http://online.wsj.com/article/SB121633718791563829.html

Squeezing Oil From a Stone
Energy Quest Again
Leads to Shale, but
Challenges Remain
By BEN CASSELMAN
July 18, 2008; Page A9

The nation's frantic search for crude-oil sources is leading to one of the
oldest, richest and most-elusive prizes in the petroleum industry: oil
shale.

The U.S. has the largest known reserves of the coal-like rock, 80% of which
lie beneath federal lands. By some estimates, U.S. oil-shale reserves could
yield 800 billion barrels of oil, triple the current proven reserves of
Saudi Arabia.

But tapping that potential requires heating rocks buried deep beneath the
earth to hundreds of degrees Fahrenheit. Oil companies are racing to find
ways to do so economically, but their solutions are years away from
commercial use.

That means oil shale is like many other potential solutions to the nation's
energy woes: a resource of staggering potential that is a decade too far.
Oil beneath the Alaskan wilderness or the California coast could add
billions of barrels to U.S. production but will take years to access. Wind
power is contributing to the power grid in a handful of areas, but technical
and logistical hurdles must be overcome before it can play more than a bit
part is the broader energy picture. Next-generation nuclear plants,
cellulosic ethanol, solar power and other technologies all face similar
challenges.

Such lengthy time horizons haven't stopped politicians from seizing on oil
shale's potential. President George W. Bush, who earlier this week lifted an
executive ban on offshore drilling to try to spur domestic oil production,
is pushing Congress to lift a moratorium on leasing government-owned land
for oil-shale development. Last month, Mr. Bush touted oil shale's potential
to replace a century's worth of oil imports.

But there have been a century's worth of failed efforts to tap this vast
resource.

Oil shale is found across a swath of Colorado, Utah and Wyoming. In the
past, companies have tried bringing the rock to the surface to heat it, but
that has proved too costly.

Now the industry is trying again. Companies including Chevron Corp. and
Royal Dutch Shell PLC say high prices have made the production of oil from
shale feasible and are pouring cash into pilot projects. They are trying new
technologies to cut the costs, including experimenting with heating the
shale while it is still buried.

Oil shale's fortunes have risen and fallen before. Interest spiked in the
1920s, the 1950s and the 1970s as high oil prices made oil shale's
challenges seem worth trying to overcome. When prices fell, the investments
dried up.

Many in Rifle, Colo., still remember what they call Black Sunday, the day in
1982 when Exxon Corp. closed a billion-dollar oil-shale project, which cost
2,000 jobs. "There was a bad taste left in the mouths of a lot of people,"
says Keith Lambert, the town's current mayor.

Industry leaders argue that the price collapses that undermined previous
efforts won't be repeated this time because of rising demand for oil in
India and China and the increasing difficulty of finding new supplies. But
they say most commercial production is a decade away.

Skeptics argue that new production techniques are too complex to be
practical, that environmental concerns will drive costs up even further and
that oil shale's history of failing to meet expectations are causes for
caution.

"We can technically put a man on Jupiter," says Houston investment banker
Matthew Simmons, a well-known proponent of the theory that global oil
production may already have peaked. "Being technically practical and
technically possible are two very different things."

The "oil" in oil shale is kerogen, a precursor to oil. Left alone
underground at sufficient temperature and pressure, kerogen will turn into
oil -- but it takes millions of years.

Geochemists can speed that process by heating the rock to several hundred
degrees Fahrenheit until the kerogen turns into flowing crude oil.

Royal Dutch Shell has been working for more than 25 years on a novel
technology that heats the shale in the ground. Such an "in situ" process
wouldn't involve an expensive and environmentally troublesome mining
operation and wouldn't create thousands of tons of waste in the form of
spent shale, as the mining method does.

But Shell's process is complicated. The company plans to insert electric
heaters hundreds of feet into the ground to heat the oil shale to between
650 degrees and 700 degrees for more than two years. In order to prevent
groundwater from flowing into its production area -- which would raise
pollution concerns and dissipate the heat -- Shell plans to create an
underground wall around its site by freezing surrounding groundwater, down
to 2,000 feet deep.

Shell has tested the steps individually, but never all together. "We
understand there are skeptics," said Shell Vice President Terry O'Connor.
The company says it won't decide whether its project is commercially viable
until the middle of the next decade.

Other companies are trying different techniques. American Shale Oil Corp., a
company controlled by telephone company IDT Corp., is preparing to test
heating the oil shale in Colorado by injecting steam into the ground through
U-shaped pipes.

Oil-services company Schlumberger Ltd. earlier this year bought technology
from Raytheon Co. In the 1970s, the defense contractor drilled into the
ground in Utah and inserted radio transmitters that heated rock in the same
way a microwave oven heats leftovers. The tests proved the technology could
heat shale to the necessary temperature, says Schlumberger Vice President
Rod Nelson. But falling oil prices led Raytheon to shelve the program before
it could produce any oil. Says Mr. Nelson: "It's a little bit 'Back to the
Future.'"

Daniel Elcan, managing partner of Oil Shale Exploration Co., says the older
method of producing oil from shale -- mining and heating on the surface --  
is being used around the world.

"A lot of people say it doesn't work. That's just not true," says Mr. Elcan.
In Brazil, he adds, "I can show you a process that's been working for 30
years."

His company plans to use Brazilian technology for cooking shale above
ground. At a pilot project, using an existing Utah mine, the company will
produce 4,000 barrels of oil a day, Mr. Elcan says. He says he hopes to be
producing 50,000 barrels a day in the state by 2013.

While several countries have oil-shale industries, large-scale production is
rare. Brazil's 4,600 barrels of daily oil-shale production amounts to about
19 seconds worth of U.S. consumption.

Most oil-shale production has taken place in countries with relatively few
environmental restrictions, such as Estonia and China.

Democrats in Congress have blocked the U.S. Bureau of Land Management from
opening more land to oil-shale production, arguing it could disturb pristine
wilderness lands, contaminate or deplete groundwater reserves and pollute
the air.

The political and scientific challenges aren't easily separated. The oil
companies argue that they can only justify spending millions on experimental
technologies if they know they will get access to the land.

Moreover, industry advocates argue, the clock is ticking. They point to
Canada, where production of oil from tar sands -- in many ways a similar
process -- has taken decades but exceeds one million barrels of oil a day.

"It's something that we need to start now so it can have a significant
impact down the road," Mr. Elcan says. "It's not going to happen overnight."