Large deposits of oil shale in the United States hold enormous economic potential, as well as strategic value, for this country. But unlocking that potential and redeeming the natural resource’s full value has remained just out of reach for more than a century.
That is expected to change, perhaps sooner rather than later. A combination of skyrocketing crude oil prices and advances in refining technologies has developers hustling anew to bring oil shale mines into full production.
The payoff for the heavy equipment industry — whenever the payday finally arrives — will be downward pressure on prices of diesel and other fuels and a burgeoning new market for mining and off-road trucking equipment.
The question is, when will this potential windfall be realized?
“The short answer is there is a lot of oil shale activity and there are a lot of companies involved in research and development,” said Anton Dammer, director of the oil shale reserves office in the U.S. Department of Energy, “but there is no commercial development going on today.”
Nor will there be such production tomorrow, according to various people involved in the infant industry. Rather, it is likely to be months and perhaps years before commercial production is an everyday reality in this country.
Oil shale is an organic sedimentary rock containing something called kerogen, which essentially is undercooked oil. Unlike petroleum, which is a viscous product derived from organic materials, kerogen was not exposed to heat or pressure long enough to liquefy, so refining oil shale means mining it as rock and turning it into synthetic oil through heat and separation processes.
By-products include a combustible gas and solid rock residue often used in construction and cement production.
While these oil shale processes have been understood for decades in the United States, they have not been pursued because to do so was not economically viable. The Rand Corporation concluded a few years ago that oil from shale would be a competitive manufactured product only if crude oil reached the range of $100 a barrel. Now that oil prices have risen to that level, oil shale developers and land lessees are eager to compete. Their competitive position might well improve as the industry matures because start-up costs of shale mining are expected to fall fairly dramatically as systems take root.
The United States is particularly well positioned to benefit from development of the hydrocarbon-bearing rock because about 70 percent of the most suitable shale deposits in the world are located in this country. Most of it is western oil shale in a region encompassed by Utah, Colorado and Wyoming. More than half of an estimated 2 trillion barrels of oil shale production are located in those three states, 80 percent of it on federal land.
That the deposits are on property managed by the U.S. Department of Interior is one of “the big problems” that developers must overcome, Dammer said. Gaining access to the rock and then mining and processing it under the watchful eye of various federal agencies is a daunting undertaking all by itself.
Eastern oil shale deposits are in Kentucky, Indiana, Tennessee and Ohio. Those deposits are not as attractive, however, because the veins are not as rich. That is, they will not produce as much synthetic oil per ton of rock as will the western shale deposits. The richest of the shale formations in Colorado and Utah are expected to consistently produce 20 to 30 gal. (75 to 114 L) of oil per ton and in a few places up to 65 gal. (246 L) per ton at a cost per gallon considerably less than in the east.
A less bountiful resource targeted by the synthetic oil mining industry is tar sand, also called oil sand. It is a sand, clay, water and bitumen mix that resembles asphalt in consistency, too thick to be pumped like crude oil but accessible by mining. Tar sand deposits in this country are believed to contain approximately 60 to 80 billion barrels of oil, though much of it is not recoverable.
The largest deposits of tar sand are in Utah and Alaska, but pockets of the natural resource can be found all the way from California to Kentucky.
25 Companies Engaged
The Department of Energy issued a report last June outlining the activities of 25 companies actively engaged in development of oil shale and tar sand resources in the United States. Some are developing mining projects on leased public property or privately owned land; others are technology providers.
Oil Shale Exploration Company (OSEC) is a Mobile, Ala., partnering firm with a 5,000-acre (2,000-ha) lease in the Vernal, Utah, area, which includes the White River Oil Shale Mine. The mine was operated previously and some 50,000 tons (45,000 t) of oil shale, which were brought to the surface and stockpiled, is the focus of the company’s current activities.
Approximately 300 tons (270 t) of that stockpiled material was shipped to Calgary, Canada, in August for pilot testing in a huge horizontal rotating kiln. Called Alberta Taciuk Process, the horizontal kiln has been used successfully in extracting oil from both shale and sand in Canada and Australia. OSEC officials are encouraged by test results of the Utah sample.
“We are thrilled with the samples from the existing shale stockpile,” said Amy Hansen of OSEC’s Jim Hansen Agency public relations consulting firm. “We were very pleased with the outcome of the tests. The rock, after all, had been sitting there oxidizing and so forth for 23 years. We are very interested in getting that mine reopened.”
