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The US Geological Survey (USGS) says that the US holds more than 50% of the world’s known oil shale reserves with the largest known deposits being within a 16,000 square mile area in the Green River formation in Colorado, Utah and Wyoming. Putting the potential resource into perspective, the US shale oil resource is six times that of Saudi Arabia at around 1.5tnbl of oil, which is enough to supply the US’s oil needs for 200 years.

A good deal of the shale oil and oil sands resource lies underneath federal government-controlled land. Nevertheless, oil shale in the US has and continues to be somewhat of a political football. At the back end of the Bush administration it made around 2m acres available for oil shale development and a little over 430,000 acres for oil sands development. However, a change of administration and conservation groups filing a lawsuit in 2009 complaining that the government did not fully review the possible environmental impacts led to the Obama administration taking a new look. Now, ironically with the possibility of the administration switching back to the Republicans in 2012, a recent statement from the US Bureau of Land Management (BLM) seems mindful towards a compromise.

The Preferred Alternative

The BLM has what it calls “The Preferred Alternative” which is open for public review and comment for 90 days. Basically, the BLM suggests that nearly 462,000 acres would be made available for research and development of oil shale of which approximately 35,000 acres would be in Colorado, around 252,000 acres in Utah and a little over 174,000 acres in Wyoming. In addition, around 91,000 acres in eastern Utah would be earmarked for oil sands activities. In essence, BLM is proposing something like a 75% reduction in the amount of land that would be available for oil shale and oil sands. “The preferred alternative continues our commitment to encouraging research, development, and demonstration projects so that companies can develop technologies that can lead to economic and commercial viability,” said BLM’s director Bob Abbey in a statement. “Because there are still many unanswered questions about the technology, water use and impacts of potential commercial-scale oil shale development, we are proposing a prudent and orderly approach that could facilitate significant improvements to technology needed for commercial-scale activity. If oil shale is to be viable on a commercial scale, we must take a common-sense approach that encourages research and development first.”

Clearly not preferred by some

A response from Utah’s Republican governor Gary Herbert to the BLM Preferred Alternative was sharp and robust, “I see absolutely no benefit,” said Herbert in a statement. “This nonsensical, bass-ackwards, peek-a-boo policy is nothing more than political posturing by over-reaching federal bureaucrats. How about they seek our input, we comment on it first and THEN they make a decision? With no science and no data, and with a wave of their federal bureaucratic magic wand, they just take the bulk of the acreage off the market, stifle innovation, and demonstrate, yet again, that this administration is patently hostile toward even the possible development of much needed energy resources.”

Understandably, the state and people of Utah have much to gain and the shale oil debate will likely continue throughout the presidential election period of 2012 and possibly beyond. Whether there is a Republican or Democratic president in the White House by the end of 2012 could make a huge difference to short- to medium-term shale oil and oil sands development in the US. And, for the oil and gas industry in the US – much of which would be quite happy, given the low price for natural gas in the US right now and for the foreseeable future, to switch to more profitable oil operations – the U-word looms large again. U is for uncertainty and uncertainty means that, while the desire is there to switch, the ability to do so, on government land anyway, is off limits for now.

The industry viewpoint to the BLM’s proposals has been swift in coming. The American Petroleum Institute (API) says that it represents 490 oil and natural gas companies employing over 9m workers and that those companies have invested over US$2tn in capital projects since 2000. “Within a week of encouraging an ‘all of the above’ energy strategy the administration has put on hold development of one of the nation’s most energy-rich areas,” said API’s president and CEO Jack Gerard in a statement. “There will be no opportunity to invest for years. The administration is sending negative signals to industry and capital markets at exactly the wrong time. Consistent and stable regulations are needed to promote the commercial development of oil shale, an important and strategic national resource. Reliable governance from the BLM in the management of this resource is essential to attract the significant investment capital needed to both advance needed technologies and begin development.”

