Oil Shale to the Rescue?

Let me start by saying that this post is as non-partisan as it gets. I care about America, not political parties. So buckle your seatbelt...

We're facing an oil crisis. Biofuels and hybrids will not save us in time. But oil shale might.

Let's start with some hard facts.

America's domestic petroleum production is in decline. In 2000, America's domestic oil production was 5.8 million barrels/day. In 2005, even though prices had skyrocketed -- a stimulant for production growth -- domestic oil production was only 5.2 million barrels/day. In America, oil no longer gushes to the surface like it once did. The days of Spindletop are long over. To make matters worse, petroleum production in many oil exporting countries outside of the Persian Gulf, such as Norway, is also in decline. The only region with significant untapped reserves of conventional oil is the Persian Gulf. That said, America will come to depend on the Persian Gulf for more and more of its crude in the coming years unless things change dramatically.

So will the rest of the world. Global demand for petroleum is surging while the world's crude supply is being concentrated in the hands of Iran, Saudi Arabia, the UAE, Iraq, and Kuwait, and Bahrain. This is the ultimate recipe for conflict and the greatest threat to America's economic security.

In recent years, many people, including our policymakers, have come to believe that biofuels will save us from Persian Gulf petroleum dependence.

"Ramp up the availability of ethanol," Hillary Clinton recently commanded.

"We've got to get serious about ethanol," according to Rudy Giuliani.

Many politicians -- often the same ones who support biofuels -- also support hybrids.

Mitt Romney, whose father was a Detroit auto executive, announced his candidacy while standing in front of a hybrid Ford SUV. Tom Tancredo says he drives a hybrid. So does John Edwards.

But the difficult truth is that neither biofuels nor hybrids will reduce our dependence on Persian Gulf crude anytime soon.

Today, biofuels are not cost-competitive with conventional crude. They only survive with subsidies. Moreover, the potential for biofuels to contribute to our energy recipe is severely limited by their land requirements. Right now, ethanol is produced primarily from corn. According to a 2006 University of Minnesota study, dedicating the entire U.S. corn crop to biofuel production could only offset 12% of our gasoline consumption. According to researchers at the Cato Institute, "For corn ethanol to completely displace gasoline consumption in this country, we would need to appropriate all U.S. cropland, turn it completely over to corn-ethanol production, and then find 20 percent more land for cultivation on top of that."

Perhaps, in the future, more advanced cellulosic ethanol technologies will mature to a point where they will be cost competitive with gasoline. Perhaps then, switchgrass and miscanthus, which have much higher yields than corn, will become the dominant biofuel feedstocks. When that happens, perhaps, as Bruce E. Dale of Michigan State University speculates, under the most optimistic case scenario, the United States could replace 85% of its current gasoline consumption by converting 100 million acres of land to cellulose production. But, cellulosic ethanol technologies are years away from technological and commercial viability. And it will take decades more before America allocates 100 million acres of land -- an amount roughly equivalent to ¼ of America's harvested cropland -- to cellulose production.

And, keep in mind that this is an optimistic projection.

According to an article in the Nov-Dec 2006 edition Harvard Magazine by Harvard environmental scientist Michael McElroy, to supplant just 50 percent of America's current gasoline use with cellulosic ethanol could require as much as 280 million acres of land. As McElroy points out in a supplemental technical discussion of his article, that's roughly equal to 75 percent of the cropland currently in use or 49 percent of America's grassland, pasture, and range. Regardless of whose forecast is more accurate -- Dr. Dale's or Dr. McElroy's -- we can be sure that it would take years before enough land could be allocated for cellulosic ethanol production to power any significant percentage of our cars. Can we afford to wait that long?

If you think hybrids will soon serve as our lifeboats out of this mess, you're wrong. Hybrids will not penetrate the U.S. market in large quantities anytime soon. Consider that the median lifetime of an American automobile is 17 years. According to the Bureau of Transportation Statistics, there were 136.6 million passenger cars on America's roads in 2005, the most recent year for which data has been published. In 2005, though, there were only 7.6 million new car sales and leases in the United States. In other words, new sales make up only 5.6% of U.S. cars every year. Even if hybrids were to make up 100% of new cars sold starting tomorrow, it would take a generation before they would replace the entire U.S. fleet. That's the most optimistic, and totally unrealistic, scenario. In light of Detroit's resistance thus far to hybrid development, we can be sure that it will take years before hybrids make up any significant fraction of new cars sold, and it will be a generation before hybrids replace our entire fleet. I don't want to wait that long for energy security.

