Oil Shale Economics
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Oil shale economics deals with the economic feasibility of oil shale extraction and processing. Although usually oil shale economics is understood as shale oil extraction economics, the wider approach evaluates usage of oil shale as a whole, including for the oil-shale-fired power generation and production of by-products during retorting or
shale oil Shale oil is an unconventional oil produced from oil shale rock fragments by pyrolysis, hydrogenation, or thermal dissolution. These processes convert the organic matter within the rock (kerogen) into synthetic oil and gas. The resulting oil ca ...
upgrading processes. The economic feasibility of oil shale is highly dependent on the price of conventional oil, and the assumption that the price will remain at a certain level for some time to come. As a developing fuel source the production and processing costs for oil shale are high due to the small nature of the projects and the specialist technology involved. A full-scale project to develop oil shale would require heavy investment and could potentially leave businesses vulnerable should the oil price drop and the cost of producing the oil would exceed the price they could obtain for the oil. Due to the volatile prices and high capital costs few deposits can be exploited economically without subsidies. However, some countries, such as Estonia, Brazil, and China, operate oil-shale industries, while some others, including
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
, United States,
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
,
Jordan Jordan ( ar, الأردن; tr. ' ), officially the Hashemite Kingdom of Jordan,; tr. ' is a country in Western Asia. It is situated at the crossroads of Asia, Africa, and Europe, within the Levant region, on the East Bank of the Jordan Rive ...
,
Israel Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...
, and
Egypt Egypt ( ar, مصر , ), officially the Arab Republic of Egypt, is a transcontinental country spanning the northeast corner of Africa and southwest corner of Asia via a land bridge formed by the Sinai Peninsula. It is bordered by the Mediter ...
, are contemplating establishing or re-establishing this industry. The production cost of a
barrel A barrel or cask is a hollow cylindrical container with a bulging center, longer than it is wide. They are traditionally made of wooden staves and bound by wooden or metal hoops. The word vat is often used for large containers for liquids, ...
of shale oil ranges from as high as US$95 per barrel to as low US$25 per barrel, although there is no recent confirmation of the latter figure. The industry is proceeding cautiously, due to the losses incurred during the last major investment into oil shale in the early 1980s, when a subsequent collapse in the oil price left the projects uneconomic.


