It wasn't long ago that "peak oil" -- the notion that the world's supply of our primary fuel is declining toward insufficiency -- was a major worry for some. Now, we've recently had news that the General Accounting Office in Washington has pegged the potential oil reserves in a remote area where Wyoming, Utah, and Colorado converge at trillions of barrels.

If that's correct, it would put us well ahead of even the Saudis' cache. In fact, it would propel us beyond the combined reserves of all OPEC countries.

Don't believe everything you hear
The trouble with these contentions -- that we're either on the verge of exhausting the earth's oil or we're practically swimming in black gold -- is that neither is likely to be 100% correct. We've heard for years about the peak oil concept. It's one of those subjects on which you can solicit a dozen opinions and receive as many different answers. But the second premise, that the "Green River Formation" in the West contains the globe's mother lode of oil, is even more problematic.


You may have heard the news earlier this month that Anu K. Mittal, the U.S. Government Accountability Office's director of natural resources and environment, told a house subcommittee that the formation, an assemblage of more than 1,000 feet of sedimentary rocks, contains "the world's largest deposits of oil." More specifically, according to Ms. Mittal, the U.S. Geological Survey "estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions."

There were two other critical statements tucked away in her testimony:

  • "As you can imagine, having the technology to develop this vast energy resource will lead to a number of important socioeconomic benefits including the creation of jobs, increases in wealth, and increases in tax and royalty payments for federal and state governments."
  • "The federal government is in a unique position to influence the development of oil shale because nearly three-quarters of the oil shale within the Green River Formation lies beneath federal lands managed by the Department of the Interior's Bureau of Land Management."

I suggest, however, that you hold your screams of euphoria -- especially those based on the first bullet point. It's also premature to expect the Energy Information Administration to immediately revise the estimated U.S. oil reserves to somewhere in excess of 1.5 trillion barrels. You see, there's more to the story than simply accepting the testimony to Congress at face value.

Coal in our stockings?
The phrase, "having the technology to develop this vast energy resource" indicates the rub here. It turns out that, using today's economics and available technology, the oil shale at Green River isn't quite ready for prime time. Unlike the oil that's trapped in shale rock in formations like the Bakken and the Eagle Ford, oil in the play to the west exists as kerogen, a coal-like solid. To render it usable, heating of the oil to about 700 degrees or in-situ mining is required.

That, in case you're wondering, explains the absence of a latter-day gold rush among the oil companies -- perhaps led by ExxonMobil (NYS: XOM) -- to produce oil from the formation. Royal Dutch Shell (NYS: RDS.B) is the only company among the majors that is active in the formation. It's working on the first of three BLM research, development, and demonstration studies. So there remains little indication whether the oil shale is likely to yield significant output anytime soon. Indeed, an effective production process will likely require far more advanced technology than is currently available, and it may only occur with crude prices well above today's levels.

Private industry is preferable
Furthermore, the idea that the federal government should lead in influencing the development of oil shale is hard to accept. Indeed, it calls to mind President Obama's fallacious contention earlier this year that "it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock." Reality tells us that Halliburton (NYS: HAL) , along with what is now a part of Devon Energy (NYS: DVN) , was really at the forefront of developing the techniques that now yield "all this natural gas." And looking ahead, it's difficult to place stock in energy leadership from an administration headed by a president who has said, "We must end the age of oil."

For now it appears that our domestic oil production will be concentrated in the Gulf of Mexico, along with such active onshore plays as the Bakken, the Eagle Ford, the Niobrara -- something of a neighbor of the Green River -- and the revitalized Permian Basin of southwest Texas and southeastern New Mexico. And then, for added long-term stability, we always have our friends to the north.

Foolish bottom line
We currently receive more imported oil from Canada than from any other source, much of it from the tar sands of northern Alberta. On that basis, real leadership from the White House would include approval of TransCanada's (NYS: TRP) proposed Keystone XL pipeline. Earlier this month the company proposed a new -- and hopefully more acceptable -- route through the U.S., leading to the Texas coast. It's hard to imagine our Canadian neighbors being anything but our friends.

Given my strong belief that its new proposal markedly increases the prospects for an approval of an extended Keystone line, I'd urge Fools to monitor TransCanada closely -- and start by adding the company to My Watchlist.

At the time this article was published Fool contributor David Lee Smithdoesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Devon Energy. Motley Fool newsletter services have recommended buying shares of Halliburton and Devron. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Robert Fanney

The oil shale in the Green River basin represents the most expensive, uneconomical, and environmentally dangerous energy source on the planet. It's not vast riches, but a vast money and energy sink. You need oil to remain over $100 per barrel just to make it profitable. You need water in the region that isn't there. You need extra energy infrastructure to bake the land to produce the oil. The energy return on energy invested is 1.5 to 1. A far cry of the 100 to 1 of the oil fields of yore. Yes, the resource is vast. But it is vastly dispersed. If old oil fields represented black gold, these fields represent black pennies.