The only real option America has if it hopes to free itself from the shackles of Middle East petro-politics anytime soon is to find new sources of domestic petroleum. Am I suggesting that we drill ANWR? The truth is that it doesn't make much of a difference if we do or don't. ANWR is a red herring -- it only has enough petroleum to support America's domestic needs for just one year -- maybe two. However, we have another source of domestic petroleum that has the potential to make a big difference: oil shale.

Oil shale is a type of rock that has a petroleum precursor called kerogen trapped inside of it. Using a variety of mechanical and chemical processes, this kergoen can be extracted and upgraded into liquid fuels like synthetic gasoline and synthetic diesel. The United States has the largest oil shale resources in the world. Most of America's oil shale deposits are located in the undeveloped Green River Formation, which straddles Colorado, Wyoming, and Utah. According to the Rand Corporation, as much as 1.1 trillion -- yes, trillion -- barrels of synthetic petroleum could be recovered from the Green River Formation. According to the U.S. Department of Energy, that is four times the size of Saudi Arabia's proved reserves of conventional oil, and approximately equal to all of the proved reserves of conventional oil on earth!

Oil shale has received little attention in recent decades, but some Americans probably remember hearing about the resource during the Arab oil embargoes. In 1980, at the height of the embargoes, the U.S. Congress created the Synthetic Fuels Corporation, which was, in part, intended to develop America's oil shale industry. When the Synthetic Fuels Corporation was created it was incredibly expensive to squeeze petroleum out of oil shale, and the plan was to invest in research and development to pioneer cheaper methods to produce shale oil. House Majority Leader, Rep. Jim Wright of Texas, thought so highly of the bill that created the Synthetic Fuels Corporation that he described it as "the most important bill we'll act on during this decade, beginning an initiative we should have started in the 1950s." However, by 1985, after the Arab embargoes ended and the price of oil plummeted, the incentive to invest in oil shale plummeted as well. Nearly every oil shale project in America was abandoned. With conventional oil selling at less than $25/Bbl, why would anyone want to invest in oil shale, which looked like it would never break the $80/Bbl profitability threshold?

Over the past few years though, a few things have changed. First, the price of oil has again skyrocketed. And, unlike in the 1980s, the price of oil does not look like it will come down again. This is because the peak in global production is fast approaching while demand is surging: limited supply and higher demand can only mean higher prices. Moreover, the Persian Gulf oil powers will likely continue to inflate oil prices as their stranglehold over the petroleum market tightens. As a 2005 Citigroup report noted, "...the days of $25 oil are long gone and unlikely to return any time soon." Governments and businesses around the world are now forecasting long-term oil prices above $40, $50, and even $60 a barrel. These could all be conservative estimates.

The second major change relevant to oil shale is that several companies operating under the radar screen have developed radically cheaper oil shale production methods over the past few years. Shell is confident that a new technology it is pioneering could produce shale oil profitably if the price of crude settles above ~$25/Bbl. According to a 2006 report in BusinessWeek, an Israeli company may now be able to produce shale oil at a cost of $17/Bbl. And, according to a 2004 DOE report, an Estonian firm believes that it can produce shale oil profitably with crude prices as low as $13/Bbl.

Assuming that these figures are remotely accurate, shale oil now appears to be significantly cheaper than conventional crude. In addition, it appears to be significantly cheaper than any biofuel or coal-to-liquids solution. For the first time in history, America's vast oil shale resources are economically viable.

Will the price of conventional crude plummet again, undermining the economic viability of oil shale, as it did in the early 1980s? Maybe, but probably not. Because the cost of producing shale oil using these newly developed oil shale technologies is so low, it is highly unlikely that the Persian Gulf producers could lower global prices enough to sabotage a domestic oil shale industry. And even if the Persian Gulf suppliers could, they may not want to -- with India and China industrializing so quickly, there will be plenty of demand for conventional Persian Gulf petroleum even if the U.S. reduces its oil imports from the Middle East. Consider that more than 80% of Saudi Arabia's oil exports are already sent to countries other than the United States.

The benefits of a new domestic oil shale industry could be enormous.

