The oilshale investors should feel safe. The dwindling of energy reserves globally combined with the "instability" of the larger conventional oil fields left makes the price of petroleum safely unable to go down as it did in 1982 with the Saudis unleashing massive new volumes to undermine the USSR (it worked). That cannot happen today because the Saudis don't have such reserves.
So now, cutting the top off of Colorado, flipping it over and melting it down like lead is on the agenda. Good business sense is not necessarily good sense, and in this case it is suicide by petrol.
--M
'It doesn't feel the same' ... as it did back then, say those who witnessed the downturn
By GARY HARMON The Daily Sentinel
http://www.gjsentinel.com/news/content/news/stories/2007/05/02/5_2_1a_ww...
Wednesday, May 02, 2007
A quarter-century ago, oil shale was the Exxon tiger that tanked. The memory of that upheaval still causes many an experienced Grand Valley brow to furrow.
But many also say that somehow, this time around, things just smell different.
“It doesn’t feel the same as it did back then,” said Denny Granum, who bet heavily on shale, lost it all in the 1982 bust and survived to thrive again.
The motto now is “go slow,” both from local officials and from the federal officials leading the charge for shale development, so much so that the most optimistic federal predictions are for commercial production within decades, not years.
In the meantime, though, worldwide demand for petroleum products is growing at unprecedented rates, according to agencies such as the Energy Information Administration of the U.S. Energy Department.
Oil shale has twice leaped to prominence with wild price swings, only to flame out in spectacular fashion, most recently in 1982.
One way to change that, said Tony Dammer, director of naval petroleum and oil shale reserves for the Energy Department, could be setting a price guarantee for shale oil.
“It’s one of the tools that a lot of people are talking about,” Dammer said.
It now appears that a price guarantee in the range of $40 to $49 a barrel could support the industry, said Khosrow Biglarbigi of INTEK Inc., a Washington, D.C., consultant to the Energy Department.
Royal Dutch Shell says its northwest Colorado Mahogany Project could produce profitably at $35 a barrel.
Another way to encourage production is a production tax credit aimed at giving producers a break on the high costs of building the equipment needed to produce oil from “the most concentrated hydrocarbon deposits on earth,” Biglarbigi said.
Those aren’t necessarily efforts that the Bush administration has time to mount, Dammer said.
U.S. Rep. John Salazar, D-Colo., whose 3rd Congressional District includes oil shale country, said he isn’t eager to see price supports for oil shale, especially given the big profits being rung up by oil companies.
“I can’t support any more subsidies,” Salazar said.
In any case, the most the Bush administration can reasonably expect to accomplish is to set the stage for eventual commercial development, taking into account environmental as well as socioeconomic factors, Dammer said.
“We’ve got to take a steady, slow approach,” Dammer said, noting other companies, such as Unocal, kept plugging along for years after Exxon pulled out.
The mistakes made in Exxon’s abrupt closure of the Colony Oil Shale Project sprung from the failure to appreciate and plan for the kinds of effects that would come from suddenly superimposing a giant industry on isolated western Colorado, Dammer said.
After a quarter-century of unrivaled economic growth around the world, a raging war for the sands above vast pools of crude oil in the Middle East, and fast-rising fuel prices, the equivalent of 2 trillion barrels of oil buried in shale again is firing imaginations and ambitions.
The big players — Shell, ExxonMobil, Chevron and all the others — are toying with oil shale on their own dimes, not government money.
They’re looking at long-term plays, teasing petroleum from the earth, rather than digging up the rock and putting it to the flame to drive out the desired resource.
“The growth of this industry will rely on many factors, including the continued demand for energy,” Salazar said, “the developing technology spawned from careful research and development, and the capability to extract the resource in an economically viable manner while protecting the environment.”
Development of a large oil-shale industry “will be governed by the price of petroleum-based crude oil,” the American Association of Petroleum Engineers says in its comments on oil shale. “When the price of shale oil is comparable to that of crude oil because of diminishing resources of crude, then shale oil may find a place in the world fossil-energy mix.”
Figuring out when the balance tips in favor of oil shale is no easy task.
On one hand, prices are rising, largely as a function of increased worldwide demand for petroleum, and some experts have said the world’s supply of crude oil is on the slide.
Others, however, maintain that plenty of oil remains available.
In 1980, 22 percent of the oil in the average field was recoverable, researchers Eugene Gholz and Daryl Press said in a study released last month by the Cato Institute. Now the recovery rate is 35 percent.
Another measure, the life-index of the world’s oil reserves, predicted 35 years ago that oil would run dry in 35 years.
By 2003, Gholz and Press wrote, the life index gave the oil supply a 40-year prognosis, even with three decades of increased production.
“No one knows how much oil is ultimately recoverable from the earth, but there is no compelling evidence that reserves are running out or that production is near the peak,” Gholz and Press wrote.
And they didn’t count oil shale.
To be sure, said Gholz, assistant professor of public affairs at the University of Texas’ Lyndon Baines Johnson School of Public Affairs, “at some oil price, people will want to exploit shale, just as in Canada they are starting to produce a lot of oil from tar sands at the current price.”
Technology improvements likely will lower the price at which shale can be exploited, he said.
In the meantime, several factors are conspiring to push up the price of oil, and “the longer prices stay high, the more likely it is that (oil shale) is going to be developed,” said Terri Z. Campbell, an analyst with Eastern Bank in Boston.
In the years since Black Sunday, ethanol and biodiesel have leaped to the fore as possible successors to gasoline and diesel as transportation fuels. Colorado voters, meanwhile, mandated that utilities generate 10 percent of their energy from renewable resources.
There’s also renewed competition from within the fossil-fuels sector.
The chairman of the House Resources Committee, Rep. Nick Rahall, D-W.Va., this week conducted hearings on coal’s “incredible opportunity to become the fuel of the future in America’s quest to reduce its dependence on foreign oil.”
In particular, Rahall’s committee cited the opportunity provided by coal mines for carbon sequestration. Similarly, Dammer said, oil shale development could also present opportunities for carbon sequestration.
In fact, Dammer said, if issues involving greenhouse gases can’t be dealt with, it could be a “show stopper” for shale.
Not that it hasn’t seen show stoppers before.
Oil shale back in the 1920s was the fuel of the future, until easy-to-tap crude oil started flowing out of West Texas.
Half a century ago, a couple of self-described Texas oil barons were eager to build a giant center in Grand Junction devoted to producing energy from oil shale and maybe uranium.
They were going to have a six-story office building that would revolve with the sun, research buildings, high-end housing, a golf course, swank hotel, upscale dining and entertainment.
That idea never panned out, either, showing that so far, the rock that burns has so far mostly burned anyone who bet on it.
Gary Harmon can be reached via e-mail at gharmon@gjds.com.
