Slugcatcher cooks up a brew with the S-word

IT