Energy Issues

 Vol. 233 No. 12

Elsewhere in this issue, you will find a review of shale gas and shale oil resources and development around the globe. It points to global expansion of the boom that began in the U.S. a few years ago. Probably, few of us realize, though, that this is not the first shale boom, or the second, or the third, but the fourth. I knew of one previous boom, but only because I lived in Aberdeen, which is not far from where the modern shale oil industry began in the 1850s.

Humans have been setting oil shale, taken from outcrops, on fire since prehistoric times, because it generally burns without any processing. Around 3000 BC, it was used in more modern applications, such as road construction and adhesives. Over the centuries that followed, it was used by multitudes of cultures as a decorative material, for medical purposes and in military applications, such as flaming arrows. But it was not until 1837 that commercial mining for modern industrial use began in France, followed closely by the development of techniques to extract illuminating oil from shale oil by retorting, to release the kerogen and extract higher-end components.

First shale oil boom. In 1850, Scottish chemist James Young patented the process of cracking shale oil to create illuminating oil, lubricating oil and wax. Commercial extraction of oil from shale began in Scotland in 1859, lasting until 1962. During the late 19th century, shale oil was produced in Sweden, Australia, Brazil, New Zealand, Canada and the U.S., where commercial operations began in 1857 along the Ohio River Valley. Following the success of Drake’s well in Pennsylvania in 1859, production of oil from wells forced the shutdown of the Canadian and U.S. shale industries by 1861. Modern oil production forced the closure of other commercial shale operations, such as Australia, in the early 20th century.

Shale oil production began its second boom at the outset of military mechanization and on the eve of World War I, due primarily to the conversion of coal-burning warships to oil burners. In 1912, The Office of Naval Petroleum and Oil Shale Reserves was established in the U.S. to serve as an emergency source of military fuel, primarily for the Navy. The following year, the U.S. Geological Survey explored shale deposits in the Western Slope of the Rocky Mountains, leading President Woodrow Wilson to withdraw from the public domain 45,444 acres, divided between two sites in Colorado, and 86,584 acres across the border, in Utah, to create the Naval Oil Shale Reserves.

The interest shown by the federal government in oil shale development led to a shale rush on the Western Slope. Between 1916 and 1920, nearly every shale outcrop was claimed and picked over. Questionable leasing practices and claims soon led to the Mineral Leasing Act of 1920 (MLA) which provided for specific conditions for development of oil reserves on lands in the public domain, and for minimum royalty payments. The MLA, with minor revisions, remains the law that governs fossil fuel development on federal lands today. But the boom turned to bust, due to the onset of the Great Depression and the rising tide of conventional oil production from wells. In 1930, in response to the Teapot Dome scandal (Secretary of Interior Albert Fall was sent to prison for accepting bribes for leases on strategic oil reserves at Elk Hills and Teapot Dome), President Herbert Hoover withdrew all federal oil shale lands from leasing.

Following World War I, shale projects began in Spain, Russia, China and South Africa, and restarted in Brazil and Canada. Production continued at a stable pace through World War II but began to lag shortly thereafter. After World War II, most countries abandoned their projects, due to high costs and the availability of conventional petroleum. Only Estonia, Russia and China continued with their shale programs, post-World War II.

A third shale oil boom, of sorts, began in the U.S. as a direct result of the 1973 oil price crisis. The U.S. Department of the Interior opened a shale leasing program in 1974, in Colorado. By the early 1980s, almost all of the major oil companies had shale oil pilot projects in the U.S. But it wasn’t to last. The oil price collapse in the early 1980s put an end to the third shale oil boom in the U.S., where a series of project terminations ended with the closure of the last shale oil retort, owned by Unocal Corp., in 1992. Outside the U.S., shale oil production continued in Estonia, Brazil, China, Australia and, on a diminished scale, Russia. That production climbed slowly until the fourth shale oil boom began.

The fourth shale oil boom surrounds us. Unlike previous booms, it produces black oil, not kerogen, from depth. It began slowly in the U.S. around 2008, in conjunction with the shale gas boom. In the U.S., the Bakken and Eagle Ford plays have exploded. The rapid rise of Bakken production to around 700,000 bopd (from only some 50,000 bopd a few years ago) has catapulted North Dakota to being the number-two oil-producing state, trailing only Texas. It is estimated that these two plays, and others just beginning development, will increase U.S. oil production by 4.2 million bopd by 2020. While shale oil development outside North America has lagged that of the U.S, the potential is enormous. Russia’s Bazhenov shale play, alone, could hold 80 times the reserves in the Bakken. China has an estimated 333 billion bbl of shale oil reserves. Even countries that aren’t normally associated with oil production have enormous potential. Israel, for example, claims 250 billion bbl of shale oil reserves. Estimates of total world potential have gone as high as 7-8 trillion bbl. What potential! What a boom! But, then, so were the last three.