Oil shale hits a freeze

Don’t count on running your Hummer on gasoline from oil shale just yet.

Via Green Car Congress,
Shell oil company, one of three companies that have been awarded federal leases to test in situ production techniques for Colorado oil shale, has withdrawn an application for a permit for one of its three oil-shale research and demonstration leases. The suspended project called for heating the underground rock over a 3- to 4-year period. To keep underground water from interfering with the heating and to protect groundwater resources, the company had proposed freezing the groundwater to create a subsurface ice barrier.

Sounded like a promising idea. But last week the Denver Post reported:

Shell spokeswoman Jill Davis said the withdrawal of a permit on one of its three oil-shale research and demonstration leases was done for economic reasons: Costs for building an underground wall of frozen water to contain melted shale have “significantly escalated.”

“We are being more cautious and more prudent,” Davis said. “Because of the nature of research you have challenges. With that in mind, it is taking a little longer to build a freeze wall than we planned.”

Shell’s slowdown does not mean the US Bureau of Land Management will delay plans to issue commercial leases as soon as 2008. “There is no slowdown from our perspective,” said Celia Boddington, national spokesperson for the BLM.



Shell’s experimental in-situ oil shale facility, Piceance Basin, Colorado. Source:
USGS.
<shell_in_situ.jpg



For purposes of amusement, it’s interesting to recall what Seeking Alpha wrote about the Shell project just two months ago:

Over the past few years, more and more apocalyptic stories have been popping up about a supposed phenomenon known as “peak oil.” The theory is that we’re running out of oil, the big powers are keeping it quiet, and as supplies dwindle, world-wide economic chaos will ensue….

The thing is, this theory is utterly false, and can be laid to rest with a single well-established fact: there is more oil in the Colorado shale fields than the entire Middle East had at its peak. The only reason we’re still importing oil is that, at present, it is cheaper to do so than to extract it from shale. Until recently, getting oil out of shale has been a nasty and expensive business.

That’s about to change, though, as engineers at Royal Dutch Shell have applied for a patent on a new method of extracting shale oil cheaply and cleanly…. Amazingly, this method:

  • Is cleaner than conventional drilling
  • Generates the highest grade of light-sweet crude oil, which burns cleaner than other varieties
  • Becomes profitable with oil just north of $30 a barrel (which we’ve already blown past)….

As with most great ideas, the basic concept is simple. In brief, engineers dig holes around the extraction area, into which they insert giant cooling rods. The water in the soil freezes, and forms an “ice-bowl,” which traps the oil and prevents seepage. The center of the formation is then heated, causing the oil to bubble up through the rocks, from which it may then be extracted with ease. The ice-bowl prevents all the nasty chemicals released by this process from getting into the water table.

I’ve been following the oil shale story since my college days in Colorado in the 1970s. It’s remarkable that for over thirty years, the claim has always been that the projects would become economical if the price of oil went up just a little higher. I’ve watched oil prices go up, and then it turns out the projects still won’t fly. Part of the reason may be that a good deal of energy must be expended before you get anything out of this resource. When energy prices go up, the costs of such a project somehow manage to go up too. It’s a big error to count Btus in the shale under the Rockies as if they were equivalent to the crude oil that comes out of the ground if you just dig a hole in the right place.

I still believe that oil sands are more promising than oil shale. However, I don’t think it’s realistic to expect either resource ever to supply a major proportion of our energy needs. And lead times are very, very long.

I wish the engineers for the other oil shale demonstration projects success with their ideas. But I am not as optimistic about the outcome as Seeking Alpha.


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33 thoughts on “Oil shale hits a freeze

  1. T.R. Elliott

    Breeder reactors are always 25 years off. Fusion 50 years off. And shale oil just a few bucks more per barrel of oil. I’ve always believed that the price of extracting these resources must take into account EROEI in some fashion because the increased cost of oil–or energy generally–will raise the cost of extracting oil from shale oil. Hence the shale oil burro will always chase after that carrot dangling in front of it.

