Is Oil Shale in Colorodo the answer for US?

Discussion in 'Economics' started by limitdown, Nov 7, 2007.

  1. Pekelo

    Pekelo

    From Wiki:

    "Economics

    The various attempts to develop the world's oil shale deposits, over a period of over 150 years, have experienced successes when the cost of shale oil production in a given region was less than the price of crude oil or its other substitutes.[38] According to a survey conducted by the RAND Corporation, a surface retorting complex (comprising a mine, retorting plant, upgrading plant, supporting utilities, and spent shale reclamation) is unlikely to be profitable in the United States until crude oil prices range between US$70 to US$95 per barrel (in 2005 dollars).[25] Once commercial plants are in operation and experience-based learning takes place, costs are expected to decline in 12 years to US$35–US$48 per barrel. After production of 1,000 million barrels, costs are estimated to decline further to US$30 – US$40 per barrel.[39] Royal Dutch Shell has announced that its in-situ extraction technology in Colorado could be competitive at prices over US$30 per barrel, while other technologies at full-scale production assert profitability at oil prices even lower than US$20 per barrel.[40][41][42][43] To increase the efficiency of oil shale retorting, several co-pyrolysis processes have been proposed and tested.[44][45][46][47][48]

    A critical measure of the viability of oil shale as an energy source is the ratio of the energy produced by the shale to the energy used in its mining and processing, a ratio known as "Energy Returned on Energy Invested" (EROEI). A 1984 study estimated the EROEI of the various known oil shale deposits as varying between 0.7-13.3.[49] Royal Dutch Shell has reported an EROEI of three to four on its in-situ development, Mahogany Research Project.[50][40][51] An additional economic consideration is the water needed in the oil shale retorting process, which may pose a problem in areas with water scarcity."

    And here is the water problem:

    "In the Southwest this past summer, the outlook was equally sobering. A catastrophic reduction in the flow of the Colorado River — which mostly consists of snowmelt from the Rocky Mountains — has always served as a kind of thought experiment for water engineers, a risk situation from the outer edge of their practical imaginations. Some 30 million people depend on that water. A greatly reduced river would wreak chaos in seven states: Colorado, Utah, Wyoming, New Mexico, Arizona, Nevada and California. An almost unfathomable legal morass might well result, with farmers suing the federal government; cities suing cities; states suing states; Indian nations suing state officials; and foreign nations (by treaty, Mexico has a small claim on the river) bringing international law to bear on the United States government. In addition, a lesser Colorado River would almost certainly lead to a considerable amount of economic havoc, as the future water supplies for the West’s industries, agriculture and growing municipalities are threatened. As one prominent Western water official described the possible future to me, if some of the Southwest’s largest reservoirs empty out, the region would experience an apocalypse, “an Armageddon.”"

    http://www.nytimes.com/2007/10/21/magazine/21water-t.html
     
    #11     Nov 9, 2007
  2. How do the economics of oil shale in Colorado compare to the gassification of coal from the Dakotas?

    Or the change to natural gas, available in huge quantities off shore of just about all of both coasts?

    Anyone?
     
    #12     Nov 9, 2007
  3. Big AAPL

    Big AAPL

    I recently heard some "oil guru" say on Bloomberg that oil needs to hit $110 per barrel before extracting oil from shale becomes economically feasible.
     
    #13     Nov 9, 2007
  4. This is commonly discussed but, as another poster pointed out, the major underlying issue is energy in/energy out ratio. Same problem with corn ethanol, which our lobby-run Congress, has so dutifully backed...

    Shale is okay under some circumstances just as ethanol is (in Brazil for example), but here it's not looking promising as far as I know...
     
    #14     Nov 9, 2007
  5. nevadan

    nevadan

    One giant problem that is not taken into consideration in the oil shale problem is in situ water. As the oils shale is mined the existing ground water released contains a high level of dissolved salts that have to be removed before being discharged. I have a friend who works for the Bureau of Reclamation in Grand Junction and their studies show that the problem is huge. If the salts are not removed downstream irrigation will turn productive farmlands into barren fields as the salts accumulate from deposition as the result of evaporation. I lived in the area during the last oil shale boom and I don't think there is much likelihood of any significant production anytime soon. The costs of production without government subsidies are prohibitive.
     
    #15     Nov 9, 2007
  6. But volatility risk can easily be hedged out of existence.
     
    #16     Nov 9, 2007
  7. Pekelo

    Pekelo

    As a short answer to the OP's question:

    No. Neither the Colorado nor the Canadian oil shales are an answer to peak oil. They help a little, but they don't help enough...

    As a long answer specially about Colorado:

    1. Until it is proven that the price of oil is going to stay ABOVE the economic level for extraction for extended time (or forever), companies are not willing to go ahead with a full production.

    2. There is no aviable water in Colorado. Nada,zilch, zero. There is plenty of it needed for this kind of production.

    3. Because of the enviromental damage, local governments would block such a production.

    4. Even though the absolute size of the reserves are huge, the speed with the oil could be produced is very little thus overall it would make little impact. This is one of the biggest problem about the Canadian sands, where the other above points don't apply....
     
    #17     Nov 9, 2007
  8. Correct. They are a net importer since the 70's.
     
    #18     Nov 11, 2007
  9. Pekelo

    Pekelo

    #19     Nov 11, 2007
  10. That was the case a while back. It costs about $5/barrel to extract oil from the middle eastern countries. This compares to $25/barrel when extracted from shale.

    My family is from Vernal Utah and experienced the big oil boom decades ago that is in full force again now. I heard comments that even at these high prices the boom hasn't returned. That simply isn't correct.

    The problem is the current process of extraction. They drill big holes and stick high temp probes into them for a long time. They essentially cook the rock to cause a release of oil. During this process they burn off about 30% of the usable oil. Problem is that the first things to burn are the easily refineable products. So in the end, the sludge that comes up is better suited for making rubber.

    When faced with a decision, the refineries, already operating at capacity, would rather take shipments from the middle east and Texas because the quality is better. This is changing now with oil at $100/barrel. A couple companies that specialize in mining have developed a process for extraction via mining instead of cooking. This new process results in less burn-off of the higher quality product. They are also talking about building new refineries in Eastern Utah to eliminate the need for shipping. The intent is to get the production cost down much closer to that of regular pumping process.

    I believe the last scientific estimates put the amount of oil at around 2 Trillion barrels. That is far more than the known reserves in the middle east. The probelm before was that US governement funding stopped and everyone dropped the project. At these prices though, the project is financially viable without government help.
     
    #20     Nov 12, 2007