Monday, May 29, 2006

 

The Holdup

    One of the arguments against addictive drugs is that the addicted person will do anything to maintain the supply, making them a danger to everyone around them.  This certainly seems borne out in the case of oil, where part of the pitch is that "the government"--that would be you, pilgrim--should pick up the cost of developing "oil shale" for industry in a deal where, on the off chance that it ever becomes commercially viable, industry can buy out the government interest at an agreed-upon price.

    In other words, cowboy socialism:  privatize profits, socialize costs, with only the rubes to suffer.  Don't forget to end the "death tax" so that the shareholders can pass this bonanza onto their children without the inconvenience of complicated accounting tricks.

    This testimony was including in the weekly Peak Oil Weekly by the Association for the Study of Peak Oil (ASPO).  That newsletter carried this disclaimer:  Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.

Commentary: How To Proceed With Oil Shale R&D and Commercialization
By Bob Loucks

Comments submitted to a U.S. Senate hearing to be held June 1, 2006

Dear Senator Domenici,

Thank you for scheduling a hearing on oil shale in Grand Junction on June 1. Your foresight and determination are greatly appreciated. I would like to enter this statement into your hearing records.

The campaign to reduce our dependence on unstable foreign oil supplies leading to an oil-free economy should include shale oil development along with encouragement of conservation and development of renewable resources.

[Did he just say that the key to the oil-free economy was shale oil?  Is black white?]

The use of the extensive shale oil energy supply will be an important component of the process to get us through the coming transition from non-renewable hydrocarbons to other resources.  However, we must not repeat the mistake of prior energy crises and assume that shale oil is ready for commercial development.

[Oh, I see.  We get off of hydrocarbons by pouring billions and billions into hydrocarbons.  How clever.]

Despite all the attempts to develop a shale oil industry in the US over the past 100 years, the fact remains that no proven method exists for efficiently removing the oil from the rock. There are a number of candidate processes possible, but none has demonstrated a practical capability to produce oil.

For this reason, it is imperative that the next step in shale oil development be a demonstration and test phase. It is possible that the BLM RD&D leasing program may serve this purpose, but I am unconvinced because it seems to be essentially a duplication of the failed 1970-80 prototype leasing program.

Another possibility is a government center to provide the proper conditions for test activities. There have been previous efforts in this direction in the past, e.g., the Bureau of Mines and Colorado School of Mines work at Anvil Points. Also, a thorough analysis of the merits of government and industry partnerships is available in the report DOE/EIS-0068 dated September 1980.

Other proposals include a “Proof-of Concept” facility at the federal C-b site by Occidental Oil Shale in 1990 as discussed by Russell George of the Colorado Department of Natural Resources at your recent hearings on shale oil. Additionally, Federal legislation was passed in 1992. See US Code: Title 42, Section 13412.

An attractive alternative was outlined 30 years ago. Little has changed in the past 3 decades.

In June 1976, Robert McClements, Jr., president of Sunoco Energy Development Co., a subsidiary of Sun Co., Inc., said his firm advocated a jointly-funded government-industry program to support oil-shale efforts through the stage of technology development. Mr. McClements expressed concern about several things:

“First, technology, which has been demonstrated only at the pilot plant or semi-works level; thus the scale-up to commercial-size units carries with it a high technological risk.

“Second, the operational risk involved with a commercial oil-shale facility. For a large-scale plant to successfully maintain design production levels, it has to be on-stream—-working as a unit—-a high percentage of the time. Another operations concern relates to labor. Oil-shale plants will be built in areas where there is presently no reservoir of people to operate and maintain them.

“Third, the environmental aspects. Since we don’t know what the final environmental regulations will be for oil-shale plants, we simply don’t have a good grasp on how to design a plant.

“Fourth, the highly uncertain public policy climate that exists today and which restricts the operation of market forces

“Fifth, timing. Enormously long lead times are involved in synfuels facilities and when you are talking about an expenditure of $1 billion [as assumed in 1976] per plant, the orderly, coordinated timing of capital investment is essential. But that’s impossible with the present uncertainties.

“Sixth, economics. Even under the most optimistic assumptions for capital investment and operating performance, the required selling price for synthetic oil may still exceed the market price for conventional oil. A loan-guarantee program does not deal with the basic difficulty. That is, the size of the investment required, coupled with existing policy, technical and financial uncertainties, effectively forecloses the initiation of commercial oil-shale undertakings.

“An alternative approach can be a program that will assure the demonstration of a wide range of existing infant technologies on a broad scale. Such a program should provide for the construction of a number of modest-sized operating modules. But, since each module would cost about $100-$200 million [in 1976 $]—-on which no return can be expected—-this program could not be initiated solely by private industry.

“The most realistic approach could be to pattern it on a joint government-industry demonstration plant concept. Such a program could be initiated by a clearly identified governmental sponsor, which would solicit specific proposals from private companies for a variety of joint efforts. Government financing would then carry the projects through the stage of demonstrated technology. Thus, if a module(s) successfully demonstrates a technology, and if economic conditions permit, the government’s interest could be acquired by the program’s industry partner under previously agreed-upon terms.”

[After the Bay of Pigs, Kennedy noted that "While success has a thousand fathers, failure is an orphan."  With oil shale, success would have one father--the oil companies--while failure would be a ward of the state.]

Irrespective of the outcome of the debate on the real status of ‘peaking’ oil, shale oil process testing must happen. I have no doubts of our ability to make the transition. Our country has proven time and again that we can meet enormous challenges and succeed. Please let me know if you would like any of the above referenced materials or if I may be of assistance to you.

Sincerely,
Robert A. Loucks

Bob Loucks has been involved in shale oil for the past 30 years. He was Project Manager of the C-b Project in Colorado, part of the 1974 DOI Prototype Leasing Program to prove the viability of the resource. He is author of the book "Shale Oil - Tapping the Treasure."

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