Oil Shale Pushed as Domestic Oil Source, but Many Doubts Remain

Several companies have test projects, but they must overcome strong environmental concerns.

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MEEKER, COLO.—With the fate of domestic oil production promising to spill over into a new administration, oil companies in northwestern Colorado are steadily pushing ahead with projects to develop the American West's vast deposits of oil shale, estimated to contain the equivalent of more than 800 billion barrels of oil—three times more than Saudi Arabia's proven oil reserves.

But they are also among the first to caution against premature exuberance by lawmakers, saying that commercial production, despite some progress, is still years away.

Such disparities between political rhetoric and on-the-ground reality are a common theme among national proposals for new sources of energy, but in the case of oil shale, the gap is particularly stark.

By most accounts, oil shale's proponents scored two big victories this fall. A congressional ban against oil shale leasing on federal land expired in September while, in the same month, the Interior Department issued guidelines for opening up about 2 million acres in Colorado, Utah, and Wyoming to potential commercial-scale oil shale drilling.

If nothing else, the changes are "psychologically important," says Glenn Vawter, executive director of the National Oil Shale Association, because existing restrictions "were sending a message to companies that the government was really skeptical of oil shale or didn't want oil shale."

But recent progress on the regulatory front is now colliding with the slow pace of research and testing. Observers say commercial oil shale development probably won't take place until at least the middle of the next decade.

In 2007, three companies—Shell, Chevron, and American Shale Oil—received federal leases for a series of 160-acre "demonstration" tracts in northwestern Colorado, on which they can conduct research and test new technologies. If they can show that their technology works and has "acceptable" environmental impacts, they could eventually expand their leases into 5,120-acre commercial-size tracts.

To do so, however, they'll first have to overcome some potentially game-ending obstacles. Unlike regular liquid oil, oil shale is a type of solid rock. To free up its hydrocarbons, it must be heated to extremely high temperatures. Traditional methods of getting it out of the ground have tended to be costly and environmentally disruptive, requiring large amounts of water and electrical power, and interest has fluctuated closely with the price of oil.

In the late 1970s, companies put hundreds of millions of dollars into oil shale research, but when global oil supplies surged—and gas prices plummeted—in the early 1980s, interest waned and most projects were eventually abandoned.

Today, most companies are trying a different approach. Rather than mining oil shale, as was often done in the past, they're trying out various techniques to heat it in the ground and extract it through wells. Such techniques aren't as environmentally disruptive as surface mining, but they do present their own problems. Chief among them is the risk of contaminating groundwater, since so much activity is happening below the surface.

Shell, which is widely acknowledged as the leader in the American oil shale game, is attempting to solve the problem by developing a "freeze wall" to put around future wells—essentially, a frozen barrier that would prevent groundwater from seeping in and chemicals and contaminants from seeping out. American Shale Oil, meanwhile, is targeting a specific layer of oil shale in order to avoid contact with groundwater, says its chief technology officer, Alan Burnham.

Perfecting these technologies will take time. American Shale Oil, for example, expects to spend the next three years designing and conducting a pilot project and three years more working out other technical issues. Commercial production, according to its best estimates, would most likely not begin until 2018.

Other companies like Chevron and Exxon have been tighter-lipped about their predictions, but recent congressional testimony suggests that commercial production, if it happens at all, will most likely not begin until late in the next decade.