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Shale oil no longer seen as expensive alternative

By Gargi Chakrabarty
The Rocky Mountain News

DENVER — A stretch of private land 200 miles west of Denver is home to an ambitious research project that — if successful — could reduce the United States’ dependence on foreign oil.

Energy giant Shell Oil Co., which owns the property, is using it for an experimental technology to extract oil from shale formations. Although the project, called Mahogany, was rejuvenated four years ago, the company says it will be early in the next decade before it makes a commercial decision.

Shell is not alone. Other energy companies are revisiting technologies to recover shale oil, plans put on the back burner 30 years ago because of extremely high capital costs. But now they’re seen as viable alternatives to buying pricey foreign crude oil.

One reason — the Green River shale deposits in Colorado, Utah and Wyoming could produce 130 billion barrels of oil, five times the proven U.S. petroleum reserves, by some estimates.

But some critics remain unconvinced of that potential.

“I am not popular with the shale oil guys for saying this, but I think we are still at about where we were 30 years ago,” said Robert Loucks, 68, a resident of Grand Junction and former manager of Shell’s shale oil project in Colorado’s Piceance Basin that was sold off in 1976. “We just don’t have a viable technology that works.”

Extracting oil from shale is not a new phenomenon; it has been around for at least 600 years. Ute Indian legends told of warriors who saw lightning hit certain rock formations causing the “rocks to burn.”

And there’s a story about a Parachute rancher who built a rock fireplace in his cabin. When the flames heated the fireplace, the chimney — made from oil shale — caught fire and burned down the cabin.

In fact, pioneers in the West used shale to light campfires and applied its oily residue to grease wagon axles. But attempts to commercially develop shale oil in western Colorado got a boost with World War II when the U.S. consumed millions of barrels of oil to run its war machine.

The boom carried well in the 1960s and 1970s when most energy companies, heeding predictions that oil someday would cost as much as $70 a barrel, tried their hands at producing shale oil at affordable prices.

And they partly succeeded, especially in the early 1970s when oil-rich nations cut production and pushed up crude prices to about $40 a barrel. Also, some federal programs for the industry helped.

But that was short-lived. In 1982, the oil crunch eased as OPEC nations ramped up crude supply, causing prices to crash. And one of the first casualties was the shale oil industry.

Many residents of western Colorado still remember “Black Sunday,” May 2, 1982, when oil giant Exxon (now Exxon Mobil) announced the closure of its $5 billion Colony shale project and laid off 2,200 workers.

A year after Black Sunday, property foreclosures in Grand Junction and Mesa County were more than quadruple their 1980 numbers, and bankruptcies had doubled, local newspapers reported.

Close on the heels of Exxon, others including TOSCO (The Oil Shale Co.) and UNOCAL followed suit. And that triggered a prolonged economic downturn.

That gloom-and-doom scenario, some predicted, would change someday if oil prices went up again. And that day seems nearer as crude prices — now around $50 a barrel — continue to rise. And companies who’d shelved their shale oil technologies are dusting them off now, hoping to find a market soon.

Boulder-based Shale Technologies Ltd. is optimistic about reusing its patented PARAHO technology. The technology, developed several decades ago, is good to go, said Larry Loukens, the company’s managing director who now lives in Brownsburg, Ind., and runs a fishing business.

“I am telling you, PARAHO is a viable technology today,” Loukens said, adding that he has received calls from several interested companies to either buy or license the technology.

But Loukens wouldn’t say how much a barrel of oil would cost using the PARAHO technology, saying that would depend on the location and size of a plant. Loukens said the technology, which was patented in a semi-working state, can be used in large-scale commercial projects — provided investors take the risk.

“We don’t have financing in place because we don’t control the price of crude,” Loukens said. “OPEC controls the price of crude; would you invest millions of dollars in a market where you can’t predict the price of a product?”

Unlike PARAHO — one of the above-ground technologies — the Shell technology is far from commercially ready. Abandoning the traditional process in which shale is mined, crushed and then heated in giant ovens called retorts to extract the oil, Shell is trying a new process to reduce the surface footprint.

This new, patented technique involves drilling holes and inserting heaters in target underground zones to slowly heat the shale layers.

Once the shale is sufficiently heated, a chemical reaction starts and releases the lighter hydrocarbons, which rise. The heavier hydrocarbons remain within the formation. The lighter hydrocarbons, almost a gasoline-type product, are subsequently pumped out of the ground through conventional means.

The advantage of this new process is it eliminates the problem of waste disposal, said Shell’s Terry O’Connor, who works on the Mahogany project. That’s because the heavy hydrocarbons are left in their original form in the underground shale. Also, the process requires much less water.

In contrast, the old retort method requires a lot of water to cool the heated rock. Also, once the oil is extracted from shale, the greasy residue — which almost doubles in volume because of heat expansion — has to be disposed of.

“There were a number of environmental issues surrounding the retort method,” O’Connor said, adding that it pushed up costs, too. “But things have come a long way from that.”

O’Connor said the research, spread over several 1-acre to 3-acre plots between the towns of Rangely, Rifle and Meeker, has raised a lot of curiosity, especially in the local community and the energy industry. He said Shell executives have talked to the local people and apprised them of the research and its current status.

Shell hopes to make a decision about conducting integrated tests linking the different plots, a precursor to developing a viable technology, early in the next decade. If the tests are successful, the company will then make a decision about pursuing its commercial development, O’Connor said.

“We are concerned because people here have seen boom and bust before,” O’Connor said.