According to Senate testimony by Milton R. Copulos, the president of the National Defense Council Foundation, the United States spent $251 billion on foreign crude 2005. In 2006, we spent even more -- perhaps $320 billion. These figures only include the actual cost of purchasing the oil -- they do not include externalities such as the military cost of defending our supply of Persian Gulf crude. But, even without these externalities -- which themselves are in the many tens of billions of dollars--the amounts are staggering. According to the U.S. Department of Labor, $320 billion dollars is more money than the annual salaries of every elementary & secondary school teacher, physicist, chemist, economist, internist, pediatrician, registered nurse, veterinarian, firefighter, librarian, astronomer, epidemiologist, psychiatrist, and microbiologist in the United States combined!

Promoting the development of an American oil shale industry would help keep this money in the hands of Americans and out of the hands of anti-American-terrorist-recruiting-Saudi-funded mullahs. Moreover, it would stimulate massive job growth in America, increase tax revenue that could be used to reduce the deficit, improve our schools, and fund medical research. Imagine the diseases we could cure with $320 billion dollars. We could double the number of teachers in our schools and still have billions and billions of dollars left over.

The primary objection to oil shale development relates to greenhouse gasses. Indeed, a large-scale U.S. oil shale industry would increase America's greenhouse gas emissions. But not by a significant amount.

According to recent research done by Adam Brandt, a Ph.D. candidate at Berkeley, the full-fuel-cycle emissions -- including emissions from processing, refining, and combustion -- associated with oil shale production using the Alberta Taciuk Process, which may cost as low as low as $13/Bbl, "are 50-60% higher on a full-fuel-cycle basis than those from conventional oil production." Also, according to Brandt, the full-fuel-cycle carbon emissions associated with Shell's newest oil shale process, known as the in situ process, which is the same process that Shell claims is profitable when crude is above ~$25/Bbl, "are roughly 10% to 50% larger than those from conventionally produced petroleum-based fuels." These number may sound big, but when put in a global context, they're not.

Consider this: if America were to replace all of the gasoline it derives from Persian Gulf crude with domestically produced shale oil, worldwide carbon emissions would only increase by approximately 0.2%, even if we use Brandt's highest estimate for carbon emissions associated with oil shale production. Even if we double Brandt's high-end carbon estimates and assume that gasoline produced from shale oil results in carbon emissions that are 120% higher than conventional crude oil production and combustion, the resulting emissions increase is still insignificant: 0.4%.

Do we really want to keep asking young Americans to sacrifice their lives on military operations in the Middle East so that we can keep global carbon emissions down 0.4%? I certainly hope not.

If you're still concerned about such an increase in carbon emissions from a domestic oil shale industry, remember that China alone is increasing global CO2 emissions at a rate between 2-3% every year. Any limitations we put on our carbon emissions will be undermined by China as long as the Chinese continue to build two dirty coal power plants every week. Let's keep things in perspective.

Finally, keep in mind that the tax revenue that would be generated by a domestic oil shale industry could be invested in greenhouse-gas fighting technologies such as carbon sequestration. Such technologies could reduce global greenhouse gas emissions by amounts far in excess of the tiny increase that may come as a result of the creation of an American oil shale industry.

I am an optimist and I hope that hybrids and biofuels will one day make a huge difference. But we need to accept that we will be dependent on petroleum for quite some time and adjust our policies accordingly. Oil shale may hold the most promise.

The vast majority of America's oil shale is on federal land (at the start of the last century, our policy makers wisely realized that oil shale could be used to provide transportation fuels, so they cordoned off the largest deposits to save them for later use!). We need to adopt a regulatory atmosphere that allows, and, in fact, promotes, the commercial development of our oil shale resources. The sooner we do so, the better.

"We will break the back of the energy crisis; we will lay the foundation for our future capacity to meet America's energy needs from America's own resources," said President Nixon in his 1974 State of the Union. "We must end vulnerability to economic disruption by foreign suppliers," said President Ford in his 1975 State of the Union. "Our excessive dependence on foreign oil is a clear and present danger to our Nation's security," said President Carter in his 1980 State of the Union Address. Reagan, Bush I, Clinton, and Dubya have all also chimed in with a similar refrain. Indeed, the majority of the State of the Union addresses since the 1973 oil embargo have contained calls for increased American energy independence. "The result?" as Charles Krauthammer noted in a recent Washington Post opinion piece: "In 1973 we imported 34.8 percent of our oil. Today we import 60.3 percent." But, now, thanks to oil shale, we can at last turn all of this rhetoric into reality.

