Arnold Kling  

Our Vast Oil Reserves

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From a RAND study:

The largest known oil shale deposits in the world are in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming...For potentially recoverable oil shale resources, we roughly derive an upper bound of 1.1 trillion barrels of oil and a lower bound of about 500 billion barrels...the midpoint in our estimate range, 800 billion barrels, is more than triple the proven oil reserves of Saudi Arabia. Present U.S. demand for petroleum products is about 20 million barrels per day.

That's the good news. But

at least 12 and possibly more years will elapse before oil shale development will reach the production growth phase. Under high growth assumptions, an oil shale production level of 1 million barrels per day is probably more than 20 years in the future, and 3 million barrels per day is probably more than 30 years into the future.

The RAND study says that oil shale has the potential to be competitive if oil prices remain at $30 a barrel or higher.

Based on this study, it's hard to see us running out of oil. If it were feasible to start extracting 20 million barrels per day right now, at our current rate of oil consumption we would have about 100 years' worth. And if it's going to take 30 years to get to the point where we can extract even 3 million barrels a day, then depleting all that oil is going to take much longer than 100 years.

Actually, I don't think that we'll ever use significant amounts of shale oil. That's because I believe that over the next 20 years, technological advances in solar power or some other field will drive the price of oil below $30 a barrel.

UPDATE: Several comments have voiced skepticism about whether it takes more energy to extract oil from shale than what can be obtained from the oil itself. However, this story says,

The energy balance is favorable; under a conservative life-cycle analysis, it should yield 3.5 units of energy for every 1 unit used in production. The process recovers about 10 times as much oil as mining the rock and crushing and cooking it at the surface, and it's a more desirable grade. Reclamation is easier because the only thing that comes to the surface is the oil you want.

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AJ writes:

(I've spent many years researching and writing on energy economoics)

I think that either the $30 threshold is optimistic or it fits with that relatively slow timeline of development you outlined. At a solid $50-$60 price of oil like we have seen, the economics of ramp-up can be much faster. There are significant efficiencies if the shale oil extraction is integrated with refining. The real problem is environmental and political permitting to allow all this to be developed since we cannot even seem to get a normal refinery built in the U.S. due to political/environmental objections.

T.R. Elliott writes:

I love it when economists write on topics about which they haven't a clue. Give me a break. What is the EROEI of shale oil? And your points about technological breakthroughs are nothing more than religion. And I'm a technologist. A physicist and mathematician by training. An engineer by practice (through retired at 45). Worked at QUALCOMM, a technical company second to none.

I'm sorry Mr Kling: What are you writing is kids stuff. Empty talking points.

AJ writes:

There are no new "physics" involved. Oil is being produced from shale in China, Estonia, and Brazil, and has been for many years. Oil from tar sands (another higher cost source) is already being produced in Canada and Venezuela. "Reserves" of these materials dwarf all known oil reserves and are not counted in world estimates of oil reserves. Numerous techniques have been trialed at small scale on the U.S. deposits. The challenges are engineering, financial, and political/environmental, not science/physics.

dearieme writes:

The shale oil industry prospered in Scotland before the age of crude oil. One distinctive feature is that the spent shale - after the oil has been recovered - is less dense than the virgin shale, so you can't dispose of all of it by bunging it back in the hole it came from. West Lothian in Scotland used to be decorated with shale "bings" - small hills of surplus spent shale. They were dull red in colour- not to everyone's taste though I liked them well enough.

Robert writes:

Another feature of spent shale is that it is fine, and rather caustic. Which means that if pile it up in a dry climate, and the wind blows, the downwind neighbors will complain.

You need a lot of water to handle the waste issue properly, and the western states that are abundant in shale are not exactly abundant in water.

You can avoid the issue by trying to liquefy the carbonaceous materials in situ by injecting steam into the rock, and and extracting the liberated oils from a separate well, as is done for enhanced oil recovery in partially-spent petroleum fields. This method, however, has a lower recovery than processing mined shales.

T.R. Elliott writes:

You are absolutely wrong.

