Sometimes things just don't go the way you planned.

Getting to my office in the pre-dawn hours this morning was easier than usual. I already had my whole schedule laid out, researching specific energy investments. All I needed was a cup of coffee to smooth out any leftover hangover woes. I had a good feeling about this morning.

Unfortunately for me, my whole plan disintegrated within the first hour after getting to my desk.

Tuesday's article on World Oil Production apparently struck a chord in some of you, and I saw one prominent theme while sifting through your questions: Why on earth wouldn't I mention the massive oil shale reserves in the U.S. as the answer to our future energy security?

In fact, so many of you had asked me about U.S. oil shale reserves within the last few days that it wouldn't be right if I didn't immediately address the topic.

Who am I to ignore what is clearly on the minds of my readers?

Now that I've officially ditched my original plans (perhaps I'll have my chance next week), we can delve deeper into the trillions of barrels of oil shale reserves lying underneath U.S. soil.

And I do mean trillions of barrels, dear reader. Yet like every good thing that comes our way in life, developing our rich reserves of oil shales also comes with a huge catch.

So, without further ado, I'll give you my honest opinion concerning the future of oil shales . . .

U.S. Investing in Oil Shales

The first thing I want to point out is that I do have my concerns about the development of oil shales.

But before I go further into those reservations--I'm willing to bet that my average reader isn't a trained geologist living in Colorado. The odds are against it. So let's first get past some of the common misconceptions about oil shales.

What are they?

Well, oil shales aren't exactly shales, nor are they really oil. They are finely grained sedimentary rocks with a good amount of kerogen. Kerogen is not exactly oil as we think of it. But using a process called pyrolysis, the kerogen in the oil shale can be heated up and turned into a type of synthetic crude oil.

The largest deposit of oil shales lies in the Green River formation, which stretches throughout Colorado, Utah and Wyoming. And while the world's oil shale reserves are estimated at 2.6 trillion barrels, the Green River formation is reported to contain up to 1.8 trillion barrels. If we take the lower estimates, that's still over 800 billion barrels of recoverable oil.

To put that in perspective, we're talking about three times the amount of oil reserves in Saudi Arabia!

Even though you may never have heard of oil shales, they've been on our government's mind for nearly a century, ever since the U.S. government created the U.S. Naval Oil Shale Reserve.

I know what you're thinking: "If people have been looking to develop oil shales for that long, why haven't we heard more about them?"

Like I mentioned earlier, oil shales come with a catch . . .

The Harsh Reality of Oil Shales

In order to make oil shales commercially viable, the price of crude oil has to remain high. Considering that a barrel of oil is more than four times more expensive now than in 2000, I'm not surprised to see a few heads turning towards oil shales.

One of the problems is that oil shale doesn't contain as much energy as many believe. It contains only about 10% of the energy that crude oil offers.

But this isn't the only obstacle . . .

Extracting the oil shales is turning out to be difficult. Shell Oil Company is one of a few companies working on the problem. The company is hoping the in-situ method they're currently working on, which involves heating up the shales underground, will be able to extract between 65% and 70% of the resource.

I'm a little hesitant to pin a gold star on oil shales, because there's still a lot of work that needs to be done. Instead, I put more faith in the oil sands up in Alberta. Next week, I'm going to show you exactly why I feel they'll play a bigger role in our future energy security.

Until next time,

Keith Kohl

www.energyandcapital.com

"Energy stocks... The only way a human is going to make any money."

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Oil Shale but I wish I could get people to understand that the Saskatchewan Oil Shale is easy to dig and has very light ends that make it a winner. You may look me up under AAPG or Google. This shale contains a Trillion Bbls too.

My feeling of trust in your reports has gone up considderably
after reading your comments on the prospects of Shale Oil.
We, here in Australia had a very promising company called Southern Pacific who had actually build a plant and told their shareholders that they had sold a million barrels! Well they went bankrupt
18 months later when noboddy believed them any more.The multi- million dollar plant is slowly rusting away.Yes stupid me learned the hard way that a lot of technological advances have to take place before this dream becomes envoirementally
realizable. Ps. I read the other day that the town near the plant has an Cancer rate 4x the nation average.

Without oil, the the Nineteenth and Twentieth Century would have been exactly like the Eighteenth Century, our transportation would have been horses and buggies, they would have had dirt roads covered in dung swarming with flies. I am tired of the tree huggers who live the life style we enjoy today while all the time claiming that they don't want it. If they are truly sincere, then by all means join an Amish Community in Pennsylvania, Ohio, or Indiana and leave the rest of us to progress in peace. In case the no "progress clowns" haven't noticed, it is now the TWENTY FIRST CENTURY!