Comments

[papaclyde]

There's an old saying in western Colorado: "Oil shale is the fuel of the future...and always will be." There's more energy in a pound of granola than in a pound of oil shale. The Ute indians burned dried buffalo dung instead of this stuff because it gave off more heat. If oil shale is the answer, you've asked the wrong question.

[Ollie3]

As a professional EnviroWhacko actually working in western Colorado on oil shale (and other) issues, I want to re-emphasis both the insane amounts of energy and water required for even the 'new' technologies (i.e. Shell, Chevron, etc.)make oil shale highly problematic (and mostly unpopular among us energy colony residents who already have to live with unprecedented levels of drilling). Shell recently pulled its state permit for its R&D oil shale leases, saying it is not ready to proceed. (Tellingly, Mr. Andrew's link to how optimistic Shell is about the resource comes from the Heritage Foundation, other statements form Shell tell otherwise, that even a decision about whether commercial production is possible is at least 6 years away). The legacy of oil shale is also troubling--from the 'Great Oil Shale Giveaway' (in which Steven Griles in his first stint at Interior allowed energy companies to patent thousands of acres of resource-rich public lands at $2.50 an acre), to "Black Sunday" when Exxon pulled out of its Colony oil shale project and sent the Colorado economy into a decades-long tail spin. Oil shale is a loser, it would carry tremendous environmental and social consequences, and it would do nothing to bring us into the future we know we must get to. Meanwhile it would jeopardize Colorado's prized wildlife, proposed wilderness areas (and designated wilderness through degradation of air quality--particularly in the FlatTops). Unfortunately, for some its all about milking the fossil fuel cow as long as possible and the consequences (and communities) be damned.

[Jane]

This is the best and most informative thread on the Huff Post that I have ever seen! Keep it up, I want to read more!

[skewerstupidity]

I was involved with the now abandoned Exxon CO project. Cost and design factors based on small pilot units were worthless. Commercial size units required an unprecedented scale up. Huge new pieces had to be designed, constructed, tested and assembled from ground zero. New infrastructure will have to be constructed. Very expensive and massively time consuming. Huge capital requirements too.

[Powderhound522]

The best solution is driving less. In particular, moving to be closer to your workplace is an excellent idea.

I recently moved from my parent's house (30 miles from work) to an apartment a block away from work. Not only does the amount of gas I saved pay 100% of my rent, but now I have an extra two hours a day to spend as I see fit.

The monetary and environmental savings alone are enough to justify such a move. Adding my extra time and my greatly reduced stress levels make the value of such a move truly incalculable.

[SolarPowerGuy]

Hear hear!

[Ollie3]

The Green River oil shale deposits cover some 16,000 square miles, a land also inhabitated by numerous people, towns, businesses, and North America"s largest migratory deer herd. Oil shale development requires vast amounts of energy. Since coal is prevalent in the region, the assumption is that up to half a dozen new coal-fired plants would be required.
Then there are the water requirements, from a river system that is the major water source for 7 states, millions of people, and much of our domestic food production. That river is already over allocated. We may think we can"t live without oil, but it"s a certitude that we can"t without water.
The actual development techniques are also problematic. In the past, mined and retorted. This causes several problems"surface mining would require open pits up to TWO THOUSAND FEET deep (see RAND report). While underground mining wouldn"t require such tragic consequences to the West"s lands, in either case mining results in large amounts of tailings. Indeed, the chemical process that converts kerogen "popcorns" the tailings making them several times larger in volume than the rock that is actually extracted. Former oil shale development areas are still being cleaned up at public expense.
The "in-situ" process pioneered by Royal Dutch Shell not only requires massive amounts of energy and water, but requires 100% surface disturbance of each area being developed. That"s right"100% of the surface of the area is stripped of all vegetation, bladed, and punched with heaters (and refrigerating wells along the perimeter).
There are people who live here already facing unprecedented levels of drilling so our natural gas can be sold at bargain basement rates in the Midwest. Western Colorado does not want to be America"s sacrifice zone simply because folks refuse to get out of their Explorers, Hummers, and Escalades. When the U.S. can demonstrate that it actually cares about energy conservation, efficiency, and clean energy, then maybe western communities will welcome this discussion. Otherwise it"s more of the same"American consumers placing the burden of unsustainable practices on people, and ecosystems, far away.

