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Meanwhile in the oil patch
Posted by: mcq on Wednesday, January 18, 2006

An interesting little tidbit from the WSJ:
As international oil prices climb higher, the Interior Department took another step to develop oil from shale formations in Colorado and Utah.

Interior's Bureau of Land Management approved the applications of eight companies to try new oil recovery technology on 160-acre test plots on federal land. The winners, culled from 20 applications, include the research subsidiaries of three majors: Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell PLC. The companies get the option to develop an additional 4,960 acres next to their test plots if the small-scale tests show their technology is promising.

Most of the winning proposals, which will now undergo environmental scrutiny, involve so-called in-situ processes, which use heat to remove the oil underground so that mining the rock will not be necessary. According to Interior, the U.S. has the largest concentration of oil shale in the world, 70% of which is under federal land. It estimates the shale contains 800 billion barrels of recoverable oil, enough to meet current levels of U.S. demand for 110 years.
If this is perfected and becomes economically viable, forget how this would impact international oil prices, imagine how this would impact international foreign relations. A self-sufficient US would make everyone, to include the US, recalculate a lot of their foreign policy. It would take a powerful diplomatic and economic weapon away from a few of countries who are at best neutral toward the US.

It would also drop the price of oil internationally as competition with a growing China would no longer be a factor. In fact, there might even be a surplus, which would then see OPEC cutting back on production. It would probably take billions in revenue away from regimes like Venezuela and Iran. Yes, it would definitely change the diplomatic and economic world.

Your ideas and comments about the possible effects, both internationally and domestically, long-term and short-term, are solicited.
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Previous Comments to this Post 

The key is the cost of oil produced utilizing in situ recoverty technology. If such oil costs $100 per barrel, that will (in effect) set the upper limit of what OPEC could charge for an extended period of time. In my view, we should continue to encourage the development of these technologies, but we should also promote the aggressive use of nuclear power to reduce our future reliance on fossil fuels. Only in that way will we permanently take the oil weapon out of the hands of those regimes that are hostile to us. Unfortunately, it will take too many years for these efforts to really affect Iran and Venezuela...but, stripped of inflated oil revenues, the pressures withn these countries for change will be significantly increased. That will probably lead to even greater repression....and let’s hope that neither has nuclear weapons when the day of reckoning arrives.
Written By: RAZ
URL: http://
Plus lets remember all the tar sands in northern US and Canada. I’ve heard that with recent technological advances, the price would be somewhere close to $40-60 a barrel, but then I havent researched it that much recently (could be higher, but $100 doesnt sound right). I’ve also read that this oil is light crude (i think) and cheaper to process and refine than mid-east oil, which would also be an advantage.

If this happens, I would think the govt would put a subsidy on it, or tarrif on foreign oil to make sure our stuff is cheaper. But really, wouldnt we also need to change the incredibly tight rules on building new oil refineries in the US? as I imagine there’s not too many refineries in Colorado and the surrounding areas.

Another area to think of, how will this affect big port cities like Houston and New Orleans?
Written By: Chris
URL: http://
If such oil costs $100 per barrel...
It is claimed that the extraction costs will be somewhere around $35/barrel. Since this is domestic oil then transportation costs, though non-trivial, will be minor.

This is just forecasting, however, and oil company PR to boot. Remains to be seen how this will play out.
Written By: D
URL: http://
It would help if I included the link, wouldn’t it?
Written By: D
URL: http://
Wiki info

The wiki entry estimates closer to 1 trillion barrels in the US (whether all of that is easily extracted...) and lists the price as close to $40.
Written By: Chris
URL: http://
[W]ouldn’t we also need to change the incredibly tight rules on building new oil refineries in the US? as I imagine there’s not too many refineries in Colorado and the surrounding areas. Another area to think of, how will this affect big port cities like Houston and New Orleans?
Pipelines will definitely be needed to utilize current refineries as I cannot see much large tanker traffic clogging the Missouri and Mississipi rivers. Longer term there will be ample incentive to build more modern facilities closer to the production facilities just as most of our current capacity is close to our major production in the Gulf.

And, yes, that development will yield an economic hit to those processing centers.

Written By: D
URL: http://
Be skeptical of estimations of how many years that could last us. Demand rises to meet increased supply. Imagine how many more people would fly if the price of a domestic airline ticket would drop by $100, say. Imagine more huge SUVs would be sold if gas drops below $1/gallon again.
Still, it would be great news. And yes: more nuclear power, so we don’t waste fossil fuels generating heat and electricity. Stupid liberal nor’easters with their heating oil! [grin]
Written By: Nathan
No no, we’re at PEAK OIL!

