In Search of Energy Security

Will New Sources and Technologies Reduce Our Vulnerability to Major Disruptions?

Medium-Term Option: Oil Shale

The United States contains massive amounts of oil in mineral deposits, known as oil shale, in the border area of Colorado, Utah, and Wyoming. The recoverable energy from these deposits might be more than the equivalent of 800 billion barrels of crude oil — more than triple the known oil reserves of Saudi Arabia. However, many uncertainties remain regarding the development of oil shale in ways that are economically, technologically, environmentally, and socially sound. Substantial development remains a dream that will not become reality for decades, at the earliest.

AP/DOUGLAS C. PIZAC   Oil shale, which is rock containing deposits of oil, burns on its own once lit with a blowtorch.

Oil shale is a sedimentary rock containing petroleum-like solids. The solids are released when the rock is heated — a process called retorting. For about a century, Western oil shale deposits have been touted as an alternative source for conventional crude oil, but production costs have persistently remained above conventional oil prices.

If the technological, environmental, and governance issues are resolved — a big “if” — oil shale could become the source of millions of barrels per day of competitively priced oil in 20 to 30 years.

The economics could possibly change in the foreseeable future. As a result of rising world petroleum prices and advances in extraction techniques, oil shale deposits that are now difficult to extract from the Western United States could be recoverable in the future at costs that would make the deposits a major provider of U.S. energy needs and an economically attractive alternative to conventional crude oil. If the technological, environmental, and governance issues are resolved — a big “if” — oil shale could become the source of millions of barrels per day of competitively priced oil in 20 to 30 years.

Between 500 billion and 1.1 trillion barrels of oil are technically recoverable from high-grade oil shale deposits located in the Green River geological formation, which covers parts of the three Western states (see figure). The midpoint of our estimate — 800 billion barrels — is the amount that is three times the size of Saudi Arabia’s known oil reserves. If recoverable, this amount would be enough oil to meet 25 percent of America’s current oil demand for the next 400 years.

The benefits of a competitive oil shale industry would be substantial. An output of 3 million barrels per day could generate profits of about $20 billion per year. Federal, state, and local governments would receive about half of this amount in the form of lease payments, royalties, and taxes. Production at this rate would also likely cause oil prices to drop by 3 to 5 per-cent, saving American oil consumers roughly $15 billion to $20 billion annually. A multimillion-barrel per day oil shale industry could also create several hundred thousand jobs in the United States.

The Main Basins of the Greater Green River Oil Shale Formation Straddle Three Western States

SOURCE: Adapted from J. W. Smith, “Oil Shale Resources of the United States,” Mineral and Energy Resources, Vol. 23, No. 6, Colorado School of Mines, 1980.

However, the many uncertainties noted above will not be resolved until the initial round of large-scale commercial oil shale facilities are constructed and operated. Given the large uncertainties involved, we recommend that oil shale development proceed at a measured pace to enable evaluation and course correction along the way. As with the development of conventional energy sources in general, oil shale development will likely be subject to various costs and barriers that could become prohibitive and that should therefore be factored into the development equation, as much as possible, sooner rather than later (see sidebar).

In strictly economic terms alone, production based on older oil shale mining and processing technologies — such as open-pit surface mining and above- ground retorting — would not likely be profitable unless crude oil prices consistently stay above at least $70 per barrel. The price of crude oil jumped above that threshold in August in response to Hurricane Katrina. But prices have since fallen below that mark.

One emerging technological development involves heating the oil shale while it is still in the ground — a process called in-situ conversion. In this case, mining is not required. Instead, electric heating elements are placed in bore holes, slowly heating the oil deposit. The released liquids are gathered in wells specifically designed for that purpose.

Unlike surface mining, in-situ conversion does not permanently alter the topography and thus may be significantly less damaging to the environment. Small field tests conducted by Shell Oil Company involving an in-situ approach appear promising. While larger-scale tests are needed, Shell anticipates that this method may be competitive with crude oil priced below even $30 per barrel. We have not developed an independent estimate of the price level needed to make in-situ conversion economically competitive.

Some adverse land and ecological impacts will accompany oil shale development no matter which technological approach is used. Production will result in airborne and greenhouse gas emissions that could severely limit production levels. And because the entire Green River formation lies in the Colorado River drainage basin, water quality will remain an important issue. At present, not enough is known about how to prevent water contamination, either from surface mining or from in-situ operations.

AP/ED ANDRIESKI   A ranch with 70 gas and oil drilling sites is located east of Parachute, Colo. The Roan Plateau, rich in oil shale, is at left. Interstate 70 and the Colorado River are at right.

AP/DOUGLAS C. PIZAC   Heaters surround the test well at Shell Oil’s project southwest of Meeker, Colo., on July 28, 2005. The company has been working on a way to bake shale oil from the ground by using heating rods drilled into layers of rock.

Regarding the social impact, even a relatively small development effort, such as the construction of a few initial commercial plants, would stimulate a significant increase in the populations of northwestern Colorado and Uinta County in Utah. Rapid population growth would likely stretch the financial ability of local communities to provide necessary public services and amenities.

More than 80 percent of high-grade oil shale resources lie under federal lands within a concentrated geographic area. Therefore, the key governance issue is the approach that the U.S. Department of the Interior would use to allow access to the federal lands.

Because the resources are so geographically concentrated, federal leasing of the lands would need to balance the development opportunities with the environmental and land-use impacts. Otherwise, early oil shale developers could overstress the environmental carrying capacity of the area, and we would never see more than a few hundred thousand barrels per day of production.

Because the prospects for oil shale remain uncertain, the federal government should refrain from major investments until the private sector is prepared to commit its technical, management, and financial resources. Meanwhile, the federal government should take a few low-cost steps to move development forward. The government should add oil shale to the U.S. Department of Energy’s research and development portfolio; establish a national archive of oil shale resources, technologies, and development impacts; and analyze potential lease options, such as combining adjacent tracts and fostering extensive resource recovery from any leased tracts.

When private firms send unambiguous signals of their willingness to invest in development without an appreciable government subsidy, federal decisionmakers should then address the remaining environmental, social, leasing, and other policy issues. Under these conditions, the U.S. government should (a) sponsor research on options for mitigating ecological damage; (b) conduct research on the subsurface environment and on options for long-term spent shale disposal; (c) create models of regional air quality to determine preferred leasing locations and criteria for development permits; and (d) develop an oil shale leasing strategy for the Green River formation.

Because oil shale development could profoundly affect local residents and other stakeholders in the area, their inputs would need to be sought and valued early in the federal decisionmaking process. The same holds true of the affected state governments, tribal governments, and the wider citizenry, including nongovernmental organizations committed to environmental protection, wildlife conservation, and alternative land uses. For these reasons, the federal government should consider creating a regionally based organization dedicated to planning, oversight and advice, and public participation.