|April 13, 2009|
This Oil Investment Is Nothing But a Sinkhole
It's easy to get lost in the numbers.
At least, that's what appeared to have happened to several of my readers lately. In fact, the moment they mentioned the Green River oil shales, I knew exactly what distracted them. . .
Although it's been quite some time since I last talked about the Colorado and Utah oil shale, my feelings certainly haven't changed for the better. In fact, it's even worse. And to be honest, the thought of my readers dumping their hard earned money into the area makes me cringe.
You see, I had received the exact same email that was sent to them.
I can only hope that most of you saw waving red flags after reading the first sentence. The opening line announced that this oil deposit would get rid of our dependence on foreign oil. Not lower them, mind you, but rather completely eliminate. That means we'd have to more than double our current production levels. That seems rather unlikely considering U.S. production has been on a downhill slide for the last thirty years.
I knew what was coming before I even read it. The email went on to tout that the trillions of barrels of oil shale underneath Utah and Colorado is our salvation.
I beg to differ.
The Green River Oil Shales
For my newer readers that have never heard of this oil shale deposit, hopefully I can shed some light on the subject. There are actually a few misconceptions about the Utah and Colorado oil shales.
To begin with, they aren't exactly oil shales at all. Rather, they are finely grained sedimentary rock that contain a fair amount of kerogen. As you may know (especially if you received the same email), the largest deposit can be found in the Green River formation, which stretches across three basins in Utah, Colorado and Wyoming.
Companies have tried to develop this resource time and again. Techniques have ranged from surface mining the the rock and then heating the rock in a process called retorting. Basically, the mined shale is broken up in smaller pieces in order to extract the kerogen, which then has to be upgraded.
The process simply requires too much time, money and water. That's also not to mention it doesn't contain as much energy that crude oil offers.
Other projects have tried (and failed) at using in-situ methods. Those of you well versed in the extraction Canadian oil sands will know that this involves heating up the oil shale in ground, then pumping it out using conventional means.
Shell's process, for example, involved drilling holes in a close proximity and heating up the rock. Meanwhile, another set of holes are drilled around the perimeter of the heating section and used to create an ice wall in order to trap the liquid. A final set of wells are then drilled to pump out the oil.
Caught up in the Numbers
The Green River oil shales started to get more attention as the price of oil jumped over the last few years. It's understandable for the U.S. government to get excited at the possibility of developing the deposit.
After all, we're importing more and more as our domestic production continues to fall. 70% of the oil shale deposit is federally owned, can you really blame them for trying?
Like I mentioned earlier, it's easy to get lost in the numbers. In this case, it's up to nearly three trillion barrels. If we look at some of the lower estimates, there's still supposedly 800 billion barrels of oil that can be recovered.
Of course, many people are quick to make assumptions. As one gentlemen put it, "That's enough oil to last us for hundreds of years."
Sadly, that's not exactly how it works.
I don't think anyone is fooling themselves into thinking we'll be producing enough oil every day to meet demand. He made the mistake of assuming we'll be able to produce anything worthwhile in the first place.
Remember, the total amount of oil produced to date is still only a few thousand barrels.
The idea that we'll be producing 5 million barrels per day in the foreseeable future is laughable. Personally, I put more faith into the development of renewables, especially when we're talking about such a long time frame.
I'm not holding my breath waiting for this to be developed. The development alone is too costly---and that's how I felt when oil was over $100 per barrel!
Perhaps the Green River deposit is just a case of too little, too late. But worse still, however, is the thought of sinking my money into this investment.
Besides, there are much better options right now for investors than waiting 40 years for these oil shales. . .
Until next time,