Is Oil Shale the Next Big Thing?

In today’s guest post, Emerson’s Alan Novak, director of the alternative energy team explores the future of oil shale.

Emerson's Alan NovakIn spite of recent economic turmoil, global energy demand continues to increase and liquid fuels continue to be the major component. As highlighted in BP’s Annual Energy Outlook 2012, liquid fuel growth and the contribution from “unconventional sources” increase significantly through 2030.

From the BP Annual Energy Outlook 2012
From the BP Annual Energy Outlook 2012

So why is “unconventional oil” playing a bigger role in the global liquid fuels picture? We need to first take a look at “Hubbert’s Peak“.

M. King Hubbert was a geoscientist with Shell who developed a theory around “Peak Oil” based on production and depletion rates from conventional oil fields. According to Hubbert’s original theories oil production would at some point hit a peak and decline from that point forward (he presented these findings in 1956) and this would necessarily result in a collision with continually increasing demand.

What Hubbert did not anticipate was the increasing contribution from “unconventional sources” as oil prices increased.

Peak oil is really “peak oil at a specific price”; as crude oil prices have increased additional resources (oil sands, deepwater, and eventually oil shale) come on line as they become cost effective.

A National Energy Policy Institute background paper, The Prospective Role of Unconventional Liquid Fuels shows a comparison of the various costs of production form cellulosic ethanol, biodiesel (soybean), corn ethanol, oil sands, oil shale, and coal to liquids (CTL). See Figure 1. Alternative Liquid Fuels: Comparative Costs and Emissions on page 4 of this backgrounder.

One of the major impacts of the development of unconventional oil is a shift in global energy supply. While most conventional oil is found in the Middle East, most unconventional oil is found elsewhere:

Now that crude oil is consistently near $100/barrel, interest in resources such as Shale Oil is increasing and could fundamentally change the dynamics of the global energy supply.

Shale reserves are immense but up until recently have been uneconomical to produce:

While technically not yet oil (nature did not quite finish the job) shale oil (kerogen) is close enough to crude oil to be economically attractive with a bit of additional processing.

Shale Oil, as it comes out of the ground, is not a direct replacement for crude oil. It is actually a compound called Kerogen, which must undergo pyrolysis (heating in the absence of oxygen), then a bit of further upgrading to become a high quality crude oil. The added work, basically finishing nature’s process, is more expensive than the upgrading of oil sands, which is why development of this industry is a few years behind.

Shale Oil is where the Canadian Oil Sands were 10 years ago; a large, well-recognized oil reserve that would be marginally profitable (at least for the first plants) to produce. But as crude oil prices continue to increase these vast reserves will become increasingly attractive to develop.

Will Shale Oil be the Next Big Thing in Energy? Only time, and the price of crude oil, will tell.

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