‘Measured’ approach needed for US fuels development, task force says

Aug. 27, 2007
The US government must use its authority to stimulate timely technical advances and industry investment if it expects to use the nation’s unconventional fuel resources before the overall economy is harmed by global oil supply and demand imbalances, competition for supplies, and higher prices, a government task force concluded.

The US government must use its authority to stimulate timely technical advances and industry investment if it expects to use the nation’s unconventional fuel resources before the overall economy is harmed by global oil supply and demand imbalances, competition for supplies, and higher prices, a government task force concluded.

A “measured” approach, in which government actively responds to or mitigates major impediments and uncertainties to investment-could result in several million new barrels per day of production by 2035, reported the Task Force on Strategic Unconventional Fuels.

By contrast, it added, a “base case” approach, which assumes the current rate of development, existing laws, processes, and fiscal regimes, would make it “unlikely that significant investment in, or production of, unconventional fuels will occur in the foreseeable future.”

An “accelerated” development approach would require government’s sharing of considerable investment and risk with industry “but could perhaps double the incremental production achievable in the same timeframe,” it said.

Primary uncertainties include access to resources on public lands; technology performance and efficiency; capital investment and operating costs; price and market risks; federal and state fiscal regimes; environmental standards, permitting processes, and timelines; infrastructure requirements; water requirements and availability; and socioeconomic impacts of development, the report said. It is posted at the task force’s web site, www.unconventionalfuels.org.

Task force’s origin

US Sec. of Energy Samuel W. Bodman established the task force in March 2006 as mandated under the 2005 Energy Policy Act. In addition to Bodman, it included the US Interior and Defense secretaries; governors of Colorado, Wyoming, Utah, Kentucky, and Mississippi; and representatives from three potentially affected communities. Gov. Jon Huntsman of Utah and Gov. Ernie Fletcher of Kentucky transmitted the initial report of its findings, recommendations, and options to Congress and the White House on Aug. 13.

The report said that, of the more than 2 trillion boe locked in domestic oil shale (including the Green River formation’s 1.5 trillion boe in Colorado, Utah, and Wyoming), as much as 800 billion boe could be recoverable, depending on technology and economics, at around 25 bbl/ton. Production potentially could exceed 2.5 million b/d within 30 years, it added.

A strong response to the US Department of the Interior’s 2005 offering of oil shale research, demonstration, and development leases on federal lands “signals that private industry may once again be ready to aggressively pursue the potential of the nation’s oil shale resources,” the report said.

It said US heavy oil resources in place are estimated at 60-100 billion bbl, with 2 billion bbl proved reserves and another 20 billion bbl potentially recoverable. With current production using enhanced recovery around 302,000 b/d (increased to 500,000 b/d when other processes are included), the report suggested that another 500,000 b/d of domestic heavy oil production could be achieved.

About 11 billion bbl of tar sands appear recoverable from the estimated 54 billion bbl of domestic resources in place, it said. Most of the deposits, about 32 billion bbl, are in Utah, with another 18 billion bbl in Alaska. The balance are in Alabama, Texas, California, Kentucky, and other states. Unlike Alberta’s tar sands, those in the US are often consolidated or cemented and are “hydrocarbon-wet” instead of “water-wet,” requiring new recovery technology, according to the report.

It said that while oil production from US tar sands currently is limited to minor volumes from a few California deposits, output could approach 200,000-300,000 b/d by 2025 with higher oil prices “and public actions to encourage projects.”

CO2 enhanced recovery

Carbon dioxide already is being used domestically in enhanced recovery at 82 projects to produce about 237,000 b/d from the estimated 300 billion bbl of conventional crude left behind in US reservoirs after primary and second production, the report said. Economics, CO2’s price, and relatively scarce infrastructure to deliver CO2 to candidate oil fields currently constrain growth, it continued.

If delivery and other problems could be overcome, the report said that another 90-200 CO2 enhanced recovery projects at $30-50/bbl oil prices could add 2.7-2.9 billion bbl of reserves and 350,000-400,000 b/d of production from 2010 to 2030. The projects would consume 400-600 bcf/year of CO2, it said.

It estimated that first generation US coal-to-liquids plants would have capital costs of $70,000-100,000/b/d of capacity, or $3.5-5 billion for a 50,000 b/d plant. Produced fuels would be competitive at a $45-60/bbl world crude oil price, excluding costs for carbon capture and sequestration and tax credits for other subsidies, the report said. Plants smaller than 50,000 b/d would likely cost more, it added.

Most of the task force’s recommendations in the report attempt to address major unconventional resource development impediments. It calls on Congress and the administration to:

  • Provide an effective land tenure system.
  • Develop an inclusive regulatory and permitting system that provides a predictable schedule.
  • Create a fiscal regime to attract private development capital and a fast-track technology program to generate investment.
  • Formulate effective and integrated local infrastructure plans.
  • Establish a program to handle local social and economic impacts (including consideration of ways to direct mineral revenues to area communities).
  • Develop an effective governmental structure at federal, state, and local levels.

The group also recommended international collaborations on unconventional fuels development, including forming a partnership with Alberta on oil sands and with other countries on oil shale. It also called on the federal government to work with affected states and communities in creating project development processes and conducting initial evaluations of investments which will be necessary to handle social and economic impacts.

The task force said that its next step will be to complete an EPACT-mandated program plan for commercializing US unconventional fuels-including detailed proposed objectives, strategies, key activities, and timelines-which will provide the basis for subsequent program implementation planning.