Now to the Oil Shales.

If this proves to be as good as claimed, then yes, BILLIONS of barrels of oil will be pouring out of the West, providing the little old lady type environmentalists don't start screaming again.... What a pain in the butt those creatures are with their cries of, "Save the Dinosaur!".... Ooops! Too late!

My comment is to listen to Mr. Geery. He is right on the money!

Strongly recommend you and your readers peruse the 7 chapters on oil shale and shale oil in "Fuel SCience and Technology Handbook" Speight, J. G., Editor; Marcel Dekker: New York, 1990, 2nd Ed. 1998. Shale oil is rich in aromatic nitrogen compounds that are very stable and difficult and costly to remove by hydrotreating. Shale oil is not even close to the crude oil that feeds our oil refineries.

Some additional information which you may find of interest.

The first significant shale oil recovery project (and associated refinery) was located outside of Rifle, Co. At this location some of the highest kerogen content (Mahogany Zone)shale was found at a relatively modest depth and could be accessed at an outcropping along a canyon wall -- thereby reducing mine development costs.

Room and pillar mining was selected
and found to be both safe and stable.

The facility was owned by Socal, at an announced cost of $640 million (including a refinery with a rated capacity of 50,000 barrels per stream day (bpsd)

Retorting was accomplished by a proprietary SoCal process known as a rockpump.

Project engineering was by Fluor Corporation/Socal R&D. Construction was by Daniel Construction Co. (Merit/Open Shop)and involved a man camp with a construction complement of over 3500.

Unfortunately, the international oil price made the project uneconomical.

eric denny wrote about wnwg leasing about 27,000 acres in colorado, wyoming, & utah. Marathon just has a stake, 50%, to drill on fields owned by wnwg in texas. Is marathon clever or what?

It seems that I recently read an article about a company working on a chemical method of extracting the oil from the oil sands in Alberta in Canada and were somewhat hopeful that the same method could be used to extract the oil from shale.

a hundred years of study and you still speak of oil shales becoming economic if prices rise. if it takes a barrel and a half of oil to liberate a barrel - the price doesn't matter.

Hi, the new look, the new structure your articles are set up with is just very well looking.
Every day I am looking forward to read the articles from you - thank you.
I am a danixh ziticen living in Denmark north og the Capital, Copenhagen. Our country is a littel cold, so we admire your beautiful country, espicially California, wher we sometimes spend our holidays.
Yours
John E. Lassen

Excellent well-reasoned presentation about oil shale, about which there has been much mis-information for decades. Is it this shale that right now requires massive amounts of water and heat to extract and process, and results in huge quantities of slag that must be disposed of? Or am I confusing this with the oil SANDS.?

It is clearly going to take a lot of investment to start processing oil shale. It is also going to take a lot of energy. If fossil fuels are used as the energy source, the CO2 emissions are going to be huge, coming from both the energy used to extract and process the shale oil and then the emissions from the burning the fuel.

This country has not decided on a global warming policy yet. I don't expect this type of investment until the developers can get the guarantees (pollution permits) so they can run their extract and process long enough to cover their capital investments.

In Colorado, only in-situ development will be feasible. There is not a lot of water available for processes that dig out the rock and there would be problems trying to find a place to dispose of the tailings from mining on the huge scale required.

I would expect that other sources such as coal and oil sands will be developed before significant oil shale development occurs.

Having had my share of issues with drugs and well as being around the using world for some time, it is very easy for me to see the similarities with that world and oil. Natually, it's obvious we are, far and away, the king of addicts. So using that analogy, it is obvious to me that, unless we start to examine our own behavior, we will destroy states, provinces and countries before we're done. In the final gasps of the dying addict, horrible things are done to everything in their world. Costs have absolutely no meaning. The world the addict lives in, their normal, is so distorted, they are totally unable to related to relate to anything other than getting what they want at any cost. They will grasp at any straw/any potential solution no matter how insane rather than turn to face themselves. As I watch America spin out of control blundering from catastrophe to catastrophe, it is obvious we are there.

Yes there is plenty of oil in the oil shales of the West, however it will take an enormous amount of money, energy and water to extract it from the ground.

Biodiesel from Algae and Ethanol from switchgrass are real long term solutions.

Nice article. K. Kelley

You make some good points about oil shales-extraction is difficult and there is not as much energy in them as crude oil(and there are obviously some differences in crude oil). One of the realities of the shale (and coal too)deposits in the West is they just so happen to be under the some of the most beautiful places in the world. Utah, for example, has more National Parks than any other state. It is not right to sacrifice these magnificent wonders. All things considered, it seems to make a hell of alot more sense (and dollars too) to develop renewable energy like solar and wind, which are inexhaustable, and not reliant on imports from places where dubious regimes rule (not saying that our own ruling powers that be aren't pretty damn dubious). Besides even if we had all the cheap oil in the world, burning it is only going to cause yet more damage to the air we breathe, the water we drink, the soil that we grow our food in and so on.
When I invest my money, I try to consider the long term both in terms of returns on actual money and real cost to my kids and other people in the future.
Wishing you all the best,
Kevin Geery

In _Hubbert's Peak_ Deffeyes describes tertiary recovery of these sources as extremely energy intensive, environmentally damaging (esp. to H2O, if you don't mind destroying thousands of sq mi of mountain and range) and ultimately not an answer -- conservation and renewables are the ONLY answers, and the right thing to do with petroleum is use what's left as a treasured store of organic molecules for chemical manufacturing. Your parade of "new" ideas for improved extraction from non-oil-bearing sources are all relatively old according to his 2000 book, and (as you hint in today's piece on oil shale) not very promising. There aren't any magic mountains of oil rock, or magic solutions for non-oil rock, and you really should stop deceiving your readers.

Not to say that the long tail of the oil industry is unimportant, or that we can escape it rapidly. Thanks for your straight talk in "World Oil Production" about the limits ahead: "Why am I so worried about the giant fields? It's because we're no longer finding them." People really need to understand this.

So how about straight talk on the spread in estimates of peak date and future reserves (e.g. Yergin/CERA's 2025 vs Deffeyes 2005) and the actual factual reserves of Iraq (e.g. DOE/EIA 225Gboe vs OGJ 115G, http://en.wikipedia.org/wiki/Oil_reserves#Iraq) and why it became so urgent to topple Saddam?

Hi Keith,

Good response to the oil shale issue. I would like to add that the process of mining shale oil is destructive to the land. Many of the shale areas are in national forests, next to ski areas, and national parks and the liberal tree huggers of Colorado are persnickety about their beautiful mountains being raped and exploited for oil. And, shale mining could interfere with the production of mountain stream beer and disrupt the hunting industry. This is why both liberals and conservatives have voted against it year after year. It has been a political nightmare.

Back in the late 80's Cathedral Bluffs in Colorado was to be a big development and for some unknown reason - Exxon pulled out of the project...I guess oil was cheap then and the US never figured it would be up against the wall for oil supplies down the road....my how things have changed. Thank goodness for the Alberta Tar Sands - it may fill some of the gap.

If you draw the parallel between Colorado's oil shale and Alberta's oil sands, the US doesn't have an energy security problem and doesn't require Canada to emit lots of greenhouse gases and use 4 barrels of water for every barrel of oil produced from the oil sands.

However, at maybe $35 barrel to produce, according to Shell estimates, and more emissions intensive and water intensive than Alberta's oil sands crude, I can't see anyone rushing in to extract it until global energy security reaches such a critical state to make kerogen-based synthetic crude from the Green River formation both politically (i.e. environmentally acceptable)and financially viable.

i have been following the oil sands for three years and data I reviewed indicated that as long as oil sas above $70.00 a barrel that the extraction makes economic sense. While I agree that a Canadian shale has a lesser investment risk at this time, the growing nations such as China are already demanding a large precentage of that oil.

I admire what Shell is trying to do but what about that witch of a judge in San Fransisco that says that no roeds can be built to get to the oil because of of presidential decision by Clinton that roads could not be built on public lands. I am confident that Shell or some other oil giant will figure out how to get the oil out of the ground but with the NIMBY groops, the judge, and the enviromentalist, how can it be exgtrected? I'll bet you 5 to 4 that Shell et el will find a way.

PS: the skiing in Colorado is great today.


Your remarks?

I am looking forward to your next article.

When I was with MW Kellog in early 70's we were going to build a coal oil shale plant at four corners. Oil prices dropped and project was canceled. Hitler use the process to fuel his army. Why such a mystery? This process has been available for years. Getting the stuff out of the ground has been known to be a problem for years,, and still no advancment?Hmmmmm How is canada planning on sending their oil shale by pipeline to the west coast for the Chinese...
Regards, Foreman
retired foreign service

It is a fairly common error to call petroleum resources reserves.. Reserves are those deposits that have proven economic value with a known and proved method of recovery.Oil shale is not now or ever has been in that class of deposits,so be very careful what you call them... They are not reserves....They are resources...I am speaking as a retired petroleum engineer with 44 years in the industry... Thanks-I do enjoy reading your columns...