Royal Dutch Shell is patenting a technique to convert shale to petroleum at a cost of only about $30/barrel. If it works, the world's single largest source of oil would be... the United States:
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.
This is hardly a new theory. According to the Chicken Littles of the world, we've been "about to run out of oil" for over thirty years. Obviously it hasn't happened yet. With the recent upswing in strife in the Middle East, however, the notion has gained in popularity.
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 (RDS.A) have applied for a patent on a new method of extracting shale oil cheaply and cleanly. (As an interesting side note, it is the largest patent application in U.S. history.)
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)
Elsewhere on the web, there is... skepticism:
Recently, after oil prices doubled to $60 per barrel, the U.S. Department of Energy published a new report on oil shale's promise. Sections of the report seem delirious, as if the authors were determined to illustrate that anything is possible on paper. In particular, the study claimed that we could wring "200,000 barrels a day from oil shale by 2011, 2 million barrels a day by 2020, and ultimately 10 million barrels a day." These predictions-both the production targets and their timing-are preposterous, as some industry experts admit. Hyping oil shale is nothing new. As geologist Walter Youngquist once wrote, "Bankers won't invest a dime in 'organic marlstone,' the shale's proper name, but 'oil shale' is another matter." Oil shale's history is one of delusions leading to disappointments. Sometimes the delusions have been motivated by a stock scam, but mostly they seem to have been driven by a belief that wishing can make it so. Peter Pan would have loved the oil shale industry. According to its boosters, to make it fly "all you need is faith and trust and a little bit of pixie dust!"
The Rand Corporation looks at it here. Their balanced conclusion seems to be that as things are now, oil shale ain't worth much. But if the Royal Dutch/Shell technique works, then everything we know about the geopolitics of oil is about to go out the window:
The future prospects for oil shale remain uncertain. For more than 20 years, unfavorable economics, particularly those of surface retorting, has kept oil shale off the nation's energy agenda. The estimated cost of surface retorting remains high, well above record-setting prices for crude oil that occurred in the first half of 2005. If surface retorting were the only approach for oil shale development, this report would have a clear message: It is inappropriate to contemplate near-term commercial efforts; oil shale extracted through surface retorting belongs in the nation's R&D portfolio, not on its energy policy agenda for commercial development.
Meanwhile, the technical groundwork may be in place for a fundamental shift in oil shale economics. Advances in thermally conductive in-situ conversion may enable shale-derived oil to be competitive with crude oil at prices below $40 per barrel. If this becomes the case, oil shale development may soon occupy a very prominent position in the national energy agenda. Presently, we know that one major company, Shell Oil, has reached the point where it must decide whether to commit its resources to demonstrating and scaling up its technical approach for in-situ retorting. Other firms with the technical, management, and financial resources to develop oil shale technologies may be waiting in the wings.
Wow. What would the world be like if all the oil in Saudi Arabia, Iran, Venezuela, Russia, Iraq, Nigeria, and elsewhere was suddenly nearly worthless?
