Kerogen Oil Shale: The Next Rock of Ages?
Oil shale is not conventional oil that can flow through geological formations. It is a fine-grained sedimentary rock containing kerogen which is a fossilized mixture of insoluble organic material that, when heated, breaks down into crude oil and natural gas. For this reason, oil shale—not to be confused with shale oil—is often called “kerogen”.
Chemically, oil shale consists of carbon, hydrogen, oxygen, nitrogen, and sulphur and forms from compacted organic material. This rock has not been geologically buried for a time sufficient to produce conventional hydrocarbons. Though it hasn’t been buried for long enough to form conventional hydrocarbons, oil shale formation began millions of years ago through the deposition of silt and organic debris on lakebeds and sea bottoms.
Is it a good investment? Well, that depends.
Other than what we’ve noted above, we don’t know too much about kerogen, other than it cannot be extracted via traditional methods, or through the use of organic chemical solvents. The thing is, kerogen is INSIDE the rock itself—part and parcel of the rock—so in order to get it out one has to use thermal technologies. Sometimes there is so much rock in proportion to the kerogen in place that it’s not feasible to even try.
Worldwide it is estimated that there are nearly 3 trillion barrels of kerogen, but much of it may not be accessible.
There are two ways to get the kerogen out of the rock. Both involve underground mining, one using thermal treatments that are completed above surface, the other using in situ thermal processes. The in situ process involves heating the source rock for several years until the organic material has vaporized and then can be recovered through traditional well extraction methods. Shell is the pioneer in this field, but it’s all still at the experimental phase.
The entire process is horrifyingly energy intensive. From the US perspective, it would take enough electricity to power up 9 million homes just to extract 1 million barrels per day (or 5% of nationwide consumption). Likewise, the amount of water needed is a crippling 46 billion gallons per year. On top of that is the cost of the mining itself, which would dwarf coal-mining in sheer volume of rock dealt with.
According to experts, it will not be economically feasible to extract kerogen unless oil prices rise to around $110/barrel, at a bare minimum.
Using Shell’s in-situ thermal processing technology in Israel, explorers believe they will be able to reduce the cost of extraction from $70-$100 per barrel to $30-$40 per barrel. They also say it will reduce the carbon footprint of kerogen extraction.
Oil Shale Exploration Venues
China, Brazil and Estonia already have well-developed oil shale industries, and Estonia gets 90% of its power from oil shale, though production has recently declined with alternatives becoming cheaper and regulations stiffer. But here are some other venues that we are eyeing for the future:
In Wyoming and Colorado, around the Wind River and the Unita and Wasach Mountains, sits the largest kerogen deposit in the world. We’re talking around 1.8 trillion barrels of technically recoverable oil from kerogen. That’s an incredible amount!
But it’s not going anywhere fast, though both the majors and juniors are doing their best to get it where it needs to be. Four companies have exploration contracts on this land, including supermajors Shell and Chevron and smaller companies IDT and Oil Shale Exploration.
The technology is also only in the experimental phase, so this is very early days. The EIA itself doesn’t foresee major kerogen production until 2035.
So for the US, the story of kerogen is an expensive alternative that won’t see the light of day until we need it—and someday surely we will and the four companies exploring here are taking the long-term view.
The story of energy-starved Jordan, though, is a different one—and we take you through Jordan’s energy dilemma in-depth in this week’s executive report. The kerogen in Jordanian oil shale organic material that consists primarily of marine algae and marine micro-organisms deposited in vast quantities 65 million years ago, when most of Jordan was an extended, relatively shallow, tepid warm ocean plateau extending north from the paleo-shoreline (which was located roughly where Wadi Rum is now). Normally, kerogen-rich shale is the primary source rock for conventional hydrocarbon oil and gas systems like those found in Saudi Arabia and the North Sea.
For Jordan, the situation is desperate, so oil shale could play a key role in the country’s energy policy. Jordan first toyed with developing its oil shale reserves back in 2006, but it couldn’t afford the price of extraction. Plans are back on track as of 2008 thanks in part to the rise in oil prices. It is especially urgent now with continuous cuts in gas supplies from Egypt. In June, Jordan announced plans to build the Middle East’s first oil shale-fired power plant. Jordan is sitting on an estimated 100 billion barrels of oil shale reserves, the fourth largest in the world—after the US, China and Russia, and depending on which of Israel’s estimates one believes.
The kingdom’s goal is to meet 14% of its energy needs with its shale deposits by 2020, and the new plant is scheduled to be up and running by 2017, with a planned capacity of 500 megawatts. This could translate into a savings of $500 million a year for Jordan. For expertise, the Kingdom has contracted Estonian oil shale veterans in the form of Enefit.
Some believe Israel could have up to 250 billion barrels of oil shale trapped in rock formations, though there is some disagreement on this and other earlier estimates put the figure at around four billion barrels.
Israel is under less pressure than Jordan to develop its kerogen deposits thanks to massive gas finds in its Levant Basin, but its kerogen ambitions are still on track. Israel believes it has the second-largest kerogen deposits in the world, after the US. Situated in southern and central Israel, these kerogen deposits are being most fervently explored by Israel Energy Initiatives (IEI). But it’s an uphill road, not only because of the expense but also because of the environmental concerns that kerogen extraction has too high a carbon footprint, especially when the drilling is taking place in an ecological corridor that covers Israel’s main water supply. IEI, though, is hoping to prove otherwise. IEI’s parent company is Genie Energy, and drilling should start sometime this year. They’ve already got the green light. (Genie Energy comprises IDT Energy and Genie Oil and Gas). For IEI, kerogen is the “heir apparent to oil”, and it’s only a matter of time before the right technology is in place, and the right market, for it to become economically feasible to extract kerogen.
So if you’re looking for an oil shale opportunity that’s already feasible, Brazil is probably the best choice, but investors should look further afield to Israel, Jordan and even the US, because eventually kerogen will be the next rock of ages.
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June 6th, 2020
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