  2. Jeremy

    Politicians, as usual, have it all figures out.
    Of course, we can just “grow energy supplies”.
    This from AP. I’m not sure whether to laugh or cry.
    “A push from Congress and the White House for huge increases in biofuels, such as ethanol, is prompting the oil industry to scale back its plans for refinery expansions. That could keep gasoline prices high, possibly for years to come.”
    http://www.msnbc.msn.com/id/19276523/

  3. kharris

    The notion is apparently to recreate, on an economic (large) scale through the use of refrigeration, geological conditions found in conventional oil fields. The result is to be oil that is economical at $30/bbl, even though there are conventional fields which are not economical at $30/bbl, even though the energy consumed to create the ice cap is probably considerable. On its face, this seems a wild notion. Why would we believe it without extensive convincing?
    Environmental damage is to be limited by keeping by-products contained under the ice – until the field is tapped out. Surely, the energy budget is negative if we intend to maintain the ice bowl forever. Do we know the extent to which environmental damage will progress after the bowl? Will it be just as bad as if it had never been contained? Because if that’s true, then the creation of ice bowls, necessary to extract the oil at all, is being touted as some nice, green thing the company would do when it is no such thing. Not a new idea, but just as dishonest as ever.

  4. Buzzcut

    Throw this into the mix: for 25 years, our “best and brightest” have been going into non-energy related fields, because they have been more lucrative, sexier, whatever.
    Oil shale is a situation where we are pushing the envelope. You need high performing individuals on projects like that. You probably had those kinds of people on the project in the late ’70s.
    Maybe now that energy has a much higher profile, the oil shale project will get the engineers that it deserves.

  5. Name

    “I’ve been following … oil shale … since … the 1970s … the claim has … been … projects would become economical if the price of oil went up just a little higher. I’ve watched oil prices go up, and then it turns out the projects still won’t fly.”
    Adjusting for inflation and income growth energy is still cheap.
    Rounded for easy math:
    Median US income 2005: 45,000
    Average US miles driven per year: 12,000
    Avg US psngr car milage 2005: 20
    Avg US retail gas last week: 3.20/gal
    Under 5% of gross income per car goes in the tank.
    There are new factors like more cars per household, and greater income diversity pressuring the sub-median earners.
    But overall, based on purchasing power the price has not done much since the seventies.
    If you are right about peak oil, the status quo might change.
    I still don’t believe peak oil because I don’t have aceess to good information for or against. All I see is expert opinion.

  6. Buzzcut

    based on purchasing power the price has not done much since the seventies
    Yeah, but…
    There is no doubt that the “dot bomb” era got a huge boost from dirt cheap energy prices. The Asian financial crisis made energy cheap. Cheap energy meant that we could concentrate on things like the Internet, and forget about shale oil and other energy conundrums.
    What is the ROI on the Internet circa 1998 vs. shale oil? No contest. A world that can ignore energy and concentrate on things like the Internet is one that has a lot higher potential growth than one that is energy constrained.

  7. vorpal

    Name,
    Try drawing a curve with finite area under it that increases forever. Keep trying until you are convinced that it is not possible. Peak oil is that simple.
    BTW: we passed peak oil per capita in the 80’s , so that milestone is historical fact.
    Actually, based on purchasing power, the price of gasoline has skyrocketed over the past 4 years. Not sure how you get this notion that ‘the price has not done much since the seventies.’

  8. Michael Cain

    I had the opportunity to see an oil-shale presentation by Shell at Colorado School of Mines and to ask questions. A few of the interesting answers:

    • Systems analysis suggests that EROEI is about 3:1. One of the goals of the current research project — and Shell describes the effort as very much a research project — is to determine if that’s close to reality.
    • At this time, analysis suggests that the amount of liquid transportation fuel obtained per unit of energy put into the processes would favor coal-to-liquids. Shell’s in-situ oil-shell process may be less water-intense.
    • The amount of electricity required to run a million barrel per day operation is roughly equal to the amount consumed in Colorado — call it 48 billion kWh. Serial PHEV vehicles could displace a million barrels per day of oil on about the same amount of electricity: a million bbl of crude translates to about 525 million miles (42 gallons/bbl, 0.50 yield of gasoline, 25 MPG); 48B kWh/yr is about 130M kWh/day, roughly .25 kWh/mile, gives 520 million miles.
  9. Name

    “Cheap energy meant that we could concentrate on things like the Internet, and forget about shale oil”
    Petrolium engineers did not drop their drill bits to start online retail sites.
    The internet was a nerd hobby for 20 years before the VP got around to inventing it. I was reading green ascii from dial up sites on a 1200 baud modem in 1988.
    Have recent energy prices slowed innovation in the internet, reduced the growth of cell phone features or slowed the roll out of HD TV?
    If you want to say we’re killing the next technology revolution, you have to speculate what it is.

