Monday, August 22, 2005 THEY'RE talking about shale oil in Washington! Many of Slugcatcher's readers might say: "So what" or "It's a dead duck" or "Been there, done that, didn't work". The Slug acknowledges these sentiments but thinks they might need re-visiting.
Oh no, readers groan in cyberland. He's not about to tell us that shale oil is on the comeback trail. Didn't we all learn enough from Southern Pacific Petroleum and its twin, Central Pacific Minerals way back in the 1980s?
Yes, dear reader, we did. But, for youngsters out there a potted history before moving on to fresh pastures.
Way back, and we're talking 1968 here, a gent by the name of Ian McFarlane (later Sir Ian) found SPP and CPM. In 1973 he announced the discovery of 10 world-class deposits of oil-rich (well, technically, kerogen-rich) shale along the Queensland coast. In theory, deposits such as Rundle, Stuart and Condor, were said to contain 25 billion barrels of oil.
For a while, thanks to the Arab-inspired oil shocks which rocked the world in the 70s, SPP and CPM were two darlings of Australian investors, soaring to more than $1 billion in market value.
But getting the oil out of the shale proved all but impossible. It fooled Sir Ian. It fooled his partner for a while, ExxonMobil, and most recently, it fooled Sandefer Capital Partners (trading as Queensland Energy Resources), the current owner of the shale oil deposits.
Late last year, Sandefer formally quit attempts to get an environmental approval to continue testing the shale. But it didn't walk away despite a belief among outsiders, prompted by environmental activists, that the Queensland shale oil dream had come to an end.
The Slug is not privy to what's going on inside the Texas-based Sandefer but he makes these two points, (a) the official position was not quitting, it was withdrawing to conduct technical and financial studies to see if there was a better way to get oil from rocks, and (b) that's also what's happening today in Utah, Wyoming and Colorado.
The trigger for the revival of shale as a possible oil source is obviously the oil price. When the Queensland plan hit the skids oil was heading south. ExxonMobil quit when the price was around $US16 a barrel – which is somewhat less than today's $US60 a barrel.
Big technical hurdles are an issue for the Queensland dream. Put somewhat more simply, the demonstration plant at Rundle has refused to perform as promised, given off large amounts of hydrogen sulphide (rotten egg gas), which pleased neither local residents nor investors.
Roll forward from those bad old days and consider the debate unfolding in Washington where, according to what The Slug's been reading, a number of law-makers, including Orrin Hatch, a senior player in the ruling Republican Party, are keen to kickstart a US shale oil industry.
The argument in the US goes like this. If Canada can have a tar sands-based oil industry, why can't we have a shale-based oil industry. In theory there is said to be up to two trillion barrels of oil in Utah's Uinta basin, Wyoming's Green River basin and Colorado's Piceance basin.
All it needs – and this needs to be said quickly because we don't want detail to muddy the argument – is some US technology and know-how, tax breaks, environmental approvals and a dash of risk capital.
If you think you've heard all this before, well you have. What might make it different is that the US Government might be leaning towards a bit of encouragement for a shale-oil industry, and if that happens, it is only time before Rundle, Stuart and Condor make their reappearance on the radar screen of promoters and investors.
Will it work this time? Who knows. But, one thing is certain. If the price of oil stays at $US60 a barrel there is no question that someone will try to lead a revival of the shale oil industry.
ECM Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
