Shale oil is the innovation of 21st century’

Steven Kopits 

Horizontal drilling and hydrofracking have revolutionized not only the oil business but also the global economy.

They have reduced the price of a barrel of oil by 60 per cent and chopped the US oil trade deficit by US$300 billion per year.

Neither horizontal drilling nor fracking were new. Directional drilling goes back to the 1930s, and modern horizontal drilling was practiced more than a quarter century ago. Hydrofracturing wells – fracking – to improve the flow from an oil or gas reservoir has been a standard well completion technique since 1950.

Shale production began with gas, as shale oil was considered to be unsuitable for commercial extraction. With natural gas in the US typically selling at $7.00 per million British Thermal units (mmbtu) after 2005 – and as high as $12 per mmbtu in 2008 – shale operators had every incentive to borrow money and drill for gas.

By late 2009, shale gas was so successful that gas prices were falling and the finances of shale gas producers were looking increasingly precarious. With the collapse of gas prices in 2011, many shale operators turned to shale oil, hoping to capitalise on, and seek survival through, still sky-high oil prices.

Oil Shale Extraction Methods

Oil shale has been used as an energy source for centuries.
Extracting oil from oil shale requires conversion of the solid hydrocarbons in the rock to liquid form, so that they can pumped or processed. This is done by heating the rock to a high temperature, and separating and collecting of the resultant liquid. This heating process is called retorting.
Oil shale processing and is generally done in one of two ways: surface retorting and in-situ retorting

Surface Processing

Surface processing (also commonly referred to as surface retorting) has traditionally been the more common of the two processes. The process basically entails three steps:

• Mining of the oil shale

Mining of the oil shale can be done using traditional mining methods, either by open pit mining or underground mining (sometimes called room-and-pillar method).

• Thermal processing or retorting above ground, and
• Processing of the shale oil to obtain a refinery feedstock and value-added by-products, disposal of the spent shale

Surface processing has many disadvantages:

• Both mining methods have a large land impact and consume large amounts of water (as the process requires water for operations and also requires pumping out  groundwater to prevent flooding of the mines).
• Surface (or open-pit) mining involves a considerable land impact while Room-and-Pillar mining methods are considered inefficient: approximately one-third of the resources are left behind in pillars and/or unmined areas. In fact, the thicker  the resource the less efficient the mining process becomes.
• Disposal of the waste shale is a major problem for some processes, requiring large quantities of water.

In-Situ Retorting

In-situ (Latin for ”in place”) is the technology for processing oil shale underground.
This process obviates the problems of mining, handling, and disposing of large quantities of material, which occurs for above ground retorting. In-situ retorting also offers the potential of recovering deeply deposited oil shale.
In an in-situ process, the oil shale is slowly heated underground and the resultant liquids and gas are being extracted directly from the reservoir, in a manner not different from pumping crude oil.
Utilizing slow heating methods and lower heating requirenments than those used in surface retorting holds another key advantage: the shale oil produced will be of a superior quality that that produced in above-ground retort facilities, materially reducing the upgrade requirements before delivery to refineries can take place.
In-situ technologies have been successfully demonstrated on a small scale. Various technologies differ by the method used to introduce heat underground, but follow the same basic principle.

Economics

NYMEX light-sweet crude oil prices 1996–2009 (not adjusted for inflation)

Main article: Oil shale economics

The dominant question for shale oil production is under what conditions shale oil is economically viable. According to the United States Department of Energy, the capital costs of a 100,000 barrels per day (16,000 m³/d) ex-situ processing complex are $3–10 billion.^[60] The various attempts to develop oil shale deposits have succeeded only when the shale-oil production cost in a given region is lower than the price of petroleum or its other substitutes. According to a survey conducted by the RAND Corporation, the cost of producing shale oil at a hypothetical surface retorting complex in the United States (comprising a mine, retorting plant, upgrading plant, supporting utilities, and spent oil shale reclamation), would be in a range of US$70–95 per barrel ($440–600/m³), adjusted to 2005 values. Assuming a gradual increase in output after the start of commercial production, the analysis projects a gradual reduction in processing costs to $30–40 per barrel ($190–250/m³) after achieving the milestone of 1 billion barrels (160×10⁶ m³).The United States Department of Energy estimates that the ex-situ processing would be economic at sustained average world oil prices above US$$54 per barrel and in-situ processing would be economic at prices above $35 per barrel. These estimates assume a return rate of 15%.Royal Dutch Shell announced in 2006 that its Shell ICP technology would realize a profit when crude oil prices are higher than $30 per barrel ($190/m³), while some technologies at full-scale production assert profitability at oil prices even lower than $20 per barrel ($130/m³).

To increase the efficiency of oil shale retorting and by this the viability of the shale oil production, researchers have proposed and tested several co-pyrolysis processes, in which other materials such as biomass, peat, waste bitumen, or rubber and plastic wastes are retorted along with the oil shale.Some modified technologies propose combining a fluidized bed retort with a circulated fluidized bed furnace for burning the by-products of pyrolysis (char and oil shale gas) and thereby improving oil yield, increasing throughput, and decreasing retorting time.

Other ways of improving the economics of shale oil extraction could be to increase the size of the operation to achieve economies of scale, use oil shale that is a by-product of coal mining such as at Fushun China, produce specialty chemicals as by Viru Keemia Grupp in Estonia, co-generate electricity from the waste heat and process high grade oil shale that yields more oil per shale processed.

A possible measure of the viability of oil shale as an energy source lies in the ratio of the energy in the extracted oil to the energy used in its mining and processing (Energy Returned on Energy Invested, or EROEI). A 1984 study estimated the EROEI of the various known oil shale deposits as varying between 0.7–13.3;^[68] Some companies and newer technologies assert an EROEI between 3 and 10. According to the World Energy Outlook 2010, the EROEI of ex-situ processing is typically 4 to 5 while of in-situ processing it may be even as low as 2.