  10. JDH

    Name, your point about relative prices is valid, and I should have been more clear. What I meant specifically was that in 1975, people claimed that if oil prices went just a little higher, shale would become economical. By 1980, oil prices had gone up a whole lot higher in real terms, but it still seemed not to be economical. Again in 2005, people claimed that if oil prices went just a little higher, shale would become economical. By 2007, they have gone a lot higher, again in real terms, and again, as I highlight here, Shell has just declared that the project that supposedly could be profitable with oil at $30 a barrel in fact can not make money with oil even at $65.

  11. Anarchus

    I was a cost engineer on the Exxon/TOSCO Colony Shale Oil project in 1980-1981. Even back then, the joke was that petroleum engineers had been saying since the 1920’s that if the price of crude would just go up another $10/barrel oil shale would be economical. I would note that although the price of oil was around $40 per barrel in 1980, Exxon’s projections back then had the price rising to around $100 in 5-10 years.
    Anyway, when the preliminary engineering design was completed and cost estimates run in 1980, as best I can recollect the initial budget was around $2.5-$3.0 billion. I left to go to grad school, but by the time the project was shut down in May 1982, cost estimates had risen to almost $10 billion. Among a plethora of problems, this was an above ground retorting process that was sited on top of a remote mesa at about 10,000 ft altitude. I don’t think anyone is ever going to try anything like that again, ever.
    IMHO, the key to making shale oil work is NOT higher oil prices, but a technological breakthrough that will release the kerogen from the shale without heating the stuff to 850 degrees F. Maybe someday . . . . . . . .

  12. Buzzcut

    If you want to say we’re killing the next technology revolution, you have to speculate what it is.
    No I don’t. All I have to do is note how many Silicon Valley guys are switching their focus from IT to green energy.
    What do you think has a greater ROI?
    In terms of “black swans”, I don’t think that there is any contest. IT is scalable, energy is not. You are much more likely to get something revolutionary out of IT than out of the energy sector.
    It’s the difference between Moore’s Law and whatever law battery development follows. Battery capacity doubles every 100 years.

  13. Name

    “All I have to do is note how many Silicon Valley guys are switching their focus from IT to green energy.”
    Spending the next decade lamenting underinvestment in IT would be like spending your fourties benching at Golds gym in case you get a second chance to bag your prom date.
    Cell phones and IT are like water now. We are both spending our valuable mind and eyeball time on a zero-cost public hobby-blog with no commercially produced content.
    I feel a lot less certain about how computers will work in 30 years than power plants.

  14. Name

    “based on purchasing power, the price of gasoline has skyrocketed over the past 4 years. Not sure how you get this notion that ‘the price has not done much since the seventies.”
    You compared 2006 to 2002.
    Now compare 2006 to 1976.

  15. shan

    Now compare 2006 to 1976.
    Okay, I’ll bite. According to this, it was about $2/gallon in 1976, in 2005 dollars. In the past 50 years, only in 1979 and 1980 did it approach the current price.
    As for where the price will go in the future, my best guess is that it will continue to go up, on average, until it doesn’t.

  16. T.R. Elliott

    I find it ironic, as I read through the comments, to hear some argue that the theory of peak oil is up in the air because it is nothing but a bunch of expert opinion–and simultaneously hear them mouth the who-knows-what-the-future-will-hold cornucopian speculation about smart people–read experts–who will work wonders when they apply their minds to shale oil.
    Cognitive dissonance in action.
    The facts speak pretty clearly as far as I’m concerned and I think JDH has been speaking them. Peak oil will happen–it’s just not clear when–too much uncertainty, particulalry with respect to the middle east. Tar sands (and coal liquifaction) will ameliorate the downside as oil production levels and then decreases. Shale “oil,” read kerogen, is most likely a losing proposition.

  17. Buzzcut

    I feel a lot less certain about how computers will work in 30 years than power plants.
    You’re simultaneously arguing that IT is built out, and that IT will continue its explosive growth. What’s the deal with that?
    The focus on energy has been going on for less than 3 years. We have yet to see the consequences in the shift in focus from IT to energy. We very well may be living off the momentum of the pre-energy-focus era (pre-2004).

