Chevron, Los Alamos team up to develop oil shale

(AP) Thirty years after quitting one of the nation's most promising yet costly energy resources, Chevron Corp. wants to take another crack at unlocking shale oil from difficult rock formations in Colorado, Utah and Wyoming.

Chevron, of San Ramon, Calif., announced its return - which will come with help from scientists at the Los Alamos National Laboratory in New Mexico - on Monday at a petroleum engineers conference in San Antonio.

Oil companies have struggled for decades to unlock the solid organic kerogen from sediment layers ranging from surface outcrops to deep underground.

Now, with rising oil prices and instability with overseas supplies making such endeavors more attractive, Chevron is turning to chemists at Los Alamos to determine how this fuel can be liberated at the molecular level.

Research and development alliances aren't unusual in the energy business, but Chevron chief technology officer Don Paul said this one will enable the company to tap an estimated 1 trillion barrels of oil locked in the shale, four times the holdings of Saudi Arabia.

"It's a combination nobody else has," Paul said. "It's the combination that ultimately gives us the chance to crack the code on oil shales this time that we didn't have that last time."

Paul said it could be decades before any meaningful production begins. Last week, the federal government determined that experimental oil-shale works in Colorado by Chevron and two other oil companies would have no significant environmental impact.

Bureau of Land Management officials expect to award leases for 160-acre parcels in Colorado and Utah that will give the oil companies production rights on nearly 5,000 acres of adjacent land.

In the 1980s, companies were pulling out of the region.

One of the most memorable shutdowns came in 1982, when Exxon locked the gates on a $5 billion project, putting 2,200 people out of work.

In 1981, a joint venture between Chevron and Conoco began mining a tract of land in DeBeque, Colo., then transported the shale to a Chevron refinery in Salt Lake City, where it was crushed and fed into a furnace-like retort.

Analysts say advanced technology and better economics could make the difference over the early 1980s, when oil companies were abandoning oil shale projects as uneconomical.

Even as oil dipped below $60 a barrel Monday, oil companies are still setting their sights on deposits long considered unattainable.

Analysts point to the deepwater drilling in the Gulf of Mexico and the Barnett Shale natural gas field in North Central Texas as examples of hard-to-reach places becoming accessible.

"We know oil is there, so there is an upside in that respect," said Andrew Neff, a senior energy analyst with consultant group Global Insight. "It's a resource that can be developed. You don't have huge risk as far as the unknown."

Also driving the renewed interest in unconventional reserves such as the shale oil and tar sands has been the government's call to ease U.S. dependence on foreign oil.

"This is an energy security issue for the nation," said Kirk Hollis, oil shale project manager at Los Alamos. "That's why a national lab is engaged in this process."

With Western shale, moreover, energy companies don't have to deal with the political instability seen in such oil-rich places as Nigeria. Chevron currently owns 100,000 acres in Colorado.

"It has in some respects become a more stable investment, because they are not facing political risks," Neff said. "Access to resources are becoming more and more competitive, so some unconventional resources are becoming more and more attractive."

In its research proposal filed with the U.S. Bureau of Land Management, Chevron has proposed injecting hot natural gas into fracture zones under a piece of federal land in western Colorado to recover some shale oil.

Chevron's Paul said he hopes additional research will lead to more economical extraction methods. If the lease is approved, officials from Chevron and Los Alamos hope to begin taking field samples by year's end.

Still, it could be years before the company establishes any commercial production. But Chevron and lab officials say they hope research can accelerate the pace.

"As we do research, we may be surprised and stumble across something that changes our approach and understanding of what we intuitively expected," Hollis said.