[ChittoGreen]

johninoregon and robert59 have made more sense to me than most. Ethanol is a bad idea. Nukes are a bad idea. Oil shale appears to be a bad idea. I don't know why anyone would write off hybrids unless they have a hidden agenda. Wait until a gallon of oil reaches 6 or 7 dollars/ gallon and watch how fast hybrids become the car to have.

[ChittoGreen]

No one mentions tidal energy or wave action energy production. There are urban legends of a teenager developing a generator that would work on a floating dock. Do oil rigs make a decent platform for exploiting tides and waves?Can we fasten barges to pilings in such a way that the up and down motion generates electricity? Same for all dockside ships, etc.

[SolarPowerGuy]

Like the sewer-gas power generator mentioned farther up the thread, this is a good place to go looking for SMALL amounts of power, and it has already been done. In fact, it was just in the news this week.

http://www.technologyreview.com/Energy/19295/

This is one of many variations on the theme of wave power generators. This particular scheme is good because it wouldn't be destroyed by storms, which is a problem with several other types of ocean-based generators.

I don't know anything about a teenager building a generator which would work on a dock, but you can see that the basic idea is plausible.

Unlike the sewer-gas idea, ocean wave power systems might not be so limited in how much power they can contribute to our grid. People only produce so much poop which can be turned into methane. But there's a mighty big ocean out there.

[Robert59]

Average age of cars is not 17 years. Check out the Bureau of Transportation Statistics. Median age in 2005 of cars, light trucks, and all trucks is 9.0, 6.6, and 6.8 years.

[AZDave]

Ethanol from anything besides corn could put the cost of Vodka into the stratosphere. Ted Kennedy will never let it happen.

[Danothemoderateguy]

What about all the free energy that falls out of the sky every day. The sun powers the weather, the ocean currents and plant life. You'd think we'd at least TRY to collect some of it to supplement our ridiculous energy consumption. What's that you say...Bush and his buddies on the oil business are blocking solar research so they can line their pockets?

[Counterintuitive]

Put some solar panels on your roof and an electric car in your driveway. There, problem solved! Whatever happened to the can-do attitude?

[SolarPowerGuy]

I'm three-quarters of the way there, myself. I have home solar, and a Prius. Waiting anxiously for Toyota's factory-approved plug-in hybrid kit.

[NCSteve]

I love it when rich guys pimping for more hydrocarbon production talk about "perspective" and say "but, but, but China!" I cannot think of a worse way to spend an energy development or R&D dollar than in developing new sources of fossil carbon to burn.

If you VC guys can find a way to squeeze a profit of of this worthless crap despite the costs of digging it out of the ground, fully remediating the devastating environmental impact, extracting the hydrocarbons from the rocks, refining them after extraction, disposing of the waste, and pulling the carbon back out of the air after you put it there, then more power to you. But only if you can do it WITHOUT taxpayer subsidies.

If you can't get a return on your investment without begging for government subsidies, you're not really a venture capitalist at all. You're just another welfare case with a better house and car and no caseworker.

And if your business plan depends upon not doing any environmental remediation and ignores the likelihood that we'll have a carbon tax, a cap and trade system, or both in this country within five years, my advice would be to drop you cash into some distressed subprime mortgage derivatives. You'll get a better return.

[Robert59]

I agree with you about corn based ethanol, but disagree with you about hybrids. We consume 20 million barrels of oil a day and produce 5 million. What's wrong with formulating a national strategy calling for dramatically increasing the CAFE standards and label it a cornerstone of national defense?

We transport most of our goods in a very inefficient way. A smarter way would be hub and spoke, the hubs being connected by rail, the spokes using smaller more efficient trucks.

Hybrids and all electric cars are the way to go. There's a car for ever 1.2 Americans so why can't families have a mixed fleet of cars for traveling and cars for local commuting? Better yet, how about encouraging industry and consumers to buy cars for local commuting that are all electric and offering subsidized rentals for long trips?

There's a lot of ways to skin this cat; unfortunately corn isn't one of them. I'm not convinced shale is a great alternative as it requires a lot of energy and a lot of water to heat the oil up enough to free it from the rock. Water is a very precious commodity in most of this country which has vast areas of desert and near desert.

[Larry of Corrales]

I agree with J. Thomas - we have a lot of oil burning cars, it will take a long time to replace them with hybrids. So we dig up Wyoming and other states for their oil shale, pile up the residue in Montana, New Mexico and fill up the Grand Canyon and go on living life as usual. If that's not the American way what is?