Your example of Estonia is ridiculous. Do you know that in Nipal they cook use animal dung? I've got great news. We're going to run the world on world dung!! Not.

Please AJ: You're examples are nothing. Give the EROEI of shale oil is maybe 1.3. You barely get any energy out of it. Provide me with the capital investments that will be required to produce even 1% of world oil that is consumed right now using shale? It's not going to happen. You are misleading people with your posts that are based upon based econmomic ideas but have no grounding in reality.

So like I said. Good news folks: industrial society will soon operate on dung. It will be if you use the reasoning of AJ. Unfortunately, there is energy required to produce that dung. It just won't scale. Neither will shale oil.

Australia just shut down the only shale oil plant that was operating--experimentally--in the world. So show me the evidence of these other plants?

Since you're posting on this blog in the public sphere, I will comment on inane uninformed posts such as the one you made. It is misleading the public and it needs to stop.

nmg writes:

Peak oilers are so funny. They want for society to crumble so badly they grasp at straws for any excuse to naysay a counter-argument against their apocalyptic visions. it's practically a religion for them, as they feverishly plan and dream for the end of modernity with high hopes that we'll all hold hands and live off "commuity farming" after the collapse.

Repeat after me: Mad Max was just a movie. The world is not going to end.


T.R. Elliott writes:

NMG: I'm an energy investor. I make a living off my investments. You can all me a peak oiler if you want. I call myself a financial speculator.

My statements prior still hold. There is absolutely no evidence that shale oil will scale. None. The original post was largely meaningless. It says something to the effect of "shale oil could provide energy or maybe something else because of technology."

I'm a physicist. A financial investor. A technologist. I've studied economics. The evolution of technology. I'm not talking about the end-of-the-world. I saying the original post was largely meaningless and doesn't make much sense.

By the way: I've never seen the mad max movies. Not my thing. I'd rather read something on monetary theory. Or something similar. Sorry. Nice try though.

T.R. Elliott writes:

And just so I'm not misunderstood, my point is that economists are often wrong. E.g. I found this amusing:[link]

Apparently economists have some problems even with the basics of economics. That's why I point out that listening to an economist tell us about energy will often not make any sense at all.

Don writes:

Yes. By all means, let's take a question asked of distracted grad students hurrying between job interviews at the annual meetings and with no stake in the answer, and generalize the result to impugn the competence of an entire profession.

I think you've revealed just how good a scientist you really are, Mr. Elliott.

simon writes:

T.R. Elliott why retired at 45? You seem to have run out of energy young ... I guess your EROEI is to low to scale or stay in production ...

On a more serious note ... Oil shale is a viable ... nice try

T.R. Elliott writes:

Sorry if I credentials aren't that good. I got my physics and engineering degrees from UCSD. And I've worked at two high tech companies. Bolt Beranek and Newman, an MIT spinoff that help create the internet and QUALCOMM, which I assume you know helped create a world standard for wireless voice and data communications.

I'm not some idiot peak oiler. I don't intent to impugn a profession. I'm actually very interested in economics. And if you're also interested in it, you'll well know that economists are doing a good enough job--today and in the past--to impugn the profession themselves. Do you disagree with this statement.

Now about the report. Did you read it? Do you know where they got the $30 price? They pulled it from the seat of their pants. It's meaningless. Did you see the volumes they are talking about? It's nothing. Absolutely nothing. 3mpdb in 30 years. Are you familiar with the depletion rates of existing fields? Somewhere around 2% on average. The North Sea and Australia are depleting at over 10% a year.

Look at the facts. Economists are not doing it. And that is a disservice. Go over to James Hamilton's reporting on this issue. He is taking it seriously. I take my hat off to him. But the post I responded to was basically misleading nonsense that is irresponsible. And since it's in a public forum, I'll make the case. Perhaps with an edge. But I think I'm correct and the post is wrong.

