The Oil Rush
How high-tech prospectors are trying to squeeze fuel--and fat profits--out of the earth while transforming the petroleum market
The Shale Solution
Industry and policymakers are looking anew at an even more challenging source of unconventional oil hundreds of miles to the south. Colorado, Utah, and Wyoming harbor a store equivalent to 2 trillion barrels of oil--more than all the crude that has been produced worldwide since the petroleum age began. Even if only 800 billion barrels is recoverable, as a Rand study estimated recently, that would be more than triple the proven reserves of Saudi Arabia and could fuel 25 percent of current U.S. demand for oil for another 400 years. So why aren't companies pumping that oil? Simple: It is locked deep in layers of sedimentary rock called oil shale.
No end of adventurers have tried to tap oil shale over the past century. The oil crises of the 1970s spurred Exxon to embark on a $5 billion effort in which 2,200 workers descended on the rural ranch land. The region readied itself for boom times, but Exxon bled money to bake each barrel out of the shale. Once oil prices fell, the company knew it could never recover its costs. On May 2, 1982, still remembered in northwestern Colorado as Black Sunday, Exxon pulled the plug. Property values plummeted, local businesses went bankrupt as suddenly as they had sprung up, and a new skepticism was born in this mineral country. "Imagine a town of 300 ... invaded by 3,000 men," says John Loschke, former mayor of Parachute, Colo. "They're sleeping under bridges and in the street. They're making real good money and not answerable to their wives, and have nothing to do in their spare time but recreate." Today, he says, he can exercise "perfect hindsight" and call Exxon's departure a blessing, even though he and his partners lost their pub business. Loschke would welcome new efforts to exploit oil shale, he says, to help reduce America's dependence on foreign oil--as long as the oil industry treats small communities like his right this time. "We were run over by big oil companies in the early '80s," he says, "and it wasn't pretty."
The company now making the most promising stab at oil shale--Shell--is well aware of the history. "The irrational exuberance and failure of oil shale development a generation ago still loom large in people's minds," says Terry O'Connor, a vice president for Shell Unconventional Resources. The company is being careful not to raise expectations. Shell won't decide whether to proceed with commercial development until 2010, O'Connor says. But after 24 years of research and tens of millions of dollars, the company has developed a method that could make sense even when oil companies can command $20 to $30 a barrel--far less than the market price they're raking in today.
Mining was the old approach to oil shale. Yet with oil shale some 2,000 feet thick in some places and buried beneath 1,000 feet of earth, the excavation would be incredible--comparable to the largest open-pit mines in the world. Shell expects to process the oil shale in place, using otherworldly techniques that sound like something out of a sci-fi novel. The oil giant would plunge heaters underground to bring the rock to extremely high temperatures for three to four years. That's not so long, considering that the compound found here, kerogen, is a primitive precursor that wouldn't have morphed into usable crude for tens of millions of years if left to nature. Shell would also freeze the ground around the site's perimeter--making an ice wall to keep water out and seal contaminants in. Less environmentally disruptive than the mining process Exxon tried, Shell's process also should recover 10 times the oil.