Finding a balance

The oil is in the US and one way or the other, however long it may take, that resource will be exploited. It is just a matter of how and when. Any administration cannot ignore the kind of asset that oil shale and oil sands represents. However, one would hope that lessons have been learned from the shale gas gold rush and that sometimes being first out of the blocks does not mean winning the race. There is merit in what BLM director Abbey says in that development should be prudent and orderly and the frustrations of Utah Governor Herbert and API CEO, Gerard are also understandable. Furthermore, there are also the concerns of the people that are living on and around the potential boom sites. Many of them will be happy to see the oil shale resource developed and be part of the opportunity but not at breakneck speed when urban and rural infrastructure could be stretched to their limits as local inflation soars and shortages abound. It will all be about finding the essence of one word – “balance.”

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A flurry of new mainstream media articles telling people not to worry about Peak Oil and hydrocarbon depletion have begun appearing on financial sites like Bloomberg, Forbes or The Wall Street Journal.  Peak Oil is the point when global oil production reaches its maximum, plateaus, then eventually begins declining.  According to the IEA, conventional oil production peaked in 2006.  World all-liquids production has been on a plateau since 2005, and should soon start declining.  “All liquids” includes unconventional sources such as tar sands, ultra deep water, and shale, which the media is championing as ushering in a new era of abundance.  Just to set the record straight, I though it would be worthwhile to analyze some of their arguments.  At least some media outlets are willing to even discuss peak oil at all—most remain completely silent.

One Bloomberg article, “Peak Oil Scare Fades as Shale, Deepwater Wells Gush Crude,” by Joe Carrol, claims that “more than 2 trillion barrels of untouched crude is still locked in the ground,” and that “technological advances enable companies to image, drill, and shatter subterranean rocks with precision never dreamed of in decades past.”  The article then goes on to cite the oil sands of Northern Alberta.  What the article doesn’t discuss, however, is the key concepts of EROEI and flow rate.  Unconventional resources, even with modern technology, always take far more energy to extract, which diminishes returns, and the flow rate is much lower.

Another Bloomberg article by Eric Roston argues that tar sands and shale gas show that there is no need to worry about peak oil, although the article admits that (high flow rate) conventional oil has probably already peaked (it has).  Bob Lutz of Forbes describes a Houston oil & gas conference he attended, where “company after company, executive upon oil economist, all described the coming flood of North American oil and gas discovery and production… whether shale gas or Canadian bitumen, the Bakken field in North Dakota and Southern Canada, coupled with advanced new exploration and extraction technology, it was a scenario of abundance.”  This is the same mantra as another Bloomberg article, “Peak Oil—No Longer the Right Question,” which also sites shale gas, tar sands, and deepwater.

The main fallacy in the articles’ logic is that peak oil isn’t about running out of oil, it is about having to use a bit less oil every year, when our growth-based economies were used to a bit more each year.  The significance is the end of growth as the biggest shock to oil dependent economies, not “running out.”  The Carroll article even says “we will not run out of oil in my lifetime, your lifetime, our children’s lifetimes or our grandchildren’s lifetimes.”  According to Matthew R. Simmons, former energy advisor to George Bush, Houston investment banker, and author of the book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” which accurately predicted the 2008 oil shock of $147 a barrel and subsequent global economic implosion, “we’ll never run out.”  “Never.”  There’s a tail to the peak oil logistic distribution curve that can go on for centuries.  What matters is flow rates and how much money and energy it takes to mine the resource.  So if we are forced to use a lot less, that is still a problem.

All-liquids oil production is now at an all time high of about 89 million barrels a day, and will soon enter terminal decline of a few percent per year according to Dr. Robert Hirsch.  Even a former head of the IEA admits that 90-95 will be the absolute max, in spite of the fact that as recently as 2005 the IEA was predicting demand to be met at 120 million barrels a day by 2030.  Obama’s recent State of the Union speech echoes the articles, citing “almost 100 years” of natural gas due to fracking technology, and that domestic oil production is back to 2004 levels.  Indeed, new horizontal well and hydro-fracking drilling technology has opened up new reserves, but these resources tend to be expensive in terms of both money and energy, and are limited in flow rate.  In other words, we can’t use the stuff quickly.  An analogy would be someone living off a savings of millions of dollars, but only being able to withdraw a few hundred dollars a month.