Energy returns for solar are 10 to 1 or more. Energy returns for wind are 18 to 1 or more. The energy return for increases in efficiency are vast. If you want the price of energy to go down and be beneficial to the economy, that's what you need to invest in.

May 24 2012 at 4:25 PM Report abuse rate up rate down Reply
Dana Blankenhorn

I know you're desperate to defeat the President, but natgas prices have crashed and oil prices are crashing, now, under this President, while they were rising under the previous one. How that makes Obama anti-oil and Bush pro-oil then becomes obvious. You're talking about profits rather than production. You're talking about the ability to screw America rather than be American. And that's anti-America.

May 24 2012 at 9:41 AM Report abuse rate up rate down Reply
Jeremy Boak

Art Myatt is almost as off base as David Lee Smith. No process melts kerogen or produces kerogen as a liquid. The product of retorting, either in situ or at the surface, is oil. In situ retorting produces a very high quality product (API gravity 35-45). Commercial technology has been in operation for decades in China, Estonia, and Brazil, and the Estonians are bringing their latest retort to Utah, with startup intended in 2019. It is wrong to assert that ExxonMobil is not engaged, nor that Shell is the only major involved. ExxonMobil has a large effort underway at the Colony mine using its own in situ technology, and has just had its RD&D lease application advanced past the Environmental Assessment stage.

Myatt is dead wrong about energy return; energy return on investment is greater than one by all published estimates. Shell calculates 3.5-5 barrels produced for input of a barrel of energy. Unocal produced six million barrels of oil from oil shale after ExxonMobil had shut down its effort in 1982, not exactly a small quantity.

Myatt appears not to have found the real technical information published as proceedings of our Oil Shale Symposia, held each year in Golden CO. His comment displays perfectly the danger of reading a smattering of websites, mostly citing old out-of-date information, and generally opposed to oil shale. But he is right to criticize the author of this article for lack of current knowledge. Oil shale production will rise slowly, as is true for all other major energy sources. Whether the very large resource (and half a trillion barrels is not out of line for an estimate of the potential of the Green River Formation) ever reaches a million barrels a day depends upon many things. But it is neither unrealistic to be interested, nor to be guarded about the potential of this challenging resource.
Jeremy Boak, Director
Center for Oil Shale Technology and Research
Colorado School of Mines
Viewpoints are mine, not positions of the Colorado School of Mines

May 23 2012 at 3:03 PM Report abuse rate up rate down Reply
Art Myatt

The enormous deposits in the Green River area of Colorado, Wyoming and Utah are not oil. They are kerogen. In other words, they are not "black gold" because kerogen is not black, and (also unlike oil) kerogen is not a liquid. The fact that kerogen is not a liquid means you can pump oil out of the ground and you can pump it to refineries in pipelines, but you cannot do the same with kerogen.

With kerogen, you have to mine great quantities of rock and kerogen, and then separate the kerogen form the rock. This takes lots of energy. Alternatively, you can heat great quantities of rock underground to melt the kerogen, and pump it out while it is melted. this also takes lots of energy. In either case, you then have to use even more energy to crack the kerogen into fuel, and add hydrogen to produce as much fuel as possible. When you are done, you have liquid fuel that cost more to produce than the market will pay for the product.

The kerogen deposits are not a new discovery. They have been known for over a century. There was a great deal of hype about the "shale oil" kerogen deposits in the oil crisis of the 1970s. Universities and oil companies tried to figure out how to make use of them. Some liquid fuel was made from kerogen, but nobody ever figured out how to mine the stuff and process it into fuel at a profit. Nobody yet knows how to do that, and it is possible that nobody ever will, for the same reasons that nobody has figured how to make a profit splitting water into oxygen and hydrogen and then using the hydrogen as a fuel.

It takes more energy to make the fuel than you can get out of burning the fuel. That's true for hydrogen made from water. it's true for diesel fuel made from kerogen. It's a losing investment, like many other versions of perpetual motion schemes.

You may as well tell farmers in India suffering from a drought that salvation is just around the corner because the USGS has discovered enormous deposits of fresh water in the Great Lakes. The deposits do exist. There is no practical or profitable way to make use of them.

It's not hard to figure any of this out. You don't have to be a technical genius. You only have to spend an hour or so doing a little basic research on the internet. Wikipedia has everything you need to know about the subject, although it certainly makes sense to consult other sources to check the information. If your reporters and editors cannot be bothered to find out the elementary facts on the subject, we ought not to bother reading your publication.

May 23 2012 at 12:42 PM Report abuse rate up rate down Reply
Sandra Cass

Mr. Smith

Thanks for a balanced report. It is refreshing to see investment advisors beginning to understand physics and geology and not jump on the bandwagon regarding our "Vast" energy resources. We are facing a very rough energy future and we need to have adult conversations about it.

May 23 2012 at 10:40 AM Report abuse rate up rate down Reply