Nathan, not that I’ve looked into it and so thus could be wrong, I assume that predictions for how many more years we could have oil take into account rising demand. However, I’ve heard that the extraction costs for shale and sand oil are only profitable around $60+/barrel, so costs like that would temper demand as well as continue to encourage R&D into alternatives.

A few weeks ago I spoke with a person who works at a nuclear plant and he says there are plans/approvals (can’t remember) for at least 3 new nuke plants in the US. It may be more, I can’t remember the # he told me. Encouraging.

Written By: Unknown
URL: http://
And FYI, oil was at $66.31 a bbl on tuesday.
Written By: McQ
The irony is that the environmental groups would probably hate the development of alternative oil sources such as shale or tar sands.

Right now, they can push the development of ecologically friendly (kind of) energy sources such as wind farms, solar farms, etc., on the basis of a need to wean the US off imported oil. SUVs can be demonized on the grounds that they increase US oil imports.

But if the US could simultaneously retain its SUVs and get off imported oil, what happens to the environmental movement? Will it have nearly as great an appeal, if oil were ~$65/bbl?

If tar sands and oil shale actually work, watch for the environmental movement to be absolutely convinced that global warming will doom us all.
Written By: Lurking Observer
URL: http://
Shale & Tar Sands is the type of thing an actual, on its own operation, would have exist before we really knew what the price per barrel would be.

In the mean time, Atomic Power. It’s good enough for France and Japan. Its time to go back to this.

Turning to alternatives is why oil plateaued.

Meanwhile when we threatened to almost build another refinery, gas prices fell. There’s artificially restricted gas supply which the oil companies can get the benefit of huge profits and low costs.

Written By: John
URL: http://
Actually, if we manage to perfect the she’ll technology, the prices will drop far faster than the current projections suggest. Consider; the Chinese have successfully stolen every major technology innovation since the beginning of the industrial age. Further, consider that they too have a significant amount of shale they’re sitting on. (though they call it combustible brown shale).

So, now think; What would happen to world prices, if the Chinese started producing their own shale oil in the same fashion?

Pole Vaulting prices aside, LO’s speculation as regards the enviro- wacko movement and the reaction to the whole thing is right on the money.

There is perhaps, two other factors to consider in all of this.

1: We now have a band of Arab Whackos bent on using their position in the world ... a position made all the more potent at the moment by their relative physical position to large amounts of crude oil, and the money that comes with it... who will stand to lose a large chunk of change if prices drop quite so dramatically as are being predicted here. Certainly, as has been suggested here, they won’t have nearly the bargaining chips . I would say that their position at that point would become all the more desperate. The big question is whether are not their actions would, as well.

Finally.... John’s quip, about refining capacity carries a good deal of weight with me. Regardless of how much additional crude capacity we managed to put on line, it still needs to be refined. The number of refineries currently online and their position relative to where nasty tornadoes have a tendency to rumble through every ten years, affects the price, as well.

Written By: Bithead
First, it’s probably worth noting that, from a strictly economic perspective, it does not matter whether those additional 800 billion barrels of oil are in the US or outside the US. Being oil-independent does not change the cost/benefit ratio. That’s counter-intuitive, so let me explain.

(all numbers strictly hypothetical) First, an additional X barrels of oil a year on the market will, ceteris paribus, bring down the price of oil. So, instead of paying $65/bl, the market might pay $55/bl. Great for everybody! But we don’t get a (significant) discount just because we produce the oil. Exxon isn’t going to turn down $55/bl to sell oil to Americans at $45/bl just because we’re such swell froods. So, from a strictly economic perspective, having that extra oil is good....but the benefit is shared pretty much equally by everybody in the market.

And you know what? That’s not actually true. The real benefit of cheaper oil goes primarily to the low-cost producer. (Saudi Arabia) Lower oil prices means greater consumption. When oil prices are sky-high, Saudi Arabia makes a mint. (their cost to bring a barrel of oil to ground is something like 2-3 dollars) When prices come down, the higher cost producers (us, perhaps) have to scale back or shut down...but Saudi Arabia can keep selling all they can drill.