U.S. oil extraction rates are indeed back to 2004 levels, after 23 years of falling every year.  This is in part due to an oil boom in North Dakota, which is now the one corner of the country with 3 percent unemployment and growth.  This shale formation only produced 111 million barrels of oil up until 2008—or in other words, over 50 years of extraction, only enough oil was pulled up to meet U.S. needs for 6 days.  This deposit is now producing about a half million barrels a day, a massive increase due to horizontal drilling and fracking technology—but will likely peak by 2015 at below one million barrels a day.  Not much compared to the 21 million barrels a day the U.S. was using in 2006, and 19 million today in our downsized economy.  And Alaska and other areas are steadily declining.

As for the Canadian Tar sands and Shale gas, there is a similar story.  The oil sands is solid earth with about ten percent bitumen, which must be strip mined, heated, processed, and treated with large amounts of fresh water.  The process is so energy intensive, it barely has a positive EROEI, meaning that its only use to us would be as a way of converting natural gas into a liquid fuel—and North American conventional gas has been declining since the 1970s.  They are also working tirelessly, 24/7, to produce about 1.5 million barrels a day—not much compared to the global consumption rate of 89 mbpd.  That’s less than 2 percent, and assumes enough fresh water and natural gas exists to continue to produce that much.  A “crash program” may yield 3 million barrels a day by 2030—but this would still mean a global 75 mbpd flow rate, max, in 2030, optimistically.  And demand by then will be over 100 mbpd, even with perpetual recession curbing growth in demand.  Think peasants on scooters in Third World societies that use very little and derive a greater economic value from the fuel.

“Shale gas,” in contrast, may be a bit more promising, and indeed, natural gas prices are now only $2.50 per million BTU, compared with Brent crude, the world benchmark price for oil, now at $116 on the NYMEX, or $20 per million BTU.  This is a great deal right now, especially for power generation, but prices likely won’t remain low for much longer.  Conventional gas is declining, and an unprecedented amount of fracking shale plays would be needed to cancel this out.  The recession has reduced industrial demand in North America, but in Asia gas is $14 per million BTU.  In fact, the EIA recently downgraded the large Marcellus shale’s technically recoverable resources to 141 tcf, just a 6 year supply, from a previous 410 tcf.  The “hundred year” estimate is absurd, and the flow rate and EROEI don’t even justify drilling at these prices.  Natural gas is probably in better shape than coal, and especially oil, but it too is likely to soon begin slowly declining.  Clearly, growth has ended, and the future will be fueled by something other than fossil fuels.

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By CHIP CUMMINS
Wall Street Journal

Just a few days after the U.S. said it would delay approval of an oil pipeline that would boost Canadian exports to the U.S., Canadian Prime Minister Stephen Harper said Sunday the country would push to sell its crude to Asian markets instead.

Last week, the U.S. State Department delayed approval of TransCanada Corp.’s Keystone XL pipeline, which is proposed to run from the western Canadian province of Alberta to the U.S. Gulf coast. The agency has final approval because the line would cross the U.S. border.

Earlier

A decision had been expected by the end of the year, but the approval turned into a political hot potato for President Barack Obama. Proponents in the U.S. called the line crucial for energy security and job creation, while opponents criticized the project for a host of environmental reasons. The State Department ultimately said it would delay a decision on the line until early 2013, to allow it to assess new routes that would bypass an environmentally sensitive stretch of Nebraska.

Mr. Harper, attending the Asian-Pacific Economic Cooperation summit in Honolulu on Sunday, repeated Canadian officials’ disappointment at the decision, and he told reporters he remained optimistic the project “will eventually go ahead, because it makes eminent sense.”

Canadian officials have said in the past that they would seek out other markets, particularly Asian ones, if the U.S. didn’t approve the Keystone project. A separate line that would send crude westward to the Canadian Pacific coast, where it could be shipped to Asia by sea, is currently going through Canadian regulatory approval.

But Mr. Harper’s language in Hawaii was particularly blunt.

“This does underscore the necessity of Canada making sure that we are able to access Asia markets for our energy products,” Mr. Harper told reporters in Honolulu, according to a transcript provided by his office. “And that will be an important priority of our government going forward.” Mr. Harper said he made that point in a meeting the day before with Chinese president Hu Jintao.

The Keystone decision comes as the latest in a string of irritants that have sparked friction between the U.S. and Canada, its largest trading partner.

Earlier this year, the White House reintroduced controversial “Buy America” provisions in proposed job-creating legislation that potentially shuts out Canadian firms from participating in government-funded infrastructure projects. Canada fought for the better part of a year to get similar provisions removed from an earlier Washington stimulus plan.

