Israel Oil Bonanza?

Jim Brown
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The London based World Energy Council says Israel's Shfela Basin holds 250 billion barrels of recoverable shale oil, possibly making the country the "world's newest energy giant." Unfortunately there is a catch.

The Shfela Basin could hold as much as twice as much oil as Saudi Arabia according to Howard Jonas, CEO of IDT Corp., the company that owns the Shfela Basin concession. Do you think maybe he is biased?

The Shfela Basin containing oil covers 238 square kilometers and would make Israel the third largest deposit of shale reserves in the world. The first would be the USA with 1.5 trillion barrels anc China with 355 billion barrels. Jonas said there is enough oil to fuel both Israel and the USA for 200 years.

Despite his enthusiasm it could be a long time before that oil is flowing in either country. This is "oil shale" not "shale oil." There is a difference. Shale oil could be referred to as the type of deposits we see in the Bakken or the Eagle Ford shale where the oil is recoverable using horizontal drilling and fracturing.

Oil shale does not flow. Oil shale is immature oil that is trapped in rocks in a non-liquid state. In order to extract oil from oil shale you have to cook it until it matures and bleeds from the rock. The oil shale in Colorado alone is expected to contain one trillion barrels of oil but every major company that has tried has failed to develop a way to extract the oil in commercial quantities. Major companies like Exxon and Shell have spent billions attempting to develop an extraction method.

One suggestion was to build ten nuclear power plants between Denver and Grand Junction, a distance of about 200 miles, and use the electricity generated to heat the underground rocks to the point where the oil would cook and mature. Basically by adding heat man would attempt to speed up the process that took hundreds of thousands of years into a few months. Unfortunately the sheer scale of the energy needed dwarfed the expected returns.

IDT has some deep pocketed investors including Lord Rothschild, Rupert Murdoch and Dick Cheny. Do they have billions to develop a new way to bring this immature oil to the surface? I think not.

They have enlisted Harold Vinegar, former chief scientist at Shell Oil, with 240 patents to his name over his 32 years at Shell. Vinegar has come out of retirement to assist IDT in developing an extraction process. Vinegar claims the oil Israel will produce will be light crude suitable for refining into jet fuel, diesel and naphtha.

Vinegar has suggested inserting heated rods into the ground by drilling and those rods will in theory cook the rock into releasing the oil and natural gas so it will flow freely to the surface. The oil will be refined and the gas used to feed the heating process and keep the project running. All in costs are expected to be $35-$40 per barrel.

Vinegar claims all the major have approached him about joining the project. Obviously if Vinegar has really developed a method of extracting oil shale then everyone would be interested. In theory there are 38 countries with an estimated 4.8 trillion barrels of oil shale. Finding a magic key to unlock that oil would be worth trillions of dollars.

The Israel oil shale is not a new discovery. They have been known about for decades but nobody has ever been able to come up with a technology to extract the oil so they were ignored.

Vinegar said an appraisal is now underway that would be followed by an 18-month pilot stage. Assuming all the kinks are worked out a "demonstration stage" would then take place over 3-4 years during which the work completed in the pilot stage would be expanded on a larger scale. Once that proved successful the commercial operations would begin.

Vinegar said funding is not needed for the pilot and demonstration stages. However, once production rose to 50,000 bpd they would want to take on a partner and that is where the major oil companies will be given their chance to play.

He said the project is not without risk. (no kidding!) Is the resource really there? (his words not mine) Is it good quality? Can we drill long horizontal wells and can heaters be installed and will they last? What is the real cost of production? If oil prices continue to rise and will eventually be $200 per barrel then there is a price point at which the project would be cost effective. (What happened to the $35-$40 per barrel quoted earlier?)

"Lastly can we overcome the criticism from the environmental lobby to win popular support. This might be our greatest challenge." I think Vinegar will find if Israel can produce a large quantity of oil at $40 a barrel there will be no environmental challenge.

I think Vinegar will find like the U.S. did that producing oil shale is a tough proposition. Stuffing miles and miles of high intensity heaters in horizontal wells will take a huge amount of electricity that Israel does not have. The U.S. could not produce enough even for a test case in Colorado and we have plenty of electricity. Scientists found it took far more power than it was worth. If it cost $200 to extract a barrel the project is doomed to failure.

I believe this flurry of articles, about Israel's sudden oil wealth, are misleading and people hopeful for a oil miracle are blowing them out of proportion. The next time you read about the 250 billion barrels in Israel just scan the article for how much have they produced and at what cost? Until the answer to both of those questions is something that could be considered commercial quantities at commercial rates the story is just a fairy tale of what could be in another reality.

Jim Brown

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