Presenter: James T. Bartis, Senior Policy Researcher, Rand Corporation
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Bartis, James T.

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SLIDES: Costs and Benefits of Oil Shale Development

Colorado Law

University of Colorado Law School Colorado Law Scholarly Commons The Promise and Peril of Oil Shale Development (February 5) 2010 2-5-2010 SLIDES: Costs and Benefits of Oil Shale Development James T. Bartis Follow this and additional works at: https://scholar.law.colorado.edu/promise-and-peril-of-oil-shale-development  Part of the Administrative Law Commons, Climate Commons, Energy and Utilities Law Commons, Energy Policy Commons, Environmental Health and Protection Commons, Environmental Law Commons, Environmental Policy Commons, Geotechnical Engineering Commons, Land Use Law Commons, Natural Resource Economics Commons, Natural Resources Law Commons, Natural Resources Management and Policy Commons, Oil, Gas, and Energy Commons, Oil, Gas, and Mineral Law Commons, President/Executive Department Commons, Public Policy Commons, Science and Technology Law Commons, State and Local Government Law Commons, Water Law Commons, and the Water Resource Management Commons Citation Information Bartis, James T., "SLIDES: Costs and Benefits of Oil Shale Development" (2010). The Promise and Peril of Oil Shale Development (February 5). https://scholar.law.colorado.edu/promise-and-peril-of-oil-shale-development/2 Reproduced with permission of the Getches-Wilkinson Center for Natural Resources, Energy, and the Environment (formerly the Natural Resources Law Center) at the University of Colorado Law School. Costs and B fit fene s o  Oil Shale DevelopmentJames T. BartisFebruary 2010RAND Focus is on Three Questions• What are the prospects for oil shale       development?• What is the strategic significance for the U.S. of developing a domestic oil shale industry?• What are the critical policy issues surrounding the prospect of oil shale development?bartis-2 2/2010     The Bigger Energy PictureOil d ti•  pro uc on– Global liquids production:  85 million barrels per day– U.S. liquids consumption: 19 million barrels per day– U.S. imports:  10 million barrels per day • Problems with oil– Costs too much– Supplies are not secure– Causes environmental damage– Releases greenhouse gases• But alternatives are limited– Many biomass resources are not climate-friendlyGreatest potential is efficiency and electrificationbartis-3 2/2010–      Are We Running Out of Oil?“S t di t d t d i h t fecre ary pre c e  o ay a ser ous s or age o  crude oil within a year and exhaustion in fourteen to twenty years…”bartis-4 2/2010Are We Running Out of Oil?“S t di t d t d i h t fecre ary pre c e  o ay a ser ous s or age o  crude oil within a year and exhaustion in fourteen to twenty years…”SecNav: Frank Knox   New York Times:  26 June 1943bartis-5 2/2010Are We Running Out of Oil?“S t di t d t d i h t fecre ary pre c e  o ay a ser ous s or age o  crude oil within a year and exhaustion in fourteen to twenty years…”SecNav: Frank Knox   New York Times:  26 June 1943COAS: Crude oil anxiety syndrome (aka: Peak Oil)        – At least 5 outbreaks since 1880bartis-6 2/2010Are We Running Out of Oil?“S t di t d t d i h t fecre ary pre c e  o ay a ser ous s or age o  crude oil within a year and exhaustion in fourteen to twenty years…”SecNav: Frank Knox   New York Times:  26 June 1943COAS: Crude oil anxiety syndrome (aka: Peak Oil)        – At least 5 outbreaks since 1880M t b li th t l b l d ti fany exper s e eve a  g o a  pro uc on o  conventional oil will peak in the 2020 to 2035 timeframebartis-7 2/2010Questions and AnswersQuestion Answer• Wh t th t f • Massive resources but costly toa  are e prospec s or oil shale development?     extract; technology advances are promising, but decades before there could be significant production• What is the strategic significance for the U.S. of developing a domestic oil shale industry?• What are the critical policy issues surrounding the prospect of oil shale development?bartis-8 2/2010Colorado Will Be the Focus of Early Development • Green River Formation has largest deposits in the worldGreen River Formation– Estimates are of 1.5–1.8 trillion barrels in place• Recoverable estimates are   very high– Upper bound:  1.1 trillion– Lower bound: 500 billion    – Midpoint:  800 billion• Present U.S. demand for oil is about 20 million bpd    • If oil shale could be used to meet 1/4 of demand, 800 billion barrels would lastbartis-9 2/2010    over 400 yearsThe Development Timeline Is Long D l t Initialeve opmen  StageFacilitySiR&DScale-up and Confirmation Commercial Operations Production GrowthLaboratoryto Pilot Plant1,000–5,000bpd>50,000bpd>100,000bpdzeYears to 0 6–8 12–16 >20 >30  Transition*TotalProduction(millionbpd)N/A N/A >0.1 >1 >3bartis-10 2/2010*Beginning with the transition from R&D.  N/A=not applicable; bpd=barrels per day.Questions and AnswersQuestion• Wh t th t fAnswer• Massive resources but costly toa  are e prospec s or oil shale development?     