Oil shale goes bust again

September 25, 2013

Colorado, Garfield County, oil shale

shell oilSometimes we get overwhelmed by all the mind-numbing bad news – locusts are next, right? – and we risk missing the impact of the good news. This news deserves it own post.

Shell shuts down oil shale pilot project near Rifle

GLENWOOD SPRINGS — The Royal Dutch Shell energy company has pulled the plug on its pilot oil shale development project in the Piceance Basin near Rifle, according to an announcement by the company on Tuesday.

Only a month ago, according to a story in the Denver Business Journal, the company had announced it planned to pursue its oil shale research while divesting itself of other oil and gas assets.

But late on Tuesday, company spokespeople were confirming that Shell would no longer be actively developing its three R&D (research and development) leases that had been touted by the industry as the most promising technology currently being pursued …

… According to Denver Business Journal reporter Cathy Proctor, Shell is planning to sell off many or all of its oil and gas assets in Colorado, due to a drop in earnings reported in August and disappointing performance of some of its oil and gas businesses.

I swear to you, when I wrote that post — The shale gas bubble — yesterday I had no clue this news would break an hour later.

The question now is, will the bubble burst? Or will this be a slow-motion bust.

Shell shock: Rio Blanco oil shale project axed [free!]

In a major setback to the effort to develop oil shale in the United States, Shell is closing down its research and development project in Rio Blanco County …

… “It’s very discouraging to see Shell leave because they’ve been the stalwarts in this business for a couple of decades really,” said Glenn Vawter, executive director of the National Oil Shale Association industry group …

… “Whether it’s the death knell for the oil shale industry we’ll have to wait and see,” he said, pointing to several other ongoing projects in Colorado and Utah …

… Ross Lane, director of the Western Values Project oil and gas accountability organization, said in a prepared statement, “Melting oil shale rock at temperatures exceeding 700 degrees over months or years is an expensive and risky proposition. It’s no wonder both Shell and Chevron stopped gambling on oil shale. The economics just don’t make sense” …

… Rio Blanco County Commissioner Jeff Eskelson said it’s still a tough time for the energy industry and it’s not surprising to see a company end an R&D project. He said the number of jobs affected is relatively low …

… As part of a lawsuit settlement, the BLM is re-evaluating its commercial oil shale leasing rules, including royalty rates. Shell has argued in favor of the existing rules and cited a need for regulatory certainty. [Shell spokeswoman Carolyn Tucker] on Tuesday declined to say if the federal government’s approach to oil shale contributed to its decision.

“It isn’t the rules that made this impossible, it’s the economics,” said Jim Spehar, a former Grand Junction mayor and Mesa County commissioner who supports shale reforms the BLM has been undertaking.

“ … This is just the latest example of a long string of oil shale promises that have fallen victim to the economic realities,” he said …

And the industry moves quickly to downplay the decision –

Shell Oil’s shutdown of oil shale project not a first, and no surprise to some

It will take some time for Royal Dutch Shell’s U.S. subsidiary to shut down its research into producing crude oil from western Colorado’s underground oil shale reserves, according to company spokeswoman Carolyn Tucker …

… Some aren’t surprised by Shell’s announcement — coming after other company decisions to market oil and gas assets around the United States, including in northwestern and southeastern Colorado.

“Honestly, I’m not surprised,” said David Abelson, the oil shale policy adviser for Boulder-based Western Resource Advocates, an environmental advocacy group.

“This announcement confirms what we’ve been saying for a long time, which is that the fundamental problem has been and continues to be the rock itself.”

Abelson said it’s simply too expensive and too hard to turn oil shale rock into a fuel source profitably.

“The economics haven’t worked in favor of commercializing these developments,” he said …

… Tucker said Shell has “made some tremendous strides” in developing technology that could be used in oil shale development. The company is using what it’s learned in Colorado on other oil shale projects it has in Canada and Jordan, she said.

“I don’t think oil shale is a nonstarter,” Tucker said. “We’re interested in oil shale as well. We’re just exiting the oil shale project to focus resources elsewhere.”

But you also need to know this. Last week while our attention was fixed on the horrors of the Colorado floods, this happened: Shell Oil pulling out of Kansas. Funny, sounds a lot like the same spin about the oil shale project shutdown.

I have to admit, the notion of oil shale development always seemed like some sort of dystopian nightmare. I always had this sneaking suspicion that Shell’s oil shale project had more to do with the steady flow of R&D funds from the Dept of Energy than anything remotely resembling responsible energy development for the future.

Well, lookie what I found on the Google machine.

H.R. 6603 — Tapping America’s Energy Potential Through Research and Development Act of 2012. This bill would have directed $10 million per year for fiscal years 2013-2017 to oil shale R&D and authorize the Department of Energy (DOE) to provide grants, cost-shares, contracts, or any other assistance to a number of public and private entities in an attempt to bring oil shale production technology to commercial scale.

On November 27, 2012, the bill died in the House and was referred to the House Committee on Science, Space, and Technology where it has languished ever since.

In other words, the river of federal R&D funding has dried up.

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3 Comments on “Oil shale goes bust again”

  1. Bob Arrington Says:

    These companies don’t like working on their own dime and without federal money their sharp pencil money managers say, “enough!” Right now Energy Wire is carrying a story that reports the Barnnett Shale is richer than previously estimated. This is probably another play to bilk investors and sell more holdings. Range, that was involved with water contamination that the EPA dropped, has sold the wells involved.
    This points out another strategy, divest before liabilities are proven and let the next sucker inherit the mess. The EPA originally deterimined contamination, a third party tester did also, the Texass RR COM. exonerated Range with no other presentation at hearing other than Range, but then came Univ. of PA researchers and once again found contamination. Now the TRRC is coming back again. Guess who inherits the liability –

  2. Nick Kuhlmann Says:

    Wonderful news!! Let’s hope the subsidies continue to “dry up”. That money could be used to develop tomorrows energy producers.

  3. Nicola Lauderback Says:

    Gday terrific information. DI has a couple of truly good E&P analysis regarding unconventional plays with specific data, considered it is highly relevant to this particular write-up. Regards.

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