Oil Shale_

Oil Shale: A viable step towards energy independence? Author: Benjamin Reichard; Contact: bedoxr@gmail.com Overview     What? Where? Why? How? Economic Appeal Environmental Concerns Legal Barriers What is oil shale?    Formed over millions of years ago by deposition of debris on lake beds and sea bottoms Heat and pressure transformed the materials into oil shale Known commonly as "the rock that burns" What is oil shale?    Oil shale is rock that contains bituminous materials released as a petroleum-like liquid when heated To obtain oil, shale must be heated to a high temperature (a process called retorting) The resultant liquid must then be separated and collected   Traditional and current mining methods have been used to extract the shale before retorting An alternative but currently experimental process referred to as in situ retorting involves heating the oil shale while it is still underground, and then pumping the resulting liquid to the surface Where is oil shale?    A significant portion is found here in the United States, which is why it may be so important to energy independence Much of the American oil shale is found in the Western states: Colorado, Utah, and Wyoming Indeed, much of the world’s oil shale is located in that region Where is oil shale?    It is estimated that the Green River Formation in the western U.S. contains nearly 2 Trillion barrels of oil Recoverable estimates range from 500 billion to 1.1 trillion Even a middle-of-the-road estimate of 800 billion barrels is 3 times the proven reserves of Saudi Arabia Why do we care?   Present U.S. demand for petroleum products is about 20 million barrels per day If oil shale could be used to meet a quarter of that demand, the estimated 800 billion barrels of recoverable oil from the Green River Formation would last for more than 400 years What are we waiting for?    Cost of production has historically been prohibitive Cost of pumping oil has always been less Consequently, there has been little economic incentive to develop oil shale technologies What are we waiting for?    Oil shocks of the 1970’s and 1980’s stimulated some interest previously, but crude prices leveled off Also, during the oil crises, major oil companies spent several billion dollars in various unsuccessful attempts to commercially extract shale oil Recently, rising oil prices have renewed interest in oil shale as an economically viable alternative to “traditional” oil The rising price of oil   Currently, oil prices are hovering below $70 per barrel Some forecasts predict a rise to $85 per barrel over the next year The Cost of Oil  Price as of 4.25.2007:  $67.25/barrel  1 year projected forecast:  $87.42/barrel The Recurrent Themes      Accessibility Technological limitations Socio-economic factors Environmental impacts Legal barriers How do we get it?  Mining   Open-pit Underground  In situ conversion Typical Deposit Extraction Issues  Oil shale can be mined using one of two methods:   underground mining using the room-and-pillar method or surface mining     After mining, the oil shale is transported to a facility for retorting After retorting, the oil must be upgraded by further processing before it can be sent to a refinery The spent shale must be disposed of, often by putting it back into the mine Eventually, the mined land is reclaimed Surface Retort In situ retorting: a new frontier?     Shell Oil is currently developing an in-situ retorting process known as thermally conductive in-situ conversion (ICP) The process involves heating underground oil shale The volume of oil shale is heated over a period of 2-4 years The released product is pumped in conventional ways The Freeze Wall The Freeze Wall Advantages of ICP       No open-pit or subsurface mining No leftover piles of tailings Avoid combustion-related groundwater contamination Minimize unwanted byproducts Minimize water use Reach deeper resources previously deemed inaccessible Development   Shell, Chevron, and E.G.L. Resources have all submitted in situ conversion plans for the Green River fomation to the BLM BLM has done Environmental Assessments with findings of no significant impact (!), thus paving the way for these larger scale test projects The Latest Advance: Thermal Solution Processing  Unproven outside the laboratory setting, thermal solution processing would be quite a coup     It would enhance oil yields Produce an oil more stable for shipping and storage Improve recovery of by-products Produce less spent shale and lessen environmental impacts Economic Factors      U.S. demand for oil is increasing By 2025, imports are expected to account for 70% of demand Demand worldwide is growing OPEC is the primary supplier When will production peak (or has it already)? Economic Factors    Production of oil shale could offset impact of rising import prices Decreased demand on foreign sources on the part of the U.S. could also stabilize prices on the world market Previous oil shocks have taught important lessons about the far-reaching effects of price spikes Price Spikes  A threat not to be ignored as demand grows and known reserve amounts remain static     Inflation High interest rates High unemployment rates A stagnant economy Economic