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San Francisco Chronicle: Coaxing oil from huge U.S. shale deposits

Coaxing oil from huge U.S. shale deposits Coaxing U.S. oil from Earth’s biggest fields

Robert Collier, Chronicle Staff Writer

Monday, September 4, 2006

(09-04) 04:00 PDT Meeker, Colo. — Underneath the high, scrub-covered rangeland of northwest Colorado is the world’s biggest oil field. Getting the oil out of the ground, however, is one of the world’s biggest headaches.

The area’s deposits of oil shale are believed to be larger than all the oil reserves of the Middle East. But past attempts to get at this oil locked in tarry rock have cost billions of dollars and raised the prospect of strip-mining large areas of the Rocky Mountain West.

Now, as the federal government makes another push to develop oil shale, Shell and other companies say they have developed techniques that may extract this treasure with much less environmental impact.

Shell’s project is stunningly complex. Instead of strip-mining the rock and then processing it, Shell plans to superheat huge underground areas for several years, gradually percolating oil out of the stone and pumping it to the surface.

Years of testing still lie ahead. Shell’s heating process risks polluting local water supplies, and the enormous amounts of electricity needed would require construction of the West’s largest power plants.

But even opponents say the new technology might just succeed.

“It’s a very high-stakes gamble,” said Randy Udall, an environmentalist who is director of the Community Office for Resource Efficiency in nearby Aspen. “It’s probably folly, but if not, it’s brilliant inspiration.”

Oil shale deposits in Colorado and neighboring areas of Utah and Wyoming are estimated to contain 800 billion recoverable barrels, three times larger than Saudi Arabia’s proven reserves of conventional crude, and the equivalent of 40 years of U.S. oil consumption.

To stimulate the sector’s development, in June the House passed a bill written by Rep. Richard Pombo, R-Tracy, calling for much lower royalties on oil shale than the 12.5 percent for conventional oil and gas. The bill suggests companies pay royalties of about 1 percent until they recoup their investments.

The bill, which also would open offshore waters to conventional oil and gas drilling, is pending in the Senate.

In early August, the Bureau of Land Management gave a boost to oil-shale plans, granting preliminary approval to research and development projects by Shell and Chevron. On Aug. 25, the bureau took its first steps toward creating a national oil-shale leasing program, inviting public comment on proposed rules.

Unlike conventional deposits of petroleum, found in a liquid form that can be pumped to the surface, oil shale doesn’t even contain oil. Instead, the rock is impregnated with kerogen, a chemically immature hydrocarbon — essentially, oil’s geological ancestor.

“If society wanted, it could wait 100 million years for this kerogen to mature into oil, then drill down and pump it out normally,” said Terry O’Connor, Shell’s vice president of external affairs. “We’re just speeding up the process.”

Though often compared to the oil sands being mined in the Canadian province of Alberta, oil shale is much more difficult to extract and to transform into crude.

To coax the oil out of the rock, it must be heated to high temperatures. In the 1970s and early 1980s, companies including Exxon, Atlantic Richfield, Unocal, Shell and Chevron spent billions on strip-mining large volumes of oil shale and then cooking it in huge retorts, or kilns.

The process disfigured the landscape, spewed out vast heaps of slag and sucked up tens of millions of dollars in federal synthetic fuels subsidies — but produced only a poor-quality crude that required costly refining.

When Ronald Reagan became president in 1981, he eliminated the subsidy. And when global oil prices collapsed in 1982, the bottom fell out.

Longtime residents vividly remember May 2, 1982 — known as “Black Sunday” — when Exxon abruptly canceled its $5 billion Colony Shale Oil Project near the town of Parachute and laid off more than 2,000 workers, leaving a trail of home foreclosures and small-business bankruptcies.

“Nobody in this region wants to go through that again, nobody,” said Kim Cook, a commissioner for Rio Blanco County, site of the largest oil-shale deposits.

This time, Shell is pioneering a much different technology that company officials say is more efficient, profitable and environmentally friendly.

Instead of mining the shale, since 1996 Shell has experimented with in situ, or in-place, extraction of oil from the ground. Twenty-five miles southwest of Meeker, a ranching town in northwest Colorado, drilling rigs, compressors, ducts and tanks are scattered across a pinon- and juniper-covered plateau, connected to scores of electric heaters sunk hundreds of feet underground.

At each production site, the powerful heaters extend down hundreds of feet, stretching vertically through a cylindrical area of shale about 100 feet in diameter. They then heat the area to about 700 degrees Fahrenheit — for two to three years.

During this period, the heat ages the kerogen by the geological equivalent of millions of years, chemically transforming it into a high-grade oil that is easily pumped to the surface. In an experiment that ended in May, 1,500 barrels of light, sweet crude were produced from one site.

O’Connor, the Shell executive, says these techniques have been highly successful but need several more years of testing.

