In the wake of the oil spill disaster off the Gulf of Mexico, U.S. researchers are seeking new unconventional fuel sources. However, a new report warns that some of these new projects face significant environmental and financial problems.
The report, commissioned by Ceres and written by David Gardiner and Associates, notes that the major oil companies are all researching at least 24 coal-to-liquid projects; one-half of those projects could generate 170 million barrels of liquid fuels per year. But it’s a costly plan, with estimates ranging from $2 billion to $7 billion per plant.
“There are costs that go along with the benefits of extracting and exploiting these unconventional fuel sources,” said New York State Comptroller Thomas DiNapoli. “Before investors can fully assess the benefits of developing oil shale and liquefied coal projects, we need full disclosure of the environmental, regulatory and technological risks surrounding these unproven reserves. Every investor has to take a strong look at these risks.”
The U.S. government is increasingly concerned about conventional oil and gas energy sources and the country’s slow progress in its development of unconventional liquid fuel, environmental group Ceres noted in a press release issued today.
That’s why more than 25 companies are involved in another pricey project: oil shale development. “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. Shell’s recent agreement to develop oil shale in Jordan at a projected cost of $20 billion illustrates the potential cost of these projects,” Ceres said in its release.
Coal-to-liquid production is projected to rise in the U.S. from virtually no production today to about 91 million barrels per year by 2035, according to the Energy Information Administration. Major companies involved in CTL development include Shell, Rentech, Baard and DKRW.
Ceres is calling on those firms to provide more information on just how coal-to-liquid might work, and any potential dangers involved. “Investors with holdings in companies involved in coal-to-liquids and oil shale projects should ask these companies to open their books and explain their strategies for managing these risky projects,” said Mindy Lubber, president of Ceres and director of the $9 trillion Investor Network on Climate Risk. “The energy- and water-intensive nature of both coal-to-liquids and oil shale, combined with technological uncertainties and state and federal requirements for low carbon fuels spell diminishing returns for investors.”
“We are leery of investing in oil shale and coal-to-liquids, and have turned down specific opportunities to invest in CTL developers in the past,” said Steven Heim, Managing Director and Director of ESG Research and Shareholder Engagement, Boston Common Asset Management, LLC. “The energy resource seems promising but huge obstacles may be regional water scarcity and the lack of large-scale carbon capture and sequestration infrastructure.”
For example, oil shale and CTL development may be constrained by each technology’s need for large amounts of water. Oil shale production requires 1.5 to 5 barrels of water for every barrel produced while CTL requires 5 to 7 barrels of water for every barrel of produce produced. Water constraints are especially problematic for oil shale production, because the reserves are located in the water-stressed states of Colorado, Wyoming and Utah. Then the question becomes: Would the U.S. look north of the border for Canada’s vast water supplies? In a dire situation, the answer to that question seems obvious.
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