The White House then signed into law a U.S.-Colombia free-trade pact. That pact, which Canada wasn’t a party to, included an unusual surcharge in its fine print on U.S.-bound Canadian and Mexican travelers. The charge was designed to recoup revenue lost from the elimination of tariffs on Colombian goods, and it angered some Canadian politicians.

Despite the recent trade tensions, Messrs. Obama and Harper appeared amicably together at two photo ops in Hawaii, at one point laughing with each other and at another point strolling together with their jackets slung over their shoulders, according to the Associated Press.

At the meeting, Mr. Harper “expressed his disappointment with the (Keystone) delay, and reiterated his hope that the project will be decided on its merits and eventually approved,” according to a statement by his office.

—Paul Vieira in Ottawa contributed to this article.

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By Bloomberg Editors

On first look, it might seem wrong to allow TransCanada Corp. to build the 1,700-mile Keystone XL pipeline to carry oil from Alberta, Canada, to the U.S. Gulf Coast.

After all, if such a pipeline were to ever leak, as pipelines do, there is some risk it could pollute the Ogallala Aquifer under Nebraska’s Sandhills, which supplies 80 percent of that state’s drinking water.

What’s more, a new conduit would seem to only encourage the further development of the Athabascan oil sands in Alberta. This is a dirty business, to be sure: Vast tracts of spruce and fir are cleared to make way for open-pit mines, from which deposits of sticky black sand are shoveled out and then rinsed to yield viscous tar. For deeper deposits, steam is shot hundreds of feet into the earth to melt the tar enough that it can be pumped to the surface. Then there are the emissions associated with mining Canadian oil sands: It produces two and a half times as much carbon dioxide and other heat-trapping gases as oil drilling in, say, Saudi Arabia or west Texas.

So perhaps the U.S. State Department, which has the authority to approve the Keystone XL pipeline, should simply say no. That’s what many citizens and environmental groups will argue at a series of public hearings in Great Plains states this week.

Oil and Jobs

A closer look, however, reveals that blocking the $7-billion pipeline would do more harm than good. Consider, first of all, that the Canadian oil sands contain more than 173 billion barrels of recoverable crude, second only to Saudi Arabia’s 264 billion barrels. Extracting it means almost half a million new jobs for Canada and, for both Canada and the U.S., a sizable supply of oil that is safe from interruption by unfriendly governments.

Pipeline opponents have implied that if the U.S. doesn’t buy Canada’s oil, then companies will be discouraged from developing the oil sands. But it’s unrealistic to assume that the oil couldn’t be sold elsewhere. Yes, today’s business plan calls for sending most of it south — some 700,000 barrels a day through Keystone XL. If the U.S. blocks that conduit, though, we can reasonably expect that another pipeline would be built to Canada’s west coast, where the oil could be sent by tanker to China and elsewhere.

Although it’s true that oil sands crude accounts for relatively large amounts of emissions during extraction, in the well-to-wheels life cycle of the oil, its emissions are only about 17 percent greater than those of other kinds of oil. That’s because most of oil’s emissions come not from extraction but from use.

And it’s Canada, not the U.S., that must account for rising emissions from the oil sands (as well as monitor the quality of its nearby water). By 2020, the government agency Environment Canada has reported, emissions from oil sands development will increase by one-third and account for almost 12 percent of the country’s total emissions. This will boost Canada’s contribution to global greenhouse gas emissions from 2 percent to 2.1 percent — an increase that, under United Nations agreements, the country will need to offset with technological improvements in oil sands extraction, improved energy efficiency or emissions trading, for example.

Given that the U.S. contributes more than 18 percent of the world’s emissions, and unlike its northern neighbor hasn’t signed the 1997 Kyoto Protocol, it has enough to do to deal with its greenhouse gas problem.

Safety Matters

In deciding whether to allow Keystone XL to run through six American states, the only relevant question is whether it would be safe. The State Department, with help from the Environmental Protection Agency, has studied the risks. It has determined that, as long as TransCanada complies with all laws and regulations, builds Keystone XL properly and operates it safely (although some minor spills would be expected), the pipeline would have “no significant impacts” on wetlands, water supplies or wildlife along its route.

