Ceres Exposes Risks of Oil Shale Investment

The sustainable investor group Ceres has just issued a new report on oil shale, and it sounds a loud note of caution to investors who may be interested in the commercial development of this particular fossil fuel source.  Though the U.S. Bureau of Land Management has given the go-ahead for  oil shale operations on federal lands, so far these are limited to the research and development scale. Ceres reports that some significant hurdles are standing in the way of commercial scale oil shale development.

The difference between oil shale and shale oil

Oil shale refers to a type of sedimentary rock that contains kerogen. Kerogen is composed of several organic substances and it can serve as a low-grade fuel when burned in a furnace.

Oil can be produced from kerogen by subjecting it to high heat. The resulting vapor, when cooled, forms a liquid.

There are two basic ways to conduct this process. One is to mine kerogen shale and convey it to the surface, where it can be crushed and heated. The other method involves heating the kerogen shale formation itself, then pumping the hydrocarbon vapor to the surface.

There is an easier way to get oil from shale. It can be recovered directly from conventional shale formations such as the Bakken formation, through a drilling method called hydraulic fracturing. Also known as fracking, the technique has recently gained notoriety through its use in recovering natural gas, giving rise to concerns over water contamination, methane emissions and even earthquakes.

In any case, the important distinction is that oil shale refers to a specific type of rock (kerogen shale), while shale oil refers to oil that can be recovered from kerogen shale or other kinds of shale formation.

Trouble ahead for oil shale

Commercial scale oil shale operations may involve environmental impacts that are similar to fracking, or even more intensive. The difference is that while fracking is a proven technology, according to Ceres oil shale technology is still "in the early stage of development," and there is still a substantial need for additional testing.

Ceres also points out that recovering liquid fuels from oil shale involves lifecycle carbon emissions up to 75 percent more than emissions related to producing conventional petroleum fuels. That could result in intensive exposure to carbon regulations, if not currently then at some future point.

Ceres's report was compiled before the current downspin in oil prices, and in that light its comments on the market competitiveness of oil shale are particularly prescient:

"...sporadic attempts to commercialize oil shale have repeatedly failed once oil prices fell again. To get a sense of the payback horizons, consider that the Congressional Budget Office explained in February 2012 that it 'does not expect that the federal government would receive any significant royalty payments until after 2022' from commercial oil shale development."

But not a drop to spare...

Just a few days ago, Reuters reported that lower levels and warmer water in rivers are posing problems for coal and nuclear power plants, and Ceres foresees similar obstacles in the path of oil shale, reporting that "0il shale development may be constrained by the technology’s need for large amounts of water."

Some of the most attractive oil shale sites are in Colorado and Utah, where Ceres notes that the U.S. Government Accountability Office foresees that water scarcity may prevent optimal commercial development.

People, planet, profit

Perhaps most importantly, Ceres notes that public opinion could play a pivotal role in the future of commercial scale oil shale development:

"Public opposition to development of oil shale—based on the actual or perceived environmental impacts on land, air, water, or the global climate28—could similarly derail, delay, or increase the costs of such projects."

Ceres notes that the Bureau of Land Management's small-scale R&D oil shale program, which involves less than half a million acres, came about only because a citizen lawsuit blocked BLM from a larger commercial scale program involving more than 2 million acres.

 Oil shale and biofuels

The U.S. energy production landscape is in a transitional phase, as "easy" sources of petroleum fuels are tapping out. If there were no other alternatives, developing new technologies to recover oil from oil shale could be a reasonable alternative to the risks involved in fracking or, for that matter, offshore oil drilling.

However, new biofuel technologies, including algae biofuel, are presenting new alternatives that did not exist even a few years ago.

Unlike oil shale and other fossil fuel harvesting operations, which tap out their sources over time, biofuels have the potential to achieve the kind of long term sustainability envisioned by Ceres.

Image: Oil shale via wikimedia commons, courtesy US DOE.

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