The shale sampling was part of phase one of the reopening process, Hansen said. Phase two, in which OSEC now is deeply involved, is gaining permits from various jurisdictions. As permits are signed, the company will begin re-opening the mine, shipping the horizontal kiln to Vernal for setting up and completing design work for a power plant to operate the mine. It is expected eventually to produce 50,000 barrels of shale oil a day.
How soon will this occur?
“Right now we are working on an EPA permit to de-water the mine. There is quite a bit of slop in there and we won’t get anything out until May. We are shooting for August 2008,” Hansen said.
Tar sand is being targeted in Kentucky by Commonwealth Raw Materials, which is the tar sand mining division of a Kentucky company, Reynolds Raw Materials. Reynolds operates rock quarries and controls deposits of a highway paving material called Kyrock, which was laid as the first asphalt surface of the Indianapolis Motor Speedway.
Commonwealth has mineral deeds in the area of Fort Knox for some 50,000 acres (20,000 ha), under which lie an estimated 1.5 billion barrels of heavy oil/tar sand. William R. Florman, senior vice president of Reynolds, said the time is right for development of the tar sand properties his grandfather, William G. Reynolds, purchased 50 years ago.
“Obviously when you get $100-a-barrel oil, the profit margins look better for us,” Florman said. “Every major oil company and minor oil company is interested. We’re confident the tar in Kentucky will be developed and we fully intend to develop it.”
Florman said the company has been working on a pilot facility for two years and looking at multiple extraction technologies. He said his company’s timetable differs from that of some Canadian investors who have leased Kentucky land and, consequently, are in a hurry to move to the mining phase.
“They are in a hurry. We are pretty close to doing our pilot, but we aren’t going to rush into anything.”
The Department of Energy listing of company activity indicated Commonwealth Raw Materials was shooting for a pilot project later this year.
Much larger deposits of tar sands exist in Canada and they have been mined successfully for years. But mining of tar sand in the United States is still a new industry with all the attendant competitive pressures.
“We have the resources and have located the expertise to develop it and we are sure we are going to have the very best technology,” Florman said. “We are well along but we are not going to put anything out there for the competition. We are not going to give any details of production.”
Similar skittishness about sharing information at this stage was demonstrated by the CEO of a technology providing firm listed on the Department of Energy’s developers list. When first contacted, the company executive asked for a few days to think about being interviewed. He later responded: “Now is not a good time for this. Let’s revisit in a few months.”
Not a New Idea
Oil shale advocates in the United States. repeatedly have seen their hopes raised and dashed by fluctuating access to Middle Eastern crude oil. But other countries with different regulatory regimes, economic conditions and/or types of shale and sand deposits have pressed ahead with development regardless of decisions by the Organization for Petroleum Exporting Countries.
Dammer at the Department of Energy noted that in Canada, “tar sand mining is a commercial developed enterprise.”
Using several different types of mining technologies, America’s neighbor to the north produces somewhere in the range of 1.2 million barrels a day of synthetic oil, most of which is sold south of the border. Across the Atlantic Ocean, Estonia developed its shale deposits 80 years ago for use in electric power generating stations, fuel oil and cement manufacturing.
“There is a misperception that we are starting over,” said Hansen, the spokesman for Oil Shale Exploration Company. She cited oil shale production in China and Brazil. “This isn’t new. In terms of global demand for oil, this [oil shale] is reality right now and we have to move forward on this.”
Dammer dismissed any suggestion that oil from shale is inferior to various grades of crude oil.
“There is a nip out there that these synthetic resources are crap,” he said. “They are not. They can be upgraded as needed. You can refine shale into any product. If you had a market for diesel or jet fuel, you would upgrade and refine for that. Or you could do it for gasoline.”
But for now the rock with all that potential still is in the ground under various states. Technology and investment dollars are being marshaled to remove, refine and retail it, but it all can’t come together soon enough for people like Hansen. She sees it as much a matter of national security as of economic opportunity for exploratory companies.
“We have our work cut out for us on a number of different fronts,” she said. “Yet as in any industry, we are confident that we can weave through this and make it successful. But we need to move forward. Oil is a national security issue and we need to do something.” CEG