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Ceres: Proceed Into Oil Shale Investments With Caution

Domestic oil shales offer "vast development potential," but without sustained high oil prices they may not be profitable, according to a report released Thursday by Boston-based Ceres, a coalition of investment, environmental and public interest groups.

"With technologically recoverable reserves estimated at about 800 billion barrels in the U.S. -- three times the size of Saudi Arabia's proved reserves -- oil shale offers vast development potential," but testing, preparation and research and development are costing companies hundreds of millions of dollars, according to the report. Investors' potential exposure is significant, said Ceres, noting that the key variable in competitiveness is the price of oil.

"Oil shale may not be profitable unless oil prices are in the $70-95 per barrel range," while coal to liquid (CTL) is viable when the price of oil exceeds $40-55/bbl, according to the report.

An increased focus on energy security, dwindling petroleum reserves and the Obama administration's recent reversal of a decision to allow offshore drilling in the gassy eastern Gulf of Mexico and portions of the Atlantic and Pacific coasts (see Daily GPI, Dec. 2) are driving investor interest in on-shore oil reserves, Ceres said. But oil shale and CTL technologies face significant environmental and financial obstacles from water constraints, technological uncertainties and regulatory and market risks.

Water constraints are especially problematic for oil shale production, because most of the reserves are located in the water-stressed states of Colorado, Wyoming and Utah.

"Even if there is enough water to satisfy the needs of oil shale processing, the general scarcity of water in the regions where the shale deposits are located can lead to significant public opposition to oil shale development plans, potentially leading to delays or other hurdles."

In addition, oil shale technology is still in the early stages of development, particularly processes that involve heating oil shale in place and extracting it from the ground. CTL technologies are further along, but combining the various technologies into a commercially viable plan still faces operational and technical challenges, according to the report.

In the future, oil shale and CTL are likely to be dependent on carbon capture and sequestration, which faces "great uncertainty" regarding its commercial viability, public financing levels, enabling policies and potential markets for captured carbon dioxide, the report said.

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