The Price Is Wrong for Oil Shale and Tar Sand Tech

Falling energy prices could squeeze oil-extraction research

Photo: David Zalubowski/AP

abandoned hope

Colony Oil gave up on this oil shale plant in Colorado 20 years ago. Technology that might revive shale’s prospects is in development.

The huge run-up in oil prices over the last several years, reaching a peak of close to US $150 per barrel this past summer, has given energy companies a big incentive to find new ways of harvesting unconventional oil, especially in North America. Technology firms targeted oil from tar sands in Canada and from shale, a sedimentary rock abundant in the western United States. But in the fourth quarter of 2008, oil prices plummeted, and that could put the brakes on the development of new extraction technologies, say experts.

”It’s a difficult time to come out with a new technology,” says Jim Sledzik, an investment manager at Energy Ventures, a venture capital firm in Stavanger, Norway, that invests in oil and gas technology companies. He estimates that oil prices have to be above about $65 a barrel for heavy oil extraction—whether from oil sands or oil shale—to be viable. Sledzik predicts that fewer high-risk projects will receive funding.

According to a 2004 U.S. Department of Energy report, the United States is home to 2 trillion barrels of the world’s estimated 2.6 trillion barrels of shale oil. Almost all of the U.S. shale is found in the Green River Basin in Colorado, Utah, and Wyoming.

These reserves have not been tapped, because getting oil from shale has been too costly, energy intensive, and dirty. Recovering shale oil also has the potential to contaminate ground water and produce toxic waste. Estonia, a country dependent on shale for energy, first mines the rock, then, without extracting the oil, burns it to run a generator [see ”New Tech, Old Fuel” IEEE Spectrum, February 2007]. But burning the shale produces polluting ash, carbon dioxide, nitrogen oxides, airborne particulates containing heavy metals, and sulfur dioxide, which causes acid rain.

Newer technologies seek to mitigate these impacts by pumping the oil out of the ground without mining the shale.

Raytheon has developed a technique that uses radiofrequency energy to extract the oil. Oil producers would lower radio antennas into a well and then heat the shale with radio waves, reducing the oil’s viscosity enough to pump it to the surface. According to John Cogliandro, Raytheon senior principal engineer, the technique consumes the equivalent of one barrel of oil for every six produced.

Shell has developed a similar recovery process, except that instead of using RF energy, the company places electric heaters into wells to heat the shale. A technique recently developed by researchers at the University of Alberta, in Canada, improves on it by injecting an iron powder solvent, which in the lab decreased the viscosity of the oil and increased the amount recovered by between 20 and 40 percent.

Technology’s impact on the economics of oil shale will go only so far, says Judson Jacobs, research director at Cambridge Energy Research Associates. ”Regardless of how it is produced, oil shale [extraction] will be very carbon intensive,” he says. If carbon is traded or taxed nationally, that too will be an impediment to oil shale development.

New technology is also being tested for oil sands extraction. Today the oil in Canada’s tar sands is extracted either by mining, if the deposits are shallow, or by steam injection, for deeper sands. Both of these methods have a huge environmental cost.

Calgary-based E-T Energy is testing a technology to reduce the environmental impact by extracting the oil in situ with electricity. Current is sent down through wells to steel electrodes, which heat the oil, making it easier to pump to the surface. CEO Bruce McGee says E-T’s technology will reduce emissions and water usage and will cost less than either mining or steam injection. McGee says the recent drop in oil prices has not affected the company’s plans. ”We are still moving forward,” he says. ”We’re taking the view that these recent drops in oil prices are temporary.”

Some analysts think that strategy is the right one. Cambridge Energy’s Jacobs says it’s too soon to predict the impacts of the recent drop in oil prices. He and Energy Ventures’ Sledzik agree that most oil companies plan further into the future and aren’t going to adjust their investments based on daily price fluctuations.

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