Appeal    High quality and environmentally desirable feedstock for jet fuel, and other military and civilian fuels Nitrogen compounds important to chemical manufacturing industry SOMAT (shale oil modified asphalt) has proven value because it extends pavement life Primary Benefits          Reduced price in crude Increase in employment Assured supply Increased state and local revenues Increased federal revenues Technology export Strategic benefits Supply diversity Favored fuel quality Mitigating Economic Factors      Large capital investments required Long lead times precede flow of revenue streams Price volatility of conventional petroleum Uncertainty of costs required for commercial viability Costs of regulatory compliance Alberta’s Tar Sands: A Model for U.S. Oil Shale Production    Commercial success of ventures in Alberta’s tar sands development has added 174 billion barrels to Canada’s proven reserves U.S. oil shale resources are just as rich, accessible, and high quality as the Alberta tar sands. . . But commercial investment is required Tar Sands & Oil Shale   Alberta’s sands are producing about 22 gal/ton The richest reserves of oil shale in the U.S. are conservatively estimated to produce 30 gal/ton, with some test studies yielding 38 gal/ton of shale Tar Sands & Oil Shale     A further advantage of oil shale is its areal density While Alberta’s tar sands yield about 100,000 barrels of oil per acre, the Green River Formation oil shale has a density of over 1 million barrels per acre This density translates into economic and technological benefits for companies It also means a smaller environmental footprint Advantages of oil shale    Tar sands produce “bitumen” whereas oil shale produces “kerogen,” a product richer in hydrogen and nitrogen, and therefore more valuable Oil shale production does not require removal of as much overburden Oil shale production requires less external energy (estimated 300,000 btu/bbl of oil shale syncrude vs. 350,000 btu/bbl of tar sand syncryde) Tar Sands & Oil Shale: Getting over the hump  Technological issues   Will new methods of extraction and processing develop? Will those methods be able to comply with environmental regulations? Will a market develop? Will capital be attracted? What will the returns look like?  Economic issues    Could it be profitable?   Mining techniques are not the problem The issue is in creating a commercial-scale retorting process      Mine Retorting plant Upgrading plant Supporting utilities Spent shale reclamation  Models predict that such a complex is unlikely to be profitable unless oil prices reach $70$95/barrel Could it be profitable?  In situ conversion may provide an answer     Less surface area required No spent shale reclamation Successful field test, but commercial-scale development is in its infancy Nonetheless, Shell predicts that in situ conversion processes could be profitable with an oil market between $25-$30 per barrel Could It Be Profitable?  Playing it close to the vest:   Shell has submitted the largest patent application in U.S. history for its ICP technique Shell representative, Terry O'Cannon states, "We try to keep them from speculating too much and keep expectations low because we don't know if this technology will be successful and viable in the long term." Could it be profitable?     We are at least 10 years away from oil shale development reaching the production growth phase More than 20 years away from 1 million barrels per day production levels And more than 30 years away from the target production of 3 million barrels per day But rising oil prices suggest it could be worth the initial outlay Legal Issues     Water rights Land use Permitting Leasing What about water?   A perpetual problem in the western U.S. Water is needed for     Plant operations Reclamation procedures Support infrastructure Population growth  State legal regimes of prior appropriation conflict with federal mineral rights regimes Water Rights       Recently, California has returned 0.8 million acre-ft./year to the upper basin states This is anticipated to be enough to support a 2.5 million barrels/day oil shale industry But that figure is at least a decade away Plus, population growth will require water And no one knows how climate change might affect water flows in the near and long term Short supply of water means greater cost for appropriative rights Infrastructure?    Extensive oil and gas development in the region has created plenty of roads Do enough power generation facilities already exist to meet external energy needs? Population growth to support industry will require even more infrastructure upgrades and poses more environmental risks Mining Law     1872 Mining Act opened public lands to free mineral development and patenting 1920 Minerals Leasing Act removed oil shale from coverage of the 1872 Act A federal leasing regime such as that for oil and gas has never grown up around oil shale FLPMA’s recording requirement cleared public lands of many stale mining claims Mining Law    Energy Policy Act of 1992 required holders of unpatented claims to pay a fee of $550/year After 1992, patent applicants are limited only to ownership of the oil shale estate, while the federal government retains surface and other minerals Nevertheless, some legal disputes are still kicking around as to pre-1920 claims that have not been perfected Extracting oil shale   More than 70% of the total oil shale acreage in the Green River Formation, including the richest and thickest oil shale deposits, is under federally owned and managed lands Thus, the federal government directly controls access to the most commercially attractive portions of the oil shale resource base Green River Formation Land Ownership Energy Policy Act of 2005      §369. OIL SHALE, TAR SANDS, AND OTHER STRATEGIC UNCONVENTIONAL FUELS Act recognizes that “oil shale, tar sands, and other unconventional fuels are strategically important domestic resources” Emphasizes research for commercial viability in an environmentally sustainable and sound manner Directs the Dept. of Interior to develop a research and development leasing program for the Green River Basin Directs the Dept. of Interior to complete a prgrammatic environmental impact statement (PEIS) for a commercial leasing program The Act requires the Dept. of Interior to promulgate regulations for a commercial oil shale and tar sands leasing program and authorizes the Secretary to conduct lease sales Research and Development RD&D Leasing Timeline Proposed Test Site PEIS Timeline  Currently, a draft PEIS is scheduled for Summer 2007 Environmental Concerns    Both mining and processing of oil shale involve a variety of environmental impacts, such as global warming and greenhouse gas emissions, disturbance of mined land, disposal of spent shale, use of water resources, and impacts on air and water quality Both conventional approaches to oil shale processing use considerable water The total energy and water requirements together with environmental and monetary costs have made production uneconomic Environmental Concerns   Conventional mining operations bring obvious changes to the topography Air quality impacts have not been thoroughly studied  Mass. v. EPA could have a significant impact here because processing petroleum products from oil shale involves significantly higher CO2 emissions than crude oil processing Environmental Concerns  Water quality and quantity in Upper Colorado River Basin    Leaching of salts and toxins from spent shale piles 3 barrels of water needed for every barrel of oil produced under conventional processes Groundwater impacts of in situ processes Environmental concerns   Shell’s current plan involves use of ground-freezing technology to establish an underground barrier created by pumping refrigerated fluid through a series of wells drilled around the extraction zone. The “freeze wall” is supposed to keep groundwater out and hydrocarbons in Environmental Concerns  But. . .    The process is unproven on a commercially feasible scale as Shell is only just beginning a large-scale operation Confirmation of the technical feasibility of the concept hinges on the resolution of two major technical issues: controlling groundwater during production and preventing subsurface environmental problems, including groundwater impacts Shell purports to have the answer, yes or no, by 2009 Environmental/Energy Overlap  An operation producing 100,000 barrels of oil per day is estimated to require 1.2 gigawatts of dedicated generating capacity!  This is equivalent to a facility needed for a city of 500,000  Shell asserts it will produce 3.5 units of energy for every 1 consumed   This is predicated on use of combined cycle natural gas power plants. . . Rising price of natural gas? Use of gas produced on site? What about coal-fired plants?   Less efficient, even more air pollution concerns Even more mining of coal would be required to support an oil shale industry using coal-fired external power sources Connection to Natural Gas   Oil shale can be used as a feedstock substitute in chemical processes using natural gas, thus freeing gas for other uses Can in situ conversion processing produce a significant amount of natural gas itself? Issues to be considered  The major issues that will be addressed in this planning effort include:        Resource management Surface and groundwater protections Air quality protection Protection of wilderness, riparian, and scenic values Transportation corridors Multiple mineral development Socioeconomic impacts on local economies. Who is involved? Commercial Viability   The Department of Energy has created a National Strategic Unconventional Resource Module (NSURM) This module is meant to serve as a guide for assessing issues of technical and economic feasibility Commercial Leasing Timeline The BLM/DOI is looking at Utah’s royalty rate structure as a model Other Factors   Housing, schools, health care, transportation, utilities, and waste management all will need to be planned and funded Past experience indicates that community infrastructure development must be heavily supported by developers and governmental entities Conclusion:       We are taking another stab at oil shale right now Will it be profitable? Will industry be patient enough? Will government help or hinder (or both)? Can the local environment bear the costs? Like most other questions in Energy, only time will tell