Break-even price of crude oil

The various attempts to develop oil shale deposits have succeeded only when the cost of shale-oil production in a given region comes in below the price of crude oil or its other substitutes ( break-even price). The
United States Department of Energy The United States Department of Energy (DOE) is an executive department of the U.S. federal government that oversees U.S. national energy policy and manages the research and development of nuclear power and nuclear weapons in the United Stat ...
estimates that the ''ex-situ'' processing would be economic at sustained average world oil prices above
US$ The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
$54 per barrel and ''in-situ'' processing would be economic at prices above $35 per barrel. These estimates assume a return rate of 15%. The
International Energy Agency The International Energy Agency (IEA) is a Paris-based autonomous intergovernmental organisation, established in 1974, that provides policy recommendations, analysis and data on the entire global energy sector, with a recent focus on curbing carb ...
estimates, based on the various pilot projects, that investment and operating costs would be similar to those of Canadian oil sands, that means would be economic at prices above $60 per barrel at current costs. This figure does not account
carbon pricing Carbon pricing (or pricing), also known as cap and trade (CAT) or emissions trading scheme (ETS), is a method for nations to reduce global warming. The cost is applied to greenhouse gas emissions in order to encourage polluters to reduce the co ...
, which will add additional cost. According to the New Policies Scenario introduced in its World Energy Outlook 2010, a price of $50 per tonne of emitted , expected by 2035, will add additional $7.50 per barrel cost of shale oil. According to a survey conducted by the
RAND Corporation The RAND Corporation (from the phrase "research and development") is an American nonprofit global policy think tank created in 1948 by Douglas Aircraft Company to offer research and analysis to the United States Armed Forces. It is financed ...
, the cost of producing a barrel of oil at a surface retorting complex in the United States (comprising a mine, retorting plant, upgrading plant, supporting utilities, and
spent shale Spent shale or spent oil shale (also known as retorted shale) is a solid residue from the shale oil extraction process of producing synthetic shale oil from oil shale. It consists of inorganic compounds (minerals) and remaining organic matter kno ...
reclamation), would range between $70–95 ($440–600/m3, adjusted to 2005 values). This estimate considers varying levels of kerogen quality and extraction efficiency. In order for the operation to be profitable, the price of crude oil would need to remain above these levels. The analysis also discusses the expectation that processing costs would drop after the complex was established. The hypothetical unit would see a cost reduction of 35–70% after its first were produced. Assuming an increase in output of during each year after the start of commercial production, the costs would then be expected to decline to $35–48 per barrel ($220–300/m3) within 12 years. After achieving the milestone of , its costs would decline further to $30–40 per barrel ($190–250/m3). In 2005,
Royal Dutch Shell Shell plc is a British multinational oil and gas company headquartered in London, England. Shell is a public limited company with a primary listing on the London Stock Exchange (LSE) and secondary listings on Euronext Amsterdam and the New Yo ...
announced that its ''in situ'' extraction technology could become competitive at prices over $30 per barrel ($190/m3). However, Shell reported in 2007 that the cost of creating an underground freeze wall to contain groundwater contamination had significantly escalated. Anyway, as the commercial scale production by Shell is not foreseen until 2025, the real price needed to make production economic remains unclear. At full-scale production, the production costs for one barrel of light crude oil of the Australia's Stuart plant were projected to be in the range of $11.3 to $12.4 per barrel, including capital costs and operation costs over a projected 30-year lifetime. However, the project has been suspended due to environmental concerns. The project of a new Alberta Taciuk Processor which was planned by
VKG Oil Viru Keemia Grupp (VKG) is an Estonian holding group of oil shale industry, power generation, and public utility companies. History After Estonian Declaration of Independence, Estonia gained independence, the state owned oil shale enterprise, ...
, was estimated to achieve break-even financial feasibility operating at 30% capacity, assuming a crude oil price of $21 per barrel or higher. At 50% utilization, the project was expected to be economic at a price of $18 per barrel, while at full capacity, it could be economic at a price of $13 per barrel. However, instead of Alberta Taciuk Processor VKG proceeded with a Petroter retort which production price level is not disclosed. Production costs in China have been reported to be as low as less than $25 per barrel, although there is no recent confirmation of this figure.


Capital cost

A comparison of the proposed American oil shale industry to the Alberta oil-sands industry has been drawn (the latter enterprise generated over of oil in late 2007), stating that "the first-generation facility is the hardest, both technically and economically". According to the United States Department of Energy, in 1980s the costs of a ''ex-situ'' processing complex ranged from $8–12 billion at 2005 prices. It is estimated that the current capital costs are $3–10 billion at 2005 prices. The new 100,000 tonnes shale oil per year retort built by VKG cost EEK 1.1 billion (€70.3 million); however, it is located in the existing production site and uses the existing infrastructure. The RAND Corporation assumes that the development of processing plant in the United States will take 12 years, while to achieve the level of will take at least 20 years and around 30 years.