extract; technology advances are promising, but decades before there could be significant production• What is the strategic significance for the U.S. of • Large economic gains, lower oil prices, new jobs, and geopolitical developing a domestic oil shale industry?benefits • What are the critical policy issues surrounding the prospect of oil shale development?bartis-11 2/2010Economic Benefits Include Economic Profits,Employment Benefits Reduced Oil Prices ,   Assuming production of 3 million barrels/dayEconomic Profits• Maybe tens of billions of dollars per year in profits• About half will go to federal, state, local governments via lease bonus payments royalties    ,  on production, and corporate income taxesEmployment Benefits• Few hundred thousand jobs created, either directly or indirectly associated with shale oil     • Net job effect depends on where alternative investments would be madeReduce World Oil Prices• World oil prices would be likely to fall 3–10%, but depends on future OPEC behavior• Assuming 3–5% drop, benefits to U.S. consumers bartis-12 2/2010would likely be $15–45 billion per yearEconomic Benefits Include Economic Profits,Employment Benefits Reduced Oil Prices ,   Assuming production of 3 million barrels/dayEconomic Profits• Maybe tens of billions of dollars per year in profits• About half will go to federal, state, local governments via lease bonus payments royalties    ,  on production, and corporate income taxesEmployment Benefits• Few hundred thousand jobs created, either directly or indirectly associated with shale oil     • Net job effect depends on where alternative investments would be madeReduce World Oil Prices• World oil prices would be likely to fall 3–10%, but depends on future OPEC behavior• Assuming 3–5% drop, benefits to U.S. consumers bartis-13 2/2010would likely be $15–45 billion per yearEconomic Benefits Include Economic Profits,Employment Benefits Reduced Oil Prices ,   Assuming production of 3 million barrels/dayEconomic Profits• Tens of billions of dollars per year in profits • About half will go to federal, state, local governments via lease bonus payments royalties    ,  on production, and corporate income taxesEmployment Benefits• Few hundred thousand jobs created, either directly or indirectly associated with shale oil     • Net job effect depends on where alternative investments would be madeReduce World Oil Prices• World oil prices would be likely to fall 3–5%• Benefits to U.S. consumers would likely be $10–25 billion per yearbartis-14 2/2010National Security Benefits Derive from LowerWorld Oil Prices and Increased Supplies     • High world oil prices and tight supplies increase        geopolitical leverage of oil-exporting countries to:– Pursue policy goals that run counter to U.S. interests– Purchase weapons or develop own industrial base for munitions manufacture– Assist large terrorist organizations   • Principal value of oil shale would be its role in a portfolio of measures to increase oil supplies and decrease demandbartis-15 2/2010Questions and AnswersQuestions• Wh t th t fAnswer• Massive resources but costly toa  are e prospec s or oil shale development?     extract; technology advances are promising, but decades before there could be significant production• What is the strategic significance for the U.S. of • Large economic gains, lower oil prices, new jobs, and geopolitical developing a domestic oil shale industry?benefits • What are the critical policy issues surrounding the prospect of oil shale development?• Resolving technical, environmental, governance issues will determine whether and how quickly a strategically significant industry willbartis-16 2/2010    develop Oil Shale Industry Will Have Environmentaland Socioeconomic Impacts  Land Use • Major land use and ecological impacts; surface i h i i iretort ng more t an n-s tu convers onAir Quality• Early plants could prevent future growth; available studies from 1980s are no longer relevantClimate Change• Will entail significantly higher CO2 emissions compared to conventional oil operations; controlling them will lead to slightly higher costs Water Quality• All resources lie in Colorado River drainage basin• Issue is leaching of salts/toxics from spent shale or fa ter underground extraction operations ceaseSocio-economic• Will stimulate significant population increases in area, which will likely stretch financial ability to provide bartis-17 2/2010needed public servicesSeveral Challenges Currently Constrain and/orLimit Commercial Production  Production • Nobody knows until they build a pioneer facilityCostsMarket Risks • Investments deferred until enough safety cushion between production costs and what market will payLeasing of Federal • Richest/most abundant deposits on Federal lands• Normal leasing approach of BLM will not work—e gLands       . ., too many near-neighbor problems• Must address public/private sector equity issuesWater • 3 barrels of water needed for each barrel of shale oil Consumption          • Nearer term issue:  local water supply infrastructure• Bigger issue:  Other demands for water from greater Colorado River Basin; 1980s analyses outdatedbartis-18 2/2010     Challenges for Oil Shale Development• Providing incentives for pioneering firms– Low royalty payments, tax incentives• Protecting the public interest in oil shale– Much higher royalty payments as technical risks decrease• Governance of intensive development in a compact area– How can the public get reliable information?      – How can multidimensional environmental oversight be implemented?What is the mechanism to balance local state and federal–       , ,   interests? – Is a “port authority” approach appropriate?bartis-19 2/2010In-Situ Conversion May Be Viableand Its Costs Are Very Promising     Approach Technical Viability/Commercial Readiness CostsMining and Surface Retorting• Current state of the art in mining can support oil shale development$70–$95per barrel• Technical risks are low, but major scale-up issues for initial commercial plants—requires large-scale testingIn-Situ Conversion• Small-scale testing indicates process may be technically/economically viable???maybebelow $50• But confirmation requires controlling groundwater during production and preventing subsurface environmental problems per barrelbartis-21 2/2010

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SLIDES: Costs and Benefits of Oil Shale Development

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