T.R. Elliott writes:

Don: Are you saying that this particular study was not performed correctly? See, the problem I have: I suspect a lot of similar "results" are used to argue a particular case, perhaps even on this blog, e.g. diagnosing addiction as choice based upon some study. What makes the one study relevant and the other not? Is it that one proves a point that people around here like? And the other one that they don't like?

Anyway, I thought it kind of funny at the least.

Don writes:


You don't need any credentials at all to be a good scientist. All you need is an understanding of and respect for the scientific method. One can have impressive credentials and be a bad scientist.

I'm not saying that the particular study under discussion was performed incorrectly at all. Unless I have very good reasons to believe otherwise, I'll take the investigators at their word in re the answers of respondents. But it's a long way from the result of that study to the conclusion "Economists don't know economics." There are lots of potential hypotheses that fit the particular data point exhibited in the study at hand, and "Economists don't know economics" is but one of those hypotheses.

T.R. Elliott writes:

I didn't say economists don't know economics. I did say "economists are often wrong" and also that "economists had some problems with the basic of economics." Both are valid facts associated with that study, facts observed within a particular set of conditions. I used it to point out that there are times when economists say things that just don't make sense. That is all. It's an example based upon a study.

Now, I will generalize a bit. I'll suspect these guys were guessing. The didn't have the time to really think through the question, therefore they guessed. Or they didn't care. They didn't care to look into or think through the matter more.

And that conclusion applies to the original post on shale oil. I've already paraphrased:8 the original post was something like "shale oil will provide lots of oil/energy at $30 and if it doesn't some technological something or other will make it unnecessary."

Now, as I said before, it's largely saying nothing. I'm just pointing it out. It's little more than guessing.

Of course, I'm sure some folks here are not happy with my delivery or the nature of my questioning. But having been trainined in an environment with theoretical physicists constantly poking a stick in the eye of experimental physicists, and mathmeticians often pointing the same stick in the eye of theoretical physicists, and coming from a technical environment in which guessing is highly questioned, I'm questioning and poking the stick here, in particular on issues related to energy economics--my particular area of interest.

So I will summarize my point: similar to the economics students who were probably guessing when they answered that question, the original post on shale oil was little more than guessing.

Bob Knaus writes:

If you want to read a historical piece of anti-peak-oil literature, try Moby Dick. Ishmael acknowledges that whales are not as often seen as in the old days, but dismisses the notion that hunting has made them scarcer. They are simply bunching together in larger herds, he says, and so are less often encountered. But there is no danger of the world running out of whale oil!

Melville wrote this in 1856. In 1859, the first successful oil well was drilled in Pennsylvania. This, and not a shortage of whales, was the death knell for the whaling industry within a decade. It was something unforseen by Melville and practically everyone else.

Seems to me there are two flavors of "anti-peak-oilers":

1) says that we will always be finding new sources of oil, from shale or sands or crystallized methane on the seafloor or whatever. Just wait until the price goes up, it will spur investment in exploration, discovery, and extraction.

2) says that some leap of technology - a discontinuity if you like - will make the price of energy so cheap that the remaining oil will not be worth the cost of extracting from the ground. Basically, OPEC becomes the Organization of Plastic Feedstock Exporting Countries.

I have a small investment in Suncor, which has been turning a profit extracting oil from tar sands in Canada. It has done well lately on hypothesis (1) but I am certainly aware of the risk imposed by hypothesis (2). It has happened before. I might be holding stock in a buggy-whip company!

T.R. Elliott writes:

Bob: There are many historical analogies one can use. I invest based using historical information like this, but also always keep in mind that "past results do not...." You know the warning. You've raise a good point though. People are always thinking in analogies. And guessing. Hence my original post that the shale oil past is largely analogy and guessing.

Tar sand are a viable source of energy. I've looked at the details. It will have enormous problems scaling, since the EROEI is much lower than what we're used to. The capital investments are enormous. But it's viable. The volumes will always be limited though. I've looked at the issues associated with all the other alternatives you've mentioned. As well as looked at current solar technology and what might happen there. If you haven't looked at what Richard Smalley is saying, I suggest doing so. He's very aware of the nature of the problem and is very concerned.