Keep in mind, the U.S. is crisscrossed by thousands of miles of pipelines carrying crude oil, liquid petroleum and natural gas. One of these is the Keystone 1 pipeline, which already carries crude from the oil sands. Yes, these pipes sometimes leak — spectacularly last year when almost 850,000 gallons of oil spilled from a ruptured pipe in Michigan. Far more often, when leaks occur, they are small and self-contained.

After the public hearings, the U.S. should give TransCanada the green light — and then make sure the company manages pipeline design and construction with care.

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A method for getting oil out of tarry sands could reduce the costs and lower the greenhouse-gas emissions associated with its extraction.

By Kevin Bullis

New technology for extracting oil from oil sands could more than double the amount of oil that can be extracted from these abundant deposits. It could also reduce greenhouse-gas emissions from the process by up to 85 percent. The technology was developed by N-Solv, an Alberta-based consortium that recently received $10 million from the Canadian government to develop the technology.

Canada’s oil sands are a huge resource. They contain enough oil to supply the U.S. for decades. But they are made up of a tarry substance called bitumen, which requires large amounts of energy to extract from the ground and prepare for transport to a refinery. This fact has raised concerns about the impact of oil sands on climate change. The concerns have been heightened by plans to build a new pipeline for transporting crude oil from the sands to refineries in the United States.

Most oil sands production currently involves digging up oily sand deposits near the surface and processing the sludgy material with heat and chemicals to free the oil and reduce its viscosity so it can flow through a pipeline. But 80 percent of oil sands are too deep for this approach. Getting at the deeper oil requires treating the bitumen underground so it can be pumped out through an oil well. The most common technique in new projects involves injecting the bitumen with steam underground. But producing the steam means burning natural gas, which emits carbon dioxide. And the oil that’s pumped out is still too thick to flow through a pipeline, so it has to be partially refined, which emits still more greenhouse gases.

N-Solv’s process requires less energy because it uses a solvent rather than steam to free the oil, says Murray Smith, a member of N-Solv’s board of directors. The solvent, such as propane, is heated to a relatively low temperature (about 50 °C) and injected into a bitumen deposit. The solvent breaks down the bitumen, allowing it to be pumped out along with the propane, which can be reused. The solvent approach requires less energy than heating, pumping, and recycling water for steam. And because the heaviest components of the bitumen remain underground, the oil that results from the solvent process needs to be refined less before it can be transported in a pipeline.

Because the new process requires less energy, it should also be cheaper. Smith adds that the equipment needed for heating and reusing the propane is less expensive than technology for managing the large volumes of water used in the steam process. With conventional techniques, oil prices have to be above $50 to $60 per barrel—as they have been for several years—for oil sands to be economical. Smith says that with the solvent process, oil sands are still economical even if oil is $30 to $40 per barrel, close to what it was in the 1990s and early 2000s (in inflation-adjusted dollars). N-Solv says the lower costs will make it possible to economically extract more than twice as much oil from the oil sands compared to conventional technologies.

The idea of using solvents to get at oil sands was proposed in the 1970s, but early experiments showed that the process couldn’t produce oil quickly enough. Two things changed that, according to N-Solv. First, horizontal drilling technologies now make it possible to run a solvent injection well along the length of an oil sands deposit, increasing the area in contact with the solvent, thus increasing production. Second, N-Solv determined that even small amounts of methane—a by-product of using a solvent—could contaminate the propane and degrade its performance. So N-Solv introduced purification equipment to separate methane from the propane before it is reused. The separated methane can also be used to heat the propane, further reducing energy costs.

Although N-Solv’s technology could reduce carbon-dioxide emissions from production, most of the emissions associated with oil sands—as with any source of oil—come not from producing the oil, but from burning it in vehicles and furnaces. The technology’s impact on climate change will depend on whether the process leads to increased oil production—if it does, it may actually result in increased net greenhouse-gas emissions, says David Keith, a chemical and petroleum engineering professor at the University of Calgary.

So far, the process has been tested only in a lab. Now N-Solv will begin a pilot project that could produce 500 barrels of oil a day. The $60 million project, which is mostly funded by private sources, will determine whether the process can work on a larger scale.

Original Article