One danger is that the oil might pollute the surrounding water table. To prevent that, Shell plans to surround each heated area with a frozen barrier about 10 feet thick, chilled by pipes of pressurized aqueous ammonia.

Machinery is being installed now to create a circular freeze-wall about 1,700 feet deep. When it is finished, engineers will simulate an environmental emergency by pumping water at high pressure outside the wall to try to force a rupture. Then they will rush to plug the break and re-create the barrier.

“We believe that we can produce large amounts of oil with no adverse environmental impact, but we’re proceeding slowly and responsibly to make sure this is true, to cover all contingencies,” O’Connor said.

If the tests go well and Shell gets all necessary government approvals, he said, the company will be ready to start large-scale, commercial oil production by about 2015.

O’Connor said the company expects commercial production to be profitable as long as international oil prices are at least in the low $30s per barrel, far below the current $70 average.

Other nations with oil-shale deposits also would benefit if the technologies prove successful. One is Israel, where the Negev Desert holds deposits estimated at 18 billion barrels, or about 190 years of the country’s annual oil consumption. Israel imports nearly all of its oil, and becoming self-sufficient has long been a national security goal.

Shell has invited environmentalists to its Colorado test site, and many leave favorably impressed.

“Shell is certainly making a genuine effort to reach out to elected officials, ranchers and environmentalists,” said Steve Smith, assistant regional director of the Wilderness Society in Denver. “They are saying the right things, and they are moving slowly like they should.”

Chevron, which got a late start behind Shell in the research and development process, is pursuing different in situ techniques that use high-pressure inert gases, rather than Shell’s electric heaters and freezers, to extract the kerogen. Many smaller companies are experimenting with other methods — including the strip-mining that failed in the early 1980s.

Critics worry that if in situ techniques turn out to be less trouble-free than expected, strip-mining could become widespread.

“In many areas, the oil-shale formations are near the surface, so getting at them would be by mining rather than in situ,” said Udall, the Aspen environmentalist. “That would mean we could again see widespread strip-mining, with the most environmentally destructive, wasteful and inefficient form of energy production on the planet.”

A report prepared last year for the U.S. Energy Department by the Rand think tank said that about 20 percent of all oil-shale deposits are shallow enough that they may be extracted by strip-mining. However, it said the cost of strip-mining production would be much higher than with in situ, requiring world oil prices of at least $70 to $95 per barrel.

The report also noted that all forms of oil-shale production could cause a big shift toward burning the region’s abundant supplies of coal.

Under in situ methods, the report said, each 100,000 barrels produced daily would require about 1.2 gigawatts of electric-generating capacity — the size of Colorado’s largest power plant, a coal-fired facility in nearby Craig. The Energy Department has forecast oil-shale production of 2 million barrels a day by 2020 and eventually 10 million barrels a day.

As a result, the report said, the industry could become a major producer of the greenhouse gases that are linked to global warming.

“The spooky thing is how much power will be needed for the oil shale,” said Cook, the county commissioner.

O’Connor said Shell estimates that the energy value of the oil produced would be about 3.5 times greater than the energy in the electricity used to produce it, though he declined to provide details. Udall said such a result would be achievable only with the most expensive, rarely used natural-gas generating technology. Conventional coal-fired power plants would reduce the net power return to about 2 to 1, he said.

Most of the oil shale lies under Rio Blanco County and neighboring Garfield County, while other concentrations are in Utah and Wyoming. The region is typical of the empty, vast horizons of the Intermountain West, with plateaus and canyons from about 4,000 to 9,000 feet in elevation, covered with scrubby forests, sage thickets and desert.

In some respects, it’s an ideal area for natural resource extraction, because it lacks the dramatic mountain vistas that might draw protests from environmentally minded people far away.

However, the local economy could hardly be described as needing help. Much of western Colorado has undergone a boom in natural-gas drilling over the past decade, employing thousands of people. Other residents make long daily commutes to jobs in the fast-growing ski areas and mountain resorts several hours to the east.

As a result, unemployment is negligible, housing prices have tripled in recent years, and towns are swelling with thousands of Mexican immigrants.

“If you don’t have a job in this area, you either don’t want one or just can’t pass the drug test,” said Rio Blanco County Commissioner Forrest Nelson, a Republican and a longtime cattle rancher in the area. “We don’t really need more jobs around here.”

In Congress, many lawmakers are bullish on the prospects for oil shale.

Sen. Pete Domenici, a New Mexico Republican and chairman of the Energy and Natural Resources Committee, said U.S. oil shale has the potential “to shake the world.”

In June, Domenici took his committee to Grand Junction, the largest town in western Colorado, for a hearing on oil shale. “This is not pie in the sky,” he said. “It’s real this time.”

E-mail Robert Collier at [email protected].

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