So my point is that one should take into account physical argument and economic arguments. But when I see guessing, I'll point it out.

simon writes:

TR Eliot

the site below suggests that Shell has developed a potentially viable method to extract oil from oil shale. The reporter indicates that he ratio may be around 3.5:1. While this is a journalists account, it does suggest that there are material possibilities.

T.R. Elliott writes:

Simon: I think shale oil has some viability. Just to be clear. I never said it didn't. I said I don't see it scaling up to make energy cheap. I've read quite a bit on the process. The heating requirements. The popcorn like material that is produced during the cooking of it. A lot of these $30 estimates are based upon an assumption that energy costs maybe $20 a barrel. In other words, they do all the analysis, then say--based upon a world energy cost of $20 barrel, which influences the cost of natural gas--shale oil will be viable at $30. But the viable price always shifts upwards when world energy costs shift upward. That's the whole point of looking at EROEI. It is a better expression of what the real cost will be. The price of oil will be defined by demand and supply, not just cost. To determine the future price of oil, use EROEI, which can help determine capital expenditures, then sum up all the world supplies, taking into account the cheaper oil from existing supplies, the depletion, the demand, the capital costs to move to alternatives, etc. With that, you might have an idea of future prices. Otherwise, this $30 stuff is just nonsense. Economists were telling me oil today would be $30 today. The futures market told me the same. They were wrong. I was right. I looked beyond their prognostications and looked at supply and demand. I made money, they are lost money or just made money on whatever else it is they do for a living--e.g. teach econmomics, publish papers, or write articles for magazines.

Nuclear has some options, as we well know from experience--it works (though the sunk Got R&D is enormous). You'd have made a killing if you had put money into Uranium about three years ago. An absolute killing, which could not have been made anywhere else. But we still do not know what to do with the waste. And it's not just a regulatory issue. The US has lasted--what--250 years or so. The waste must be safely stored for thousands of years. Or it will make a mess of the environment. I'm pro nuclear. But it's a mess.

In a lot of cases, what you see, if you look at the current societal and economic regime, is the pushing of problems into the future. Debt is pushing problems into the future. Economists of a certain ideological pursuasion will tell me that we are making investments. Sometimes yes, sometimes not. Sometimes just pushing problems into the future, letting them bear the costs because they don't have a vote or voice. Nuclear wastes are another example of pusing problems to the future--hoping that technology will solve it.

I understand technology. Technology can solve problems. But I also understand information theory and related topics. One cannot assume that technical development, which is really from one perspective just a manipulation of information--will have the answer. There are limits. Or the answers cannot be found at the time they are needed. Maybe so, maybe not. History is full of blind alleys that societies have headed into. Those saying we should be aware of blind alleys, those like myself who caution that posts such as "shale oil and technology" will solve our problems, we are simply asking the readers to be very cautious, that "past performance is not a predictor" and "caveat emptor" Any economist will tell you that is good advice.

T.R. Elliott writes:

I suggest reading Yergin's latest. [link]. It's just a good reminder of the capital investments that are required to even keep existing energy production going, e.g. in the gulf after a major storm. This to put production of known fields back online. Now consider the capital investments to get something like Shale Oil up and going. We've seen some examples of 40,000 bpd capabilities. What was the actual cost per barrel for that 40,000 capability? Did they say?

The energy infrastructure throughout the world is probably one of the most capital intensive, expensive developments around. Consider having to replace it for an alternative--an alternative that we don't have yet.

Just a reminder that it's easy to put together a couple sentences describing alternatives and technology, another to actually feed the energy appetite of our society.

Yoda writes:

I just finished reading the entire RAND study. It's full of caveats about how the economic viability of the various processes of oil shale extraction are as yet unknown, and how the environmental impacts are likely to be severe. In particular, the biggest deposits in the U.S. are on federal land in remote areas where water is scarce, endangered species are present, and there are insufficient resources to support the number of people needed for production-scale extraction (they would need to build roads, powerplants, housing, schools, etc., since you would need to add 40000 residents to counties whose total current population is less than that). The extraction processes are energy intensive, and there would be massive political opposition by people who are concerned about greenhouse gases, etc. The business risks are huge, and the payoffs are uncertain.

