The Impact of Oil Prices on Oil Shale Development in the United States

Abstract

Abstract The United States has the largest oil shale resources in the world, in excess of 6 trillion barrels. Potential U.S. oil shale reserves could exceed 800 billion barrels, depending on oil price. New technologies may soon enable these resources to be produced efficiently and economically. Recently, increased oil demand, tightening supplies, and higher oil prices stimulated investment in energy projects around the globe, driving up the cost of materials, skilled labor, and other project inputs. A clear example can be seen in the rapid increase of capital and operating costs in Alberta's oil sands. Similar experiences could be expected during the development of a domestic oil shale industry. This raises questions about the effect of oil price on oil shale economics, including both capital and operating costs. To answer this question, an analysis was conducted using the oil price as a surrogate for energy costs, tightness of the labor market, the costs of materials, and other factors which impact the development of oil shale projects. After developing a relationship between the oil price and the cost of development, an analysis was conducted to determine the impact caused by increasing oil prices on the minimum economic price of four representative oil shale development technologies. This paper will discuss the relationship and impact of oil price and oil shale development costs. In addition, the paper will describe the impact of the cost relationship on production and other macro-economic benefits which can be realized.