Isn’t it time to tap U.S. emergency oil reserves?

Has anyone considered using the oil shale deposits in Colorado? The U.S. has the largest reserves of oil shale in the world by far. In a RAND Corporation report in 2005, it stated that oil shale production would be economically viable when oil reached $75 dollar per barrel.
— Joe, Norfolk, Va.

A lot of people have considered it very carefully, and a number of companies are moving forward with pilot projects to test a variety of methods of extracting this form of “unconventional” oil. But it’s not likely to make a big dent in growing U.S. demand or offer price relief at the gas pump anytime soon.

The problem is that producing oil from shale (and its geological cousin known as tar sands) is much more expensive because the fuel is trapped in porous rock and has to be mined, crushed and heated before the oil can be extracted. Generating all that heat requires costly sources of energy. The process also requires large volumes of water — which is in short supply in Colorado and other western states where oil shale deposits are located.

The other major issue with oil shale projection is that the environmental impact can be much greater than with conventional oil. Modern drilling techniques — especially horizontal drilling — have reduced the footprint required to extract oil from the ground. But oil shale production is really a mining operation: you have to dig up millions of tons of rock, extract the oil and then dispose of the rock. That also means that the total “proven” reserves tend to overstate the availability of the oil. Much of the shale is buried so deeply in the ground, it’s highly unlikely it could ever be tapped.

These deposits aren’t new discoveries. The rise in oil prices in the 1970s spurred development of oil shale in the 1980s. But most of these projects were abandoned when oil prices fell back below the cost of production. At $140 a barrel, the economics are much more compelling. But investors in oil shale production have to be convinced that oil prices won’t crash again before they'll make the large bets needed to expand oil shale production again.

At current oil prices, other “unconventional” liquid fossil fuels — including fuel made from coal or natural gas — also become economically viable. We’ll have to see if oil prices remain at these levels before producers are convinced the required investments will pay off.

In its latest Annual Energy Outlook, the Department of Energy estimates that, if oil prices stay above $100 a barrel, unconventional oil production could add another 1.5 million barrels per day to U.S. production by 2030, with most of that coming from liquid fuel made from coal.

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