T.R. Elliott writes:

Yoda: And even if they get beyond all the regulatory stuff, the water issues, the roads, and all that: it just isn't that great a source of energy. I'm just shocked to have been told in this forum that it is not a physics issue. I realize I show my frustration. But it is disheartening to see professionals post misinformation. Why do they post it? Ideology has got to be the only reason. This ideological stuff has really got to stop. People should be looking at science and facts and economics, not wishful thinking. Shale Oil is not viable. It is not scalable. It barely produces energy. There is no reason to use natural gas or nuclear power to convert shale oil (which isn't even oil) to oil when you can use the natural gas or nuclear generated electricity directly.

Just doesn't make sense. In the marketplace of ideas, this shale oil post is not doing too well. Anyone willing to step in and provide evidence on why shale oil is so great. E.g. answer the $30 question I posed? I would like to see the economics, particular those of free market thinking (Ayn Rand and all) step up and address these issues, not simply post something and then run off to the next post.

But then again, Ayn Rand would NEVER allow anyone to question her. She had a little following around her. Almost like a cult. When you questioned her, you were out. Funny, Alan Greenspan was one of her minions for a time.

Yoda writes:

More on economic assumptions:

Regarding Shell's in-situ retorting process (in which the oil shale is heated underground), the RAND report estimates: "About 250 to 300 kilowatt-hours are required for down-hole heating per barrel of extracted product. Assuming electricity at $0.05 per kilowatt-hour, power costs for heating amount to between $12 and $15 per barrel (crude oil equivalent). An operation producing 100,000 barrels per day requires approximately 1.2 gigawatts of dedicated electric generating capacity."

1.2 gigawatts is the generating capacity of an entire huge powerplant. For comparison, the Indian Point 1 nuclear plant north of New York City has a capacity of 265 megawatts (0.22 gigawatts). The all-time peak demand for New York City was 13 gigawatts, so 1.2 gigawatts is the amount of power needed by a medium-sized city!

simon writes:

TR, thanks for the clarification. Great points.

James Erlandson writes:

Detailed information about oil shale is available in Shell's testimony before the US Senate Committee on Energy and Natural Resources, April 12, 2005.

Some 23 years ago, Shell commenced laboratory and field research on a promising in ground conversion and recovery process. This technology is called the In-situ Conversion Process, or ICP. In 1996, Shell successfully carried out its first small field-test on its privately owned Mahogany property in Rio Blanco County, Colorado ...

Shell has been working on this for some time and isn't promising any near term gushers, but they are optimistic and certainly cannot be dismissed as incompetents or crackpots.

A brief history (as of 2004) of oil shale development (including the crackpots) is here.

Extracting oil from shale is not a new phenomenon; it has been around for at least 600 years. Ute Indian legends told of warriors who saw lightning hit certain rock formations causing the "rocks to burn."

T.R. Elliott writes:

James: Interesting stuff. And I will emphasize: we should be pursuing shale oil R&D. And if the companies like shell won't (and here I'll probably raise the ire of the libertarians on this board), the govt should. The govt has spearheaded a lot of technology in the past, the internet, integrated circuits, nuclear, digital communications, etc. The govt should not be running business or determining commercial viability, but the govt has the ability to throw money at projects that may or may not pan out. That's the good and bad side of govt. DARPA has created a lot of interesting technologies (command and control systems are an example) but has also wasted a lot of money.

So I'm all for creating prototype shale oil systems. It's that important. But I'm not crossing my fingers that it's going to prove to produce a wealth of energy.

I'm also for pursuing coal liquification.

And the original post was correct that solar is the key. That's why I pointed to Smalley and his efforts. Progress on solar will only occur with progress in nanotechnology. But there is a lot of work to do and Smalley believes we need "five miracles" to produce anything really useful. He proposes we slap a tax on gasoline to start funding these efforts. Some argue the private sector will solve it. But govt (funds) created many of the key parts of the technologies we are using day to day, then entrepreneurs came up with ways to make a buck off of them. Libertarian free market types then use the commercial stuff to argue how great free entreprise is. When people like me argue that free entreprise is great, but there is a role--the common good--for R&D--the argument often turns into: "that was tried: Soviet Union. Humph." Or something like that.

Of course, right now we've got a bunch of clueless people running the govt who think that intelligent design is science. So the libertarians and free markets types (of which I am largely a member) have a point: govt is pretty clueless. But if it ain't gonna happen in the private sector, then govt has to be fixed.

Consider this: if the world cannot create new sources of energy, like increasing oil production, demand will have to be reduced. The existing fields are depleting. Some of them fast. Technology is helping--helping to pull the oil out and deplete the fields even faster. At some point, if we can't find alternatives, the economy will recess. Imbalances with China and others (all that debt) will unwind. Demand for energy will go down. That means we'll have plenty of oil production capacity. That means there is little incentive for the private sector to develop alternatives. Prices don't support it. And they are too short-sighted--they're already losing a lot of money because the price of energy dropped--they're hurting. Then demand starts picking up, and boom, we run back into the production limits again.

It will happen. I see no alternative right now. Shale Oil will not help us here.

These are not the words of some peak oil fanatic who is purchasing weapons and running to the hills. These are the words of someone with a technical background, financial interests in energy, interest in economics, etc.

I think we have a problem. I'm not going to pretend otherwise. I've thought we had a problem for the past several years when I started researching this issue. The problems cause by Katrina--a shock--will make it worse. I figured this would happen. Shocks will become normal as energy consumption closes in on energy production. Prices will increase to clear the markets. The economy will slow. Efficiencies will be found (smaller cars, rapid transit, etc). But a lot of capital will have to go into creating these efficiencies and alternatives. Standards of living will suffer because of it.

There is a lot of work to do.

Mr. Econotarian writes:

The value of oil is not in its EROEI, the value of oil that cannot be replaced is its use in gasoline as a high-density energy storage system.

As soon as (or if) electrical storage devices can hold more useful energy per unit pound and volume as gasoline, cars will switch to electricity. Until then, they will use gasoline unless the cost increases very dramatically (like a factor of 10).

Gasoline is used because people must drive long distances, don't have time to stop and fill up on electricity, and time is money.

Dezakin writes:

The EROEI argument of course falls flat, given that nuclear power currently has average energy payback ratios well above what I currently hear cited for oil.

I dont see why Elliot seems to believe that nanotechnology is required for solar to become successful. It seems ordinary economies of scale and advances in regular everyday technology is well sufficient enough (VMJ cells, inexpensive mylar based mirrors, free piston stirling engines are all starting to fall into place now)

But even if solar is a dud (which seems ridiculous) nuclear fission is good enough to serve our current energy demands for millions of years; Molten salt breeder reactors were developed and tested for years at a time in the 60's, and other breeder reactors were widely used in weapons production, so breeder reactors are obviously viable, and you can run a 1GW breeder reactor on 1 ton of uranium or thorium per year... with 20000 reactors, enough to give everyone on the planet average US energy consumption, you can run civilization for about 10^9 years with the nuclear fuel just in the earths crust.

Ordinary dirt has concentrations of uranium and thorium of around 10ppm; Granite has about 4 times this concentration, and low grade orebodies far higher. We regularly mine gold at far lower concentrations than 10ppm, recovering actinides is chemically far easier than gold, and breeder reactors can supply energy with fuel well in excess of the price of gold and dont require enrichment.

Barkley Rosser writes:

The big problem for shale oil in Wyoming is the water issue, very serious. In the nearer term the more viable "alternative" oil source is likely to be less costly tar sands. Unfortunately, besides the sources in Canada already being used, the largest and most available are the 500 billion barrels or so in Lake Maracaibo in now-politically-difficult Venezuela.

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