2013 September 27

The Master Resource Report 2013-09-27

The other shale

Tuesday Shell announced that it was shutting down its oil shale project in Colorado. The company has been trying since 1981 to squeeze oil from the kerogen in Colorado’s shale.

“Shell’s research focused on an in situ process that involved heating the underground rock layers, called kerogen, to release the oil from the rock. The site had a staff that ranged from 10 to 50 employees and contractors depending on the activity…”

The process not only included heating the rock but also a freeze wall around the area to contain the process. That is right a box of frozen rock surrounding rock that is being heated. Doesn’t sound like a very good process and it appears Shell has arrived at the same conclusion.

The key here though is that this oil shale and not the type of shale oil or tight oil seen in the Bakken. They are dramatically different. Kerogen is a precursor to crude oil while the fields in the Bakken produce true crude oil.

However, this doesn’t mean it is completely over for oil shale. ExxonMobil is testing some in situ heating itself to convert the kerogen to oil.

The US government has estimated that the oil shale resource is over a trillion barrels of oil. Now this assumes the kerogen can be converted to oil and extracted from the rock profitably. Remember don’t confuse a resource with reserves and reserves with profitable production. This science project is likely to continue for a long time yet.


Note: Clients and advisers at Ravenna Capital Management currently hold positions in Shell and ExxonMobil.