Kevin Shaw, an energy lawyer with Mayer Brown, the law firm, says the standard joke in the oil and gas industry is you know a boom is near the top when people start talking about oil shale in Colorado. That is because what is known by purists as “oil shale” is different from the “shale oil” that is being pumped like crazy out of the Bakken oil reserve and being targeted for production in the Eagle Ford and other new hotspots across the US. ExxonMobil’s Patrick McGinn explains the difference:
The hydrocarbons locked up in oil shales in Colorado are a solid material
called kerogen, which is a precursor to oil and gas. In other words, nature
has not yet had enough time to cook the kerogen into oil and gas because of
a lack of heat (typically caused by pressure deep underground). The Baaken shale oil contains hydrocarbons that already exist as liquid oil because it was originally deep underground and had enough time and heat to convert from kerogen to oil.
The majors, like Exxon, have been working on and off for years on technology to economically convert the oil shale of Colorado and other similiar formations into fuel. Exxon’s leading candidate technology to commercialise oil shale is the Electrofrac process, which is designed to heat oil shale in-situ by conducting electricity through induced fractures in the shale that have been filled with conductive material to form a resistive heating element. Heat flows from the fracture into the oil shale formation, gradually converting the oil shale’s solid organic matter into mobile oil and gas, which can be produced by conventional methods.
The other fuel – shale oil – is being produced by using the same technology that created the US shale gas boom: hydraulic fracturing and horizontal drilling. The growth rates from this source lead Jeremy Boak, director of the Center for OIl Shale Technology and Research at the Colorado School of Mines, to cast doubt on claims that the US had reached a point of inevitable decline in oil discoveries.
Indeed, it is this doubt that is driving excitement in the industry in the here and now with hopes of further growth. Bernstein Research said in a new report that there are global oil shale in-place reserves of 2.8Tn barrels of oil equivalent, and more than 70 per cent of that is in the US. A key line from the report:
The oil shale resource base is huge, at 3.5 times the size of proved crude reserves in the MIddle East.
Yet, Bernstein goes on to make the distinction between what it defines as postmature shale oil (Bakken) and premature shale oil (Colorado) , which have been grouped together in the market, it says, but which are markedly different. Only the postmature shale oil of the Bakken and other areas with that resource should be considered when assessing the outlook for global oil supply. It forecasts oil shale volumes of 150k barrels per day by 2020 in the US. Here is what it says about the other oil shale:
Premature shale oil is still a dream, due to the cost to mine, retort kerogen-rich organic material, heat up, and extract this resource. Until oil prices are well above $100/bbl, the amount of energy, water and upfront capital investmetn will mean this reousrce is not commercially achieveable. Only in Estonia, where the Soviet Union central planning system funded the development, does premature oil shale add any material volume.
That said, there are those in the industry who dare to dream. After all, nobody expected the shale gas boom that has tripled estimates of US supplies in just the past few years. The majors, in particular, recognize that the industry is always innovating, and technology is constantly opening new doors.
All of this leads me to Jordan, where Royal Dutch Shell is thinking so far out it has signed a contract with the authorities that has the potential, given contract renewals and so on, to last more than 100 years, according to Mr Shaw. The contract, signed in 2009, grants Shell exclusive oil shale exploration rights to a concession area, where it already is drilling for oil shale samples, analyzing them and developing a geological model of Jordan’s deep oil shale resources. Shell says, “There is still a lot to be learnt about the geology and nature of the Jordan oil shale resources” before a decision on a commercial project can be taken.
That is true, as it is about oil shale resources globally. Nonetheless, it already seems clear why the majors have never gotten caught up in the peak oil arguments. Given all the potential source rocks out there, and the industry’s record of technologial advancements, they are a long way from pronouncing the last drop of oil has been produced.