the fact that one of my readers brought it to my attention made me take it seriously.
I'll admit that I'd be the first person to tell you that a new unconventional oil resource can be a great investment opportunity, especially considering how attractive these unconventional sources are as oil prices rise.
Have you noticed the wave of predictions that have been announced lately?
About a month ago, Goldman Sachs raised their oil price forecast to $141 a barrel during the second half of 2008. The analysts over at Morgan Stanley said crude oil could reach up to $150 a barrel by July 4, 2008. Even Russian natural gas giant Gazprom set their prediction to a whopping $250 a barrel in the "foreseeable future" (whatever that might possibly mean).
So in the face of record oil prices, why won't I invest in the Green River Basin oil shales?
Honestly, I don't believe they stand a chance compared to other opportunities. It's a case of too little, too late.
Colorado Oil Shale
So what kind of oil are we talking about?
Oil shales simply refer to a sedimentary rock that contains kerogen. During pyrolysis, the kerogen can be heated up, releasing the hydrocarbons (crude oil or natural gas) from the rock. Usually, the rock is mined from an open pit, then crushed and heated to the correct temperature. The entire process is extremely energy intensive. In other words, it takes a lot of energy to produce the oil.
There's a lot of oil, too.
And that's exactly what caught my reader's attention this morning.
The world is estimated to hold between 2.8 and 3.3. trillion barrels of shale oil. This email was gushing over the 1.8 trillion barrels of shale oil believed to be underneath the Green River Basin, which stretches across Colorado, Utah and Wyoming. It also just so happens that 70% of the oil shales in the U.S. are on federally owned or managed lands.
On paper, that's not too shabby, don't you think?
I wouldn't be so quick to jump on that bandwagon.
The Green River Basin Investment Trap
For more than four decades, Shell Oil Company has trying to find a way to extract the oil shales. In the company's in-situ conversion process, electric heaters are inserted into holes in the ground. Over time, the shale will gradually heat up the kerogen and pumped out.
Unfortunately, time is not on their side.
The truth is that we don't have enough time to develop these oil shale resources. Even if we pretend that a major technological breakthrough occurs over the next ten years, setting up the necessary infrastructure could take just as long.
Let me ask you this, "Where do you see the U.S. energy picture in 2030?"
As much as I'd like to praise the U.S. for having almost two trillion barrels of shale oil underneath Colorado, Utah and Wyoming, the fact is we'll never get a significant amount of production from the area. 800 billion barrels of recoverable oil sounds great, but it's next to worthless if we can't get it out of the ground.
In the past, I've questioned whether or not oil shales would be worthwhile. Today, unfortunately, I still don't see anything but an investment sinkhole.
The Green River Basin risk isn't worth you losing money, especially when there's a better opportunity elsewhere. If you're bent on investing in today's oil markets, I'll be the first to shake your hand and point you in right direction.
Until next time,
Keith Kohl
P.S. I've spent months looking for ways to invest in the Green River oil shales, and I still can't justify the tremendous risk involved. Now, I understand some people might like to take a risk every once in a while. Then again, there's a much easier way to lock in those solid gains in your portfolio. Feel free to learn more about this risk-free investing.
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