The real benefit to domestic oil is entirely in security. In the event of a crisis, we’d still have ready access to a supply of oil. (and, preemptively, our enemies would be aware of this) But again, we can’t buy for less than the market rate. If oil shoots up to $150/bl, we’re gonna be paying $150/bl. That additional oil will only ease the supply crunch. It might even offset the oil taken off the market if, say, Iran decided to stop selling altogether. But remember — absent distinctions between light, sweet crude and the uglier stuff — oil is oil, no matter where it comes from. The only way we’d ever be completely cut off from oil is if everybody decided to stop selling to us simultaneously.

And since that’s not terribly likely, the ultimate value of this oil is almost entirely independent of where it is. If it’s profitable to extract it at $65/bl, then it will be extracted and sold....on the world market.
Written By: Jon Henke
"imagine how this would impact international foreign relations."
Canada now has the world’s second-largest proven oil reserves that are commercial (at the lower prices of two years ago), after only Saudi Arabia, in their oil sands. Oil from there is being commerically produced very profitably and is going into US cars right now. Production is ramping up fast.

How about invading them?

Total oil sands in Alberta hold six times the oil in Saudi Arabia.

Then there’s Venezuelan oil sands of similar amount, US shale (even more), US coal (even more than that)... the world will never come close to running out of the stuff oil can be made of. And only the next 100 years counts, by then energy will be all solar or nuclear or whatever — or it easily can be if we want it to be.

This isn’t theory — remember that South Africa (during the embargo years) and Germany (WWII) ran modern industrial economies on oil-from-coal and were plenty competitive enough doing so. South Africa still uses a good amount of oil-from-coal from the plants that have kept running since then.

Written By: Jim Glass
Careful Jon, you’ll have someone suggesting we nationalize it....
Written By: looker
URL: http://
Seeing how the greenies are able to hold up energy exploration (let alone development) on a desolate coatal plane thousands of miles from anywhere, I don’t see how they’ll have much trouble getting in the way of more invasive energy development in Colorado. And refineries? Fuggedaboutit.

They’ll probably ship a bunch of caribou into the Rockies, in order to protect them from Bush’s evil oil cronies.
Written By: equitus
URL: http://
We need the political will to build nuke power plants, tap ANWAR, build refineries, extract oil from shale, etc. But it’s not only the enviro-wackos who are stumbling blocks. It is the NIMBY’s, Congress, the oil companies themselves who are perfectly happy to sell us $70 bbl oil. They will be twisting the arms in Congress for all kinds of tax incentives to do the exploration and development. What did they suffer after Katrina? Just record profits.

I’m a solid red state republican and capitalist, but with so much money at stake, I cynically bet the oil companies will play this for all it’s worth. However, oil, being fungible, it doesn’t really matter who produces it. Even if the USA were to become a net exporter, others would reduce production to keep world prices up, and we’d still pay the same at the pump as the rest of the world. That said, bring on the shale!
Written By: Abu Qa’Qa
URL: http://
First, it’s probably worth noting that, from a strictly economic perspective, it does not matter whether those additional 800 billion barrels of oil are in the US or outside the US. Being oil-independent does not change the cost/benefit ratio.
That may be true, but there’s still transport costs, etc to consider... Plus the idea that OPEC goes the way of the dodo.

Further, there’s diplomatic factors to consider. I figure knocking the OPEC idiots down a few notches will save us a small mountain of cash, and will in fact make the world a more stable place. Is that worth $70bbl? Likely so, in my view.

Written By: Bithead
I was listening to a program about this very topic on the radio yesterday, here in Utah. They had an expert on who was talking about the extraction process in detail. One of the things he mentioned as being a complication of extracting the oil was the availability of water. The process requires a certain amount of water, and water is not exactly plentiful in the middle of the desert, so siting these extraction plants would be problematic. Mined rock can be transported to a site nearer water for oil extraction. Also, competition for water sources is growing as the population along the Wasatch Front (Salt Lake City metro area) is exploding. Utahns take their water rights very seriously. Environmentalists can rest assured that Utahns also take their environmental issues very seriously too, although they tend not to approach them in a save-the-whales soundbite sort of way.

And as far as a refinery goes, there are suggestions that perhaps Native American tribes can build refineries on tribal lands, instead of attempting to store nuclear waste under a major flight path into Salt Lake City International Airport.
Written By: Wacky Hermit

Now that last bit about refineries on Native land strikes me as brilliant.
I’ll go you one better; Build them on former military bases. No small irony that doing so would aid in our defense.... but it would also bypass the NIMBY crowd.

Written By: Bithead

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