The high cost of crude oil has many people looking for new sources of energy -- and taking a second look at some old ideas. Oil shale is an idea that was tested a generation ago, then abandoned when the price of crude oil plunged. Now, a self-taught inventor is once again eyeing the vast shale deposits of the Rocky Mountains.
Byron Merrell steers his Chevy pickup along Highway 40 in eastern Utah, past the fiberglass dinosaurs that welcome tourists from the nearby national monument. Just outside the city of Vernal, he turns onto the "Bonanza Highway."
The highway is a remnant of the bonanza that was expected here a quarter-century ago. Back then, the nation was in the grips of another Iran-related oil crisis, and to many, this highway through the Utah desert seemed like the road to energy security.
"It was built by the county in the early '80s and late '70s, primarily for oil shale," Merill says. "And then when oil prices dropped to $9 or $10 a barrel, everyone folded their tent and left. It was kind of a dark day out here when all the jobs disappeared."
Exxon's announcement that it was closing its oil shale project in 1982 is still referred to as "Black Sunday." It was about that time, just when everyone else was getting out of oil shale, that Byron Merrell started getting in.
"I haven't bought very much stock in my life. But I know when stocks go down, that's the time to buy," he says.
Merrell spent five years "mentally" designing an oil shale "retort," in which pulverized rock is baked, and vaporized oil extracted. He built his first prototype in 1993, buying shale from an abandoned mine to experiment with. Getting oil out of the rocks is not the problem. Any junior-high school kid can do that with a Bunsen burner.
"Every retort that's ever been built has made oil. To make it economically is another trick," Merrell says.
And that's the trick that, so far, has eluded almost everyone who's tried. If the price of oil stays high enough, if the retorting process can be made cheap enough, and if environmental concerns can be satisfied, there's a lot of oil to be had here.
More Oil Than Saudi Arabia
A study by the Rand Corporation estimates the sedimentary rock in the corner where Utah borders Colorado and Wyoming holds about 800 billion barrels. That's three times the size of Saudi Arabia's oil reserves.
"If the planets line up right and everyone supports it, this could be the oil capital of the world. Because there's enough to last us for a long, long time," Merrell says. "This is the most exciting entrepreneurial adventure in the nation right now."
Merrell's retort is located about 35 miles outside of Vernal, right next to a pipeline that carries oil into Salt Lake City. The retort used to be guarded by two dogs: Smith and Wesson. Wesson ran off, though, so Smith greets us by himself.
We walk on gravel made of ground-up oil shale, then climb an erector-set staircase, six stories into the Utah sky. Crushed oil shale is dumped into the top of the retort, then heated to about 1,000 degrees Fahrenheit on its way down, until the organic material inside is vaporized. It takes about a ton of rock to produce a barrel of oil. When it's operating, this handmade prototype can make 24 barrels a day.
Investor Romit Bhattacharya was so impressed with Merrell's work, he joined the company last year as CEO, while Merrell took the title of chief technology officer. Bhattacharya says the next step is to build a commercial-scale retort, more than 40 times the size of this one, and capable of churning out 1,000 barrels of oil a day.
"People still want to say, 'Show me. Show me you can sell the product.' And I think the first thousand barrels a day will get us to that commercial validation in the eyes of the business community," Bhattacharya says.
Dreaming of Bonanza
Bhattacharya figures the company can produce oil for about $33 a barrel in the early days, and that, over time, production costs will fall to less than $20 a barrel.
That seems like a bargain at today's prices, but for most of the last two decades, when conventional oil was cheap, no one wanted to talk about oil shale. Byron Merrell once went two years without a paycheck, while his wife -- a school secretary -- supported their family. It was a lonely road at times. But Merrell says he never thought of giving up.
"An entrepreneur works a lot like an artist," Merrell says. "They say that a sculptor can see the finished product inside the rock before he starts chipping away. And an artist that's painting with oils can see the finished picture before they start mixing the paint. And I think all entrepreneurs are that way. They can see the end. But sometimes getting to the end doesn't have paydays for a long time."
Paydays seem closer now. Big oil companies like ExxonMobil and Shell are showing renewed interest in oil shale -- although they're testing a different process that bakes the rock while it is still underground. And Utah's governor signed a bill this spring with tax incentives to encourage the oil shale industry.
Environmental Concerns
All of that worries environmentalists, who fear that mining and baking thousands of tons of shale would pollute the air, tax the water supply and destroy the fragile Western terrain.
"It leaves huge, lasting scars, and eastern Utah, western Colorado is a landscape that heals very slowly from that type of damage," says Stephen Block, a staff attorney with the Southern Utah Wilderness Alliance.
Merrell counters that his retort is designed to minimize water use and air pollution.
But driving back to Vernal, Merrell admits he shares one concern with the environmentalists: If oil shale takes off in Utah, this part of the country will see substantial growth. Having grown up in the area, and having enjoyed its wide open spaces, Merrell is not entirely happy about that.
"There's going to need to be new schools and new businesses," Merrell says. "The county probably has 25,000 people now. If that was to jump to 50,000 or 100,000, I hope the community will forgive me."
Still, Merrell says if somebody's going to develop the resource, it might as well be him. And if the sculpture he's imagined actually takes shape from tons of oil shale, bonanza will be much more than the name of a highway through a lonely Utah desert.
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