  18. Name

    Sorry Buzz, that was a typo.
    I feel a lot less certain about how computers will work in 30 years than power plants.
    should have been
    I feel a lot less certain about how power plants will work in 30 years than computers.
    I now feel a lot less certain about my typing skills.
    What do you think though?
    THe computer seems to be on course to replace paper money, combine all of our appliances and allow instant global communication, but that is an old story. My kids will likely never receive an electric bill in a paper envelope.
    “Built out” is not the words I would use. “Thought out” is more like it. We know what we want to do and are just waiting for consumers to fund investment and infrastructure.
    A theme here seems to be that peak oil is real. THat sounds like a different issue. We would know that something is going away, but not what is going to replace it. Scarier to me.

  19. Name

    “Okay, I’ll bite. According to this, it was about $2/gallon in 1976, in 2005 dollars. In the past 50 years, only in 1979 and 1980 did it approach the current price.”
    Median income in 1976: 33,000
    Median income in 2006: 46,000
    Increased (inflation adjusted) income means that a gallon of gas only costs 6% more of our income now than it did then.
    Gas for the car is more than 10% less expensive now than it was in 1981.

  20. DickF

    The lack of the development of alternative fuels does not condemn gasoline or oil in general as many seem to want to do. What this demonstrates is that oil is the superior source of energy to a very high degree.
    Don’t forget that prior to the development of oil technology the primary fuel was wood. Consider the relative costs of wood, solar, wind, shale oil, any other. Peak oil or no peak oil, oil is still the most efficient and inexpensive energy source.
    The lack of alternative fuels also demonstrates the impotence of the government when confronted with the market. Governments can screw things up but they cannot stimulate production better than the market.

  21. Anarchus

    Actually, for most transportation prior to oil technology the primary fuel was oats and hay and water for the horses, and some wind power for the sails.
    There are wonderfully colorful stories about Manhattan in the late 19th century (as in this vignette excerpted from livingcityarchive.org):
    “Despite the presence of animals, the city had no systematic street-cleaning efforts. During winter, neighborhood streets sometimes rose between two and six feet in height due to the accumulation of waste and snow. The middle-class brownstones of the 1880s provided a stoop leading to a second floor entrance so that the residents could enter the front door above the manure piles . . . . .
    Once the Brooklyn Bridge was built, the city started taking waste out of Manhattan and depositing it in the farmland communities of Queens. They collected it in “manure blocks”–literally huge city blocks devoted to the collection of horse manure.

  22. Buzzcut

    Well, when it comes to the electric grid, IT hasn’t even been applied. Getting smart electric meters on every home, along with real time pricing, might do wonders for conservation.
    My point is that the ROI of something like that pales in comparison that the ROI of, say, internet retailing. The fact that we could concentrate on those high ROI ventures during the dot-bomb era had a lot to do with those dirt cheap energy prices.
    Also, I’m wary of the notion that innovation in any area is “thought-out” or “built-out”. The history of such predictions is quite poor.
    But who knows. Maybe smart meters and solar-electric roofing shingles will be game changing in the way that the Internet was. I just don’t see a “Moore’s Law” for solar-electric.

  23. Name

    I like DickF’s analysis. Oil is a very superior narural resource. Historically, has civilization ever lost a superior resource?
    I still don’t believe it, but the proposition that each human is going to have to use less energy per capita every year starting now is compelling.
    To borrow from Anarchus’s story, I think the Manhatten without cars would be sh__ty.

  24. JL

    Just like a bunch of economists to argue whether the price of gasoiline is higher or lower in real or inflation adjusted terms or in comparison to median salaries either before or after taxes and before or after tax credits and deductions for business or shared personal use… But if you want to talk about the pricing of gasoline in the future you sure need to consider the availability of supply. The “classic” economic assumptions about higher prices encouraging higher supplies runs squarely into geology. Words hitting rocks… I think I know which ultimately prevails.

  25. DickF

    Name wrote:
    I still don’t believe it, but the proposition that each human is going to have to use less energy per capita every year starting now is compelling.
    Name,
    Interesting. The whole energy picture has always been how to find more energy per capita and that will continue as the primary driver of energy. That is the imputus of the market and anyone from government to the environmental activists would have more success defying gravity.
    Current debates attempting to find ways to restrict energy use are foolish. We should be considering how to get more energy out of our processes at lower cost, but leave it to government to solve the problem by making everything cost more.

