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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It is difficult for me to believe that the amount of oil energy retrieved from shales, particularly if they are extracted using underground electric heaters. I'm guessing that would be excessively energy-intensive, even before investing all the energy required for refining. Overall, Overall, this is likely an energy sink of some depth. In fact, your explanation drives home how deeply stupid the whole idea is - where does the electric energy come from? By the time you get it to the underground heaters, you likely have about 10 to 25% of the energy you had, before you converted it to electricity.
I would be delighted to see companies such as Shell and others investing capital in renewable resources and efficiency improvements.
Currently, the Australian government has agreed to fund the production of hybrid vehicles, to be manufactured in Oz. That's some improvement, although these vehicles, new, ar about $40,000 - and best for local commuting if their savings are to be realised.
Compressed air cars can be made more cheaply and run more efficiently - they are also ideal for commuting. I understand that Americans are already buying a compressed-air model available in British Columbia.
For over a decade is has pained me to know that all the chemical feedstocks available as complex hydrocarbon compounds in oil and coal are getting burnt at an accelerating rate. These materials are a rich source of organic chemical feedstocks. Burning them has always struck me as tantamount to burning antique furniture.
But while the amount of oil available for eventual extraction from the shale is enormous the peak production rate will not entirely offset the coming decline in production of conventional oil.
Shell declines to get too specific about how much oil it thinks it can pump at peak production levels, but one DOE study contends that the region can sustain two million barrels a day by 2020 and three million by 2040. Other government estimates have posited an upper range of five million. At that level, Western oil shale would rival the largest oilfields in the world.
However, the current infatuation with the Bakken formation is also overblown. Yes, many companies drilling there are experiencing great leaps in their stock. I have some myself. But I'm watching closely because these leaps are not built on true value, but on pure speculation and hope. When these small companies begin to experience some actual failures, like dry holes and the like, their stocks will drop like rocks.
Again -- due diligence.
However, the current infatuation with the Bakken formation is also overblown. Yes, many companies drilling there are experiencing great leaps in their stock. I have some myself. But I'm watching closely because these leaps are not built on true value, but on pure speculation and hope. When these small companies begin to experience some actual failures, like dry holes and the like, their stocks will drop like rocks.
Again -- due diligence.
How about a response this time!
Seems that ranks it somewhat higher than hydrogen and below other mining extraction processes now being experimented with. It's good to know it's there and available, though, as it may prove useful during the next world war (...possibly over access to energy resources).
US Oil Shale Reserves. 800+ billion barrels easily recoverable oil.
(Potential: 1 - 3 million barrels oil per day, starting in year 3 and reaching full production within 10 years)
Advantages: Short to medium term play with huge proven shale oil resources, potentially enough to last America for hundreds of years. Needs the President or Congress to eliminate the moratorium and the absurd 4 year timeline to get a myriad of permits.
There could be three separate fields operating here, each producing as much as 1 million BBL/day and providing the entire Middle States regions oil supplies at lower costs, while providing employment for huge numbers of local people.
New Technology example: Minimal water is required for the Oil-Tech process, which projects that a barrel of oil will be estimated to cost between $5-8/bbl depending upon rate of oil (kerogen) production from their retort clusters and $23-28/ton (barrel) for mined shale depending upon mining methodology as well other process economics. Each modular plant design costing approximately $2 million, could produce 1,000 barrels of oil per day.
Some other Shale Extraction Development Companies: Bleeding Rock. OSEC OSA IEPM Schlumberger
Also See: Petroleum News Shale Report. ONR Shale Report 2004 2007 Shale Report.
Action plan; Make 100 grants of $100 million each now, to 100 big and small companies to develop separate modular-scaleable oil shale 10,000-25,000BBL/day recovery plants sharing ore fed from 5-10 centrally located mining operations, with oil being fed to 5-10 pilot modular scaleable refineries to produce gasoline and other products.
At the end of 3 years make much larger loans to the 30 companies with the best proven technology to scale up to 100,000 BBL/day each to produce 3 million barrels per day total production within 7-10 years.