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e n e r g y Unconventional Oil Production Stuck in a Rock and a Hard Place By Kristie M. Engemann and Michael T. Owyang Oil sands are loaded onto trucks at the suncor mine near Fort McMurray, alberta, on oct. 23. Mark ralston/aFP/Get t y IMaGes H ighly variable oil prices and increasing world demand for oil have led produc- ers to look for alternative sources of trans- common method used in Canada. In this process, producers drill two horizontal wells; the first is injected with steam to Conversion Process could potentially cre- ate stable oil directly and, thus, bypass the upgrading step. In this process, the oil shale portation fuel. Two popular alternatives are heat the bitumen, and the other pumps the is electrically heated for two to three years oil sands (aka tar sands) and oil shale. How- heated oil to the surface. In Venezuela, the until it reaches about 700 degrees F, and the ever, obtaining usable oil from oil sands or oil is warmer and less viscous, and, there- released liquid is collected. The company oil shale is more capital-intensive and more fore, steam is not necessary. Producers com- uses a “freeze wall” around the perimeter expensive than obtaining oil from conven- monly drill multiple horizontal wells and to keep out groundwater and to keep in the tional reserves. At what price of oil do these use pumps to send the oil to the surface. The heated products. So far, Shell has success- alternatives become cost-effective? oil obtained by these underground methods fully tested its process on only a small scale.5 is also sent to an upgrading facility.3 Oil Sands Oil sands are a mixture of sand, water, Oil Shale High Cost and Other Issues clay and heavy, viscous oil called bitumen. Oil shale is sedimentary rock that con- Because of the extra steps and capital The largest known deposits of oil sands are tains organic matter—called kerogen—and needed to produce a usable product, the cost in Alberta, Canada, and the Orinoco Oil mineral matter. Kerogen is not actually oil, of producing a barrel of oil from oil sands Belt in Venezuela. As of 2005, the amount of but it releases a substance similar to oil when and oil shale is higher than from crude oil oil in all oil sands deposits was estimated to heated. An estimated 2.8 trillion barrels of reserves. Therefore, the unconventional be nearly 5.8 trillion barrels (about 2.4 tril- oil existed in known oil shale deposits at the oil requires a higher price per barrel to be lion barrels located in each of Canada and end of 2005, although not all of the kerogen cost-effective. Existing Canadian oil sands Venezuela), with about 0.3 trillion barrels is recoverable. Seventy-four percent of the operations could continue even if the price estimated to be recoverable.1 For comparison, known deposits are in the United States, of oil is less than $50 per barrel, according an estimated 1.2 trillion barrels of conven- primarily the Green River Formation in to a recent report. But for the Canadian oil tional crude oil are recoverable.2 Wyoming, Utah and Colorado, which is the sands industry to grow, oil must be at least The process to obtain usable oil from oil largest deposit in the world.4 $70 per barrel to make production economi- sands is more complex than drilling the oil As with oil sands, obtaining usable oil cally feasible.6 from the ground. For reserves close to the from oil shale is not simple. For more- A 2005 study examined the possible surface (e.g., about 20 percent of Canada’s accessible deposits, the oil shale can be development of an oil shale industry in the total reserves), the oil sands are extracted mined by either surface or underground United States. For a new operation using and transported to another location, where methods. The mined oil shale then under- the mining and surface retorting method, a the bitumen is separated from the rest of the goes a process called surface retorting, in barrel of oil must cost at least $70 to $95 (in matter using a hot water process. Because which it is crushed and heated to about 2005 dollars) for the business to be economi- most refineries are not capable of using 1,000 degrees F, releasing the oil-like liquid. cally feasible.7 As shown in the chart, the bitumen directly, the bitumen then goes Because this “oil” is unstable, it goes to an real price of West Texas Intermediate crude to an upgrading facility, where it is turned upgrading facility, where it is turned into a oil has not regularly sustained a price of $70 into a product that refineries can use (such stable oil before being sent to refineries. over the past 10 years. Prices must consis- as synthetic crude oil). For deposits more For less-accessible deposits, the oil shale tently remain greater than the cost-effective than 250 feet below the surface, the bit
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