Previous investment

In the second half of the 20th century, oil shale production ceased in
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
,
Scotland Scotland (, ) is a country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a border with England to the southeast and is otherwise surrounded by the Atlantic Ocean to the ...
,
Sweden Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...
,
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
,
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
,
Romania Romania ( ; ro, România ) is a country located at the crossroads of Central Europe, Central, Eastern Europe, Eastern, and Southeast Europe, Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, S ...
, and
South Africa South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring countri ...
due to the low price of oil and other competitive fuels. In the United States, during the
1973 oil crisis The 1973 oil crisis or first oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC), led by Saudi Arabia, proclaimed an oil embargo. The embargo was targeted at nations that had supp ...
businesses expected
oil prices The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Refe ...
to stay as high as US$70 a barrel, and invested considerable sums in the oil shale industry. World production of oil shale reached a peak of 46 million tonnes in 1980. Due to competition from cheap conventional petroleum in the 1980s, several investments became economically unfeasible. On 2 May 1982, known as "''Black Sunday''",
Exxon ExxonMobil Corporation (commonly shortened to Exxon) is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller's Standard Oil, and was formed on November 30, ...
canceled its US$5 billion
Colony Shale Oil Project Colony Shale Oil Project was an oil shale development project at the Piceance Basin near Parachute Creek, Colorado. The project consisted of an oil shale mine and pilot-scale shale oil plant, which used the TOSCO II retorting technology, develo ...
near
Parachute, Colorado The Town of Parachute is a home rule municipality in Garfield County, Colorado, United States. The population was 1,085 at the 2010 census. The town is the birthplace of Willard Libby, recipient of the 1960 Nobel Prize in Chemistry. Etymolog ...
because of low oil-prices and increased expenses. Because of the losses in 1980s, companies were reluctant to make new invests in
shale oil Shale oil is an unconventional oil produced from oil shale rock fragments by pyrolysis, hydrogenation, or thermal dissolution. These processes convert the organic matter within the rock (kerogen) into synthetic oil and gas. The resulting oil ca ...
production. However, in the early 21st century, USA, Canada and Jordan were planning or had started shale oil production test projects, and Australia was considering restarting oil shale production. In a 1972 publication by the journal ''Pétrole Informations'' (ISSN 0755-561X), shale oil production was unfavorably compared to the liquefaction of coal. The article stated that coal liquefaction was less expensive, generated more oil, and created fewer environmental impacts than oil shale extraction. It cited a conversion ratio of of oil per one
ton Ton is the name of any one of several units of measure. It has a long history and has acquired several meanings and uses. Mainly it describes units of weight. Confusion can arise because ''ton'' can mean * the long ton, which is 2,240 pounds ...
of coal, as against per one ton of shale oil.


Energy usage

A measure of the viability of oil shale as a fuel source is the ratio of the energy produced to the energy used converting it (Energy Returned on Energy Invested - EROEI). The value of the EROEI for oil shale is difficult to calculate for a number of reasons. Lack of reliable studies of modern oil shale processes, poor or undocumented methodology and a limited number of operational facilities are the main reasons. Due to technically more complex processes, the EROEI for oil shale is below the EROEI of about 20:1 for conventional oil extraction at the wellhead. A 1984 study estimated the EROEI of the different oil shale deposits to vary between 0.7–13.3:1. More recent studies estimates the EROEI of oil shales to be 1–2:1 or 2–16:1 – depending on if self-energy is counted as a cost or internal energy is excluded and only purchased energy is counted as input. According to the World Energy Outlook 2010, the EROEI of ''ex-situ'' processing is typically 4–5:1 while of ''in-situ'' processing it may be even as low as 2:1. Royal Dutch Shell has reported an expected EROEI about 3–4:1 on its ''in-situ'' test project. Internal energy (or self-energy) is energy released by the oil shale conversion process that is used to power that operation (e.g. obtained by combustion of conversion by-products such as oil shale gas), and therefore reducing the use of other fuels (external energy). There are different views as to if the internal energy should be added to the calculation as cost or not. One opinion is that internal energy should not be counted as an energy cost because it does not have an opportunity cost, unlike external energy used in the process. Another opinion is that internal energy is used for performing useful work and therefore should be added to the calculation. It might also be argued that internal energy should be included as energy invested because it contributes to CO2 emissions. However, EROEI then becomes a measure of environmental acceptability rather than economic viability.


Water usage

Development of oil shale resources will require significant quantities of water for mine and plant operations, reclamation, supporting infrastructure, and associated economic growth. Above-ground retorting typically consumes between one and five barrels of water per barrel of produced shale oil, depending on technology. For an oil shale industry producing , this equates to of water. These numbers include water requirements for power generation for in-situ heating processes, retorting, refining, reclamation, dust control and on-site worker demands. Municipal and other water requirements related to population growth associated with industry development will require an additional per day. Hence, a oil shale industry would require of water per year, depending on location and processes used. The largest deposit of oil shale in the United States is in the
Green River Green River may refer to: Rivers Canada *Green River (British Columbia), a tributary of the Lillooet River *Green River, a tributary of the Saint John River, also known by its French name of Rivière Verte *Green River (Ontario), a tributary of ...
basin. Though scarce, water in the western United States is treated as a commodity which can be bought and sold in a competitive market. Royal Dutch Shell has been reported to be buying groundwater rights in Colorado as it prepares to drill for oil in the shale deposits there. In the Colorado Big-Thompson project, average prices per share (/share) increased from some $2,000 in 1990 to more than $12,000 in mid-2003 (constant 2001 dollars). CBT Prices from 2001 to 2006 has had a range of $10,000 to $14,000 per share, or $14,000 to $20,000 per acre foot. At $10,000 per acre foot, capital costs for water rights to produce would range between $1.8-4.2 billion.


Co-pyrolysis

Several co-pyrolysis processes to increase efficiency of oil shale retorting have been proposed or tested. In Estonia, the co-pyrolysis of
kukersite Kukersite is a light-brown marine type oil shale of Ordovician age. It is found in the Baltic Oil Shale Basin in Estonia and North-West Russia. It is of the lowest Upper Ordovician formation, formed some 460 million years ago. It was nam ...
with renewable fuel (wood waste), as well as with plastic and rubber wastes (tyres), has been tested. Co-pyrolysis of oil shale with high-density polyethylene (HDPE) has been tested also in Morocco and Turkey. Israel's
AFSK Hom Tov A.F.S.K. Hom Tov was a spin-off of the A.F.S.K. Industries Group located in Haifa, Israel. In 2006, the company claimed that it had patented technology for converting oil shale to shale oil. History Hom Tov was founded in 1994 by Shimon Kazansky ...
co-pyrolyses oil shale with oil refinery residue (
bitumen Asphalt, also known as bitumen (, ), is a sticky, black, highly viscous liquid or semi-solid form of petroleum. It may be found in natural deposits or may be a refined product, and is classed as a pitch. Before the 20th century, the term a ...
). Some tests involve co-pyrolysis of oil shale with
lignite Lignite, often referred to as brown coal, is a soft, brown, combustible, sedimentary rock formed from naturally compressed peat. It has a carbon content around 25–35%, and is considered the lowest rank of coal due to its relatively low heat ...
and
cellulose Cellulose is an organic compound with the formula , a polysaccharide consisting of a linear chain of several hundred to many thousands of β(1→4) linked D-glucose units. Cellulose is an important structural component of the primary cell wall ...
wastes. Depending on reaction conditions, the co-pyrolysis may lead to higher conversion ratios and thus lower production costs, and in some cases solves the problem of utilization of certain wastes.


See also

*
Price of petroleum The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Ref ...
*
Environmental impact of the oil shale industry Environmental impact of the oil shale industry includes the consideration of issues such as land use, waste management, and water and air pollution caused by the extraction and processing of oil shale. Surface mining of oil shale deposits caus ...


References


External links

* {{cite journal , author = A. Hamburg , title = Estonian National Energy Strategy , journal = Bulletin des Sciences , publisher = Estonian Academy Publishers , year = 2007 , volume = 24 , issue = 2S , page = 332 , doi = 10.3176/oil.2007.2S.13 , s2cid = 111091393 , url = http://www.kirj.ee/public/oilshale/oil-2007-2s-13.pdf , issn = 0208-189X
Economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...
Energy economics