Newt Gingrich, Frank Luntz, and Shale Oil Snake Oil

So now Newt Gingrich and Frank Luntz, the pair that brought us the “Contract on America” and other right-wing marketing lies, have hatched another snake oil sales pitch.  American Solutions is an astroturf group pushing for shale oil development as the cure for $4/gallon gasoline.  So far they’ve hornswaggled over a million people to sign a petition to lower gasoline prices by a “Drill Here, Drill Now” approach.  The website is a perfect example of Frank Luntz doing what he does best – pick a couple non-facts and build a marketing plan around them (the same process that was used to “sell” the invasion of Iraq to the world).  Neglect the simple fact that what they propose will not, in the near term, mid term, or long term, bring gasoline back below $4/gallon.  It doesn’t matter.  $4/gallon is a great selling point, like uranium yellow cake or Jessica Lynch.  It doesn’t have to be true, it just has to resonate emotionally with enough gullible people on a gut (non-thinking) level. 

A couple of the really bizarre attacks on logic on the website are illustrated below. I won’t dissect the whole snake oil sales pitch here, although maybe I will later.

From the page “Get the Facts” – purportedly exposing “myths” surrounding domestic oil production:

“MYTH”: The U.S. only has a small percentage (from 2-6%) of the world’s oil supplies, and since oil is a global commodity, our increased production won’t affect prices much if at all.

“FACT”: This estimate of 2-6% of the world’s oil supplies does not hold up to scrutiny.

In oil shale alone, found in the Green River Formation in parts of Utah, Colorado, and Wyoming, the U.S. has approximately 800 billion barrels of recoverable oil, or over three times the proven reserves of Saudi Arabia. This comes from a midpoint estimate in a 2005 RAND study done at the request of the Department of Energy, and a higher end estimate puts the number at over one trillion barrels.

Furthermore, there are vast areas of the United States and its outer continental shelf where it is illegal to even look for oil. Exploration routinely yields additional resources far larger than initial estimates.

A couple points.  Yes, the RAND study does indicate that there is probably around 800 billion barrels of recoverable oil reserves in shale oil onshore.  Newt & company left out the RAND conclusion that exploiting shale oil would likely cause crude oil prices to fall by 3 to 5 percent, which works out to about $7/barrel, which translates into roughly $0.05/gallon of refined gasoline.  Hmmm, that doesn’t get us gasoline at <$4/gallon. That’s if OPEC doesn’t reduce production to keep prices up.  See here or here for more on that topic.

Oh, and by the way, the oil shale is predominantly in the west (the Green River Formation, which straddles Utah, Colorado, and Wyoming), where there are increasing water rights fights over scarce water.  Between 2 and 5 barrels of water from the Colorado River are needed to produce each barrel of oil from oil shale.  Plus a significant amount of energy, on the order of a magnitude more than conventional oil, is needed to produce the oil.  And what you get is high-sulfur kerogen, which can be blended as a feedstock with crude oil at a refinery, but can’t be used by itself to make gasoline.  For more information on shale oil, see the RAND report quoted on Newt’s website (read the whole thing, not just the executive sumary), or Wikipedia, or the Dept. of Interior’s Oil Shale and Tar Sands Information Center.

From the same page:

“MYTH”: Drilling for unconventional sources, such as tar sands or shale oil, is too costly and creates a large carbon footprint, among other environmental problems.

“FACT”: The aforementioned RAND study demonstrated that if the price of a barrel of oil was as “high” as $90, current technology would make oil shale competitive in the market. With a barrel of oil approaching $140, the notion that extracting oil from shale is too expensive is simply untrue.

The environmental footprint argument would make more sense were it not for recent innovations by companies like Shell Oil, which has developed an in-situ method for extracting shale oil that would use relatively little water and does not involve making creators on wide portions of land. Instead, heating rods are stuck into the earth that heat the shale and then oil falls into a pool below to be collected. It should also be noted that early research suggests this method could be competitive even if oil was as cheap as $25 per barrel.

Here again a couple half-truths.   The RAND study actually says “Given the capital and operating cost estimates, we project we project that the price of low-sulfur, light crude oil, such as West Texas Intermediate, will need to be at least $70 to $95 per barrel for a first of-a-kind oil shale operation to be profitable.”  The report also states that, due to what the authors refer to as the “hurdle price”, crude oil must be priced significantly higher than the profitability price of $70 to $95 per barrel, and have an expectation of staying high, before investors would be motivated to invest in the process.  By example, the authors note that gas-to-liquids technologies, although profitable at crude oil prices in the low $20 per barrel range, were not developed on a commercial scale until crude oil reached and maintained a hurdle price well above $30 per barrel.  If you extrapolate from that (not really recommended, but we’ll do it for arguments sake), crude oil would have to stay well above $140 per barrel for an extended time.

And while the early Shell prototype in-situ methods show some promise for reducing the environmental footprint, the RAND report still indicates that the total environmental footprint from shale oil extraction and kerogen production to be magnitudes larger than conventional crude oil production.

As far as the “$25 per barrel” in-situ costs, that is assuming that they can reach their goal of producing 3.5 barrels energy equivalent for each barrel of energy input.  So far they haven’t, not by a long shot.  Oh, and add into the equation that the Shell in-situ technique drops the recovery ration from 80% to a little over 40% .  In other words, instead of 800 billion barrels of recoverable oil, you only get about 450 billion barrels.  Still a lot, but not the 800 billion that is claimed on the website.

For some more background, see here or here.

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4 Responses to Newt Gingrich, Frank Luntz, and Shale Oil Snake Oil

  1. Pingback: More on the Offshore Drilling Bait-and-Switch « The Inverse Square Blog

  2. Pingback: “Drill Here, Drill Now” and Other Nonsense « Wilco 278

  3. Pingback: Potential Rule Change for U.S. Shale Oil « Wilco 278

  4. John says:

    Lies. I read the report. You (not Gingrich) have fabricated the information.
    By the blog author:
    I almost deleted this comment (see my “Copyright & Disclaimer & Other Legal Stuff“), but my curiosity was piqued. What did I fabricate? No evidence is proffered. Simple nay-saying and ad hominem attacks do not an argument make. At least he can write a complete sentence, which strikes me as better than the average blog troll. And he gets points for not using exclamation points needlessly.

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