June 27, 2005

Why We’re Taking High Oil Prices in Stride (Our Energy Future is Brighter than Some Think)

CRUDE SMASHES RECORD $60 PER BARREL. However, oil prices cannot remain permanently at such high rates, much less rise to permanently higher levels, without pricing themselves out of business. Concerns that ‘We’re Running Out of Oil’ appear to be equally unfounded. The reason is that an alternative energy supply is available at a lower price—in massive quantities.

It’s oil shale:

North America’s 3.7 trillion barrel resource base of unconventional fuels, exceeds by nearly 40 percent the entire World’s known remaining conventional oil supplies. America’s oil shale resources alone exceed 2 trillion barrels of oil equivalent.

Concentrated largely in Colorado, Wyoming and Utah, as well as in several eastern states, nearly 80 percent of the domestic oil shale resource base is on Federal lands. The quality and richness of the oil shale deposits makes the potential yields per acre very high relative to petroleum and the impacted surface area very low.

...An estimated 750 billion to 1 trillion barrels of shale oil could be recovered from America’s oil shale resource base providing oil for 100 years or more.

What’s the cost of converting oil shale to gasoline? A mere $40 a barrel:

Below forty dollars a barrel, oil-shale oil is not competitive with conventional crude oil. If the oil price were to stay permanently at over forty dollars a barrel (with no chance of declining, which could be the case if oil shale were to be exploited on a large enough scale), then companies would exploit oil shale.

So what’s the hold-up? It takes a lot of money to start an industry that converts oil shale to gasoline, and nobody wants to bother if oil prices are going to drop:

...During the oil crisis of the seventies, people thought that oil supplies were peaking, expected oil prices to be around seventy dollars a barrel for some time to come, and invested huge amounts of money in refining oil shale — money that they lost. Because of the astronomical sums that were lost last time around there is considerable reluctance to invest in oil shale this time around. Investors are waiting to see if oil prices really will remain this high (in mid-2005: $50+). Prices are rising because the newly capitalist Chinese are buying cars. Will high prices result in the discovery of more oil, as happened in the seventies, or will alternatives to drilling for oil have to be developed? Investors, burnt badly in the eighties for their enthusiasm of the seventies, are in no hurry to develop oil shale. Those who lost money then are inclined to believe that more oil will be found bye and bye.

So if you’re wondering why the country is so able to take high oil prices in stride, this is part of the answer.

By the way, the country could decide to slap a tariff on imported oil, such that imported oil prices could not be less than $40 a barrel. That would protect an internal oil shale industry. And that would be game over for America’s dependence on foreign oil.

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Categories: Energy Independence, Previous Featured Posts, Science & Technology, The Economy
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