Oil Shale or Shale Oil?
A Case of Mistaken Identity
By Keith Kohl
Thursday, June 17th, 2010
There are few things in life that anger me more than one of my readers being swindled.
And you should be just as irritated, because it's your hard earned money that's at stake.
Now, you know that shale oil isn't new to us. We've been covering the development of shale deposits for years. And my readers and I know how well that's turned out investors.
When the shale rush began, it was impossible to pick a losing play. Of course, things are much different today. But I digress...
This time, the fault didn't lie with this particular reader. The problem was that the person responsible had no idea what they were talking about.
Perhaps they were blinded by the numbers. Maybe they just didn't care how their investments ended up; yet the moment my reader wrote me to ask about the massive shale oil discovery in China, I knew what had happened.
Clearly, it was a case of mistaken identity. You may have even seen it floating around, too: the promise of untold fortunes was waiting for us. Unfortunately, the carrot dangling in front of us was an illusion.
You see, this poor reader was duped into believing that China's oil shale was the same thing as North Dakota's Bakken shale.
That logic is enough to make my blood boil.
No, they are not the same.
To assume they are similar would invite trouble. Sadly, for my reader, it cost him dearly.
Let's set the facts straight...
Not all shale is created equal
So what exactly is oil shale?
Oddly enough, oil shale is neither oil nor shale; it's an immature source-rock which hasn't generated any oil. It seems more akin to coal or peat. The rock does contain a large amount of kerogen, from which hydrocarbons can be extracted.
And believe me, dear reader, there is plenty of oil to be found.
Although there's an estimated 2.6 trillion barrels of oil shale reserves scattered across the globe, I wouldn't be so quick to label the U.S. oil shale deposit as "reserves." That's a mistake made all too often.
In order to be considered reserves, the deposit needs to have proven economic value. Until that occurs — however unlikely — we'll just keep calling it a "resource."
Betting the farm on shale
I wish I could sit here and tell you that oil shale will solve all our energy problems.
The 800 billion barrels of "recoverable oil" in the Green River deposit has been the source of many wild claims.
You've probably heard them before:
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There's enough oil shale in the U.S. to satisfy our demand for thousands of years.
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Oil shale can be economically viable at $35 per barrel.
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The amount of oil shale is more than three times the amount of oil reserves in Saudi Arabia.
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There's more than 2 million barrels of oil per acre at some points.
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Companies are on the verge of using "in-situ" methods to extract oil on a commercial scale.
You get the idea...
Back in 2008, a similar mistake was made by a few of my readers after they read about oil shale and the Green River formation. But before you become distracted by the huge reserve numbers, remember that production is still far off in the distant future.
It could take decades to reach commercial production — and that's being generous.
I've read government reports that say the Green River oil shale will be producing up to 150,000 barrels per day by 2020.
That's nothing more than a case of wishful thinking.
Besides, you can probably squeeze more barrels of oil out of the Louisiana wildlife by now.
The harsh reality of oil shale
I've covered the production process in the past, but here's a brief rundown.
There are only two ways to extract the oil: surface retorting and in-situ retorting.
Basically, the source-rock needs to be heated to about 600ºC during a process known as retorting. Afterwards, the oil must then be upgraded again before it can be shipped to a refinery.
Like the oil sands resource in Alberta, the rock can be surface mined or heated underground (known as in-situ). In the latter operation, electric heaters are placed in vertical holes drilled into sections.
The "other" shale
Even though the oil shale deposits in the China and Green River formation are great for making wild assumptions; the cold, hard truth is that you should be wary of any investments in the area.
That advice would've saved my one confused reader thousands of dollars...
If you've made the mistake of believing those oil shale deposits were similar to the Bakken formation in North Dakota, don't feel too bad — you're not alone. A more appropriate comparison to the Bakken would be the Cardium formation, located in Alberta.
What's the difference? For starters, I've laid out all the details in this free report, highlighting the best and most profitable companies in the Bakken play. One tiny company I found is still on a hot streak, pulling in gains of more than 429% for my readers!
As for the China's massive oil shale deposit and Green River formation?
I've been told not to write off the future of oil shale.
As one of my other readers pointed out, "The literature [about oil shale] would have you believe oil from this rock was coming tomorrow, except the papers were dated 1910!"
I couldn't have said it better myself.
Until next time,
keith kohl
Editor, Energy and Capital
http://www.energyandcapital.com/articles/oil-shale-or-shale-oil/1186