  26. Name

    I see your point, but in the peak oil case the highest portable energy density would be limitted in quantity available at any given time.
    The US and most of Europe have stable automobile registrations, but china and india have high registrations growth and enormous market capacity.
    Autos consume about 2/3 US oil imports.
    Right now there seems to be a 40-50 mpg limit on auto milage possible without adding batteries. thats only about 2x current efficiency, versus 5x projected count.
    So a fixed quantity of energy has to be spread over a larger population.
    Maybe we will buy disposable car batteries pre-charged at coal plants in the southern hemishere? NIMBY.

  27. Name

    Moore’s law is about doubling processor capacity by shrinking silicon features and increasing die sizes. It doesn’t apply to IT apps anymore because processing speed is not the primary limitation. Right now the business needs cheap storage and cooler, smaller, power efficient boxes.
    In 1985 it was a big deal to run a spreadsheet with 8-bit math and kilobytes of RAM. A spreadsheet is a pretty basic tool. Right now, high end processing is needed mostly by video gamers. A gigabyte of RAM and a 2GHz quad core processor are beyond overkill.
    The present computer application limit is data transport, which is not a moore’s law member, and storage. While we’re texting on this page, others are slaying immaginary dragons on MMORPGs, or organizing their digitized TV/music libraries. They need to get more megabits of true-color dragon breath without getting lagged, and more episodes of Daria on their optical drive.
    There might be more possibilities for IT, like municipally funded mesh wireless networks to track personal RFID tags or live DVB baseball games on your wristwatch. But I think the energy issue is more consequential.
    Twenty years from now will I be able to get Ford Mustang equivalent performance at Ford Mustang equivalent capital cost and operating cost? And would it look like a unicycle with a lawnmower engine.
    Sorry for posting so much today and yesterday. The subject caught my imagination.

  28. DickF

    One thing to remember is that energy is not necessarily measured in horsepower or gig watts. Energy can be something as simple as processing calculations. A computer today can process much more than any method or system from 50 years ago. While this processing may not consume as much, the energy equivalent is startling.

  29. Stuart Staniford

    DickF:
    Actually, energy is not measured in gigawatts or horsepower, because those are units of power (energy per unit time) not energy. But energy can always be measured in units of joules, gigawatt-hours, or some equivalent. If it can’t, it isn’t energy – energy is an exactly defined thing which can be measured in very precisely defined physical units and arises for a specific physical reason (the fact that the laws of physics are invariant under time-translations). Dubious metaphorical uses of the concept generally mark fuzzy thinking (“Oh, he has a wonderful energy about him…”)

  30. T.R. Elliott

    Another observation as I read comments:
    Comments on economic blogs are frequently drawn toward one of the following poles: market intervention (e.g. government regulations can be good or oil companies are manipulating us) and free market fundamentalism (markets can solve all problems). By and large, these two classes of comments don’t address the specifics of the issue under discussion, merely providing the one making the comments the opportunity to fly the flag of his or her particular predilections.
    That said, this comment of mine falls under a third category: meta-commentary. Similar to the two categories above, it says little that is appreciable, little that furthers the topic of discussion.
    My apologies.

  31. DickF

    Stuart,
    Agreed. I was only attempting to make the point that in economics efficiencies are not necessarily equavilant to scientific analysis. Economics without the human factor has no meaning.

  32. eye5600

    Some things are clear. It’s still too soon for major changes in the energy infrastructure (e.g. mandating ethanol or biodiesel); we don’t know enough. But major investment (e.g. new refineries) is strongly affected by uncertainty. Changes over the next decade or so will be mostly local requiring minimal investment, mostly conservation. There will be a mix of new technologies (e.g. windmills, biodiesel, electricity in cars). If we know anything about change, it is that every last penny will be wrung out of sunk costs before new investment.

  33. Allen

    JDH,
    Do you think that it’s the price of oil today or the risk of it’s price in the future? Is Shell thinking there is too great a risk of a bubble in China and that if it bursts we could see a sharp drop off in demand that knocks prices down a lot, let’s say back to $40 / barrel for a few years before it comes back? After all isn’t that the history of oil prices? They grow, hit a point that turns out to be a peak because demand has a sharp drop off, and then eventually slowly start going back up? I’m not saying the sky is falling but if China does have a bubble and it bursts that would likely be felt all across Asia.

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