Question: Is Shale Oil a Good Source for Alternative Energy?
Gavin Longmuir is a consultant with International Petroleum Consultants Association, Inc. He has over 25 years experience as a petroleum engineer in the global oil industry, specializing in the development of future oil fields, economic evaluations of exploration opportunities and assessment of new technologies. His PhD is from the University of Strathclyde, Scotland.
Q:Proved global oil reserves are estimated at 1.2 trillion barrels. U.S. oil shale and Canadian tar sands oil reserves are estimated at 3.7 trillion barrels. At what price per barrel will oil shale and tar sands be economically feasible to develop?
Answer: This question really requires four answers:
- First, estimating oil reserves is very difficult and an inexact science. For example, estimates of proved oil reserves in the U.S. have remained unchanged, at around 20 billion barrels, since 1948. This is despite a production level of 2 billion barrels each year.
- Most of the big fields in the proved oil reserves are in the Middle East, Venezuela and Russia. These countries have no incentive to produce accurate estimates.
- Market price for fossil fuels is driven more by production capacity vs. demand than by reserves. This capacity depends on investment decisions made by a small number of decision-makers in Saudi Arabia, Kuwait, Venezuela and Russia. Paradoxically, if the price of oil is rising and those few decision-makers become convinced that oil in the ground is appreciating faster than any other investment, they have an incentive NOT to increase production capacity. But, if they become convinced that new technologies will shortly replace oil, they then have an incentive to increase oil production while it still has some value, even if the price of oil is already falling. Perceptions of future technological advances could have tremendous impact on the oil market!
- The problem with oil shale and tar sand extraction is not that it is too expensive to produce. It is rather that it is too inefficient -- about 50% of the oil that is produced from tar sands has to be used to produce the next barrel. Furthermore, extraction requires the availability of low cost gas and fresh water. This severely limits the amount of oil that can be extracted -- regardless of the price of oil.
- My view is that we may end up treating tar sands and oil shales more as a mineral that we mine rather than as a source of energy. We would take energy from nuclear plants, photovoltaics or wind factories and use tar sands/oil shales to convert some of that energy into high value liquid hydrocarbons for use primarily as a transportation fuel. Bottom line -– when it comes to using resources like tar sands & oil shales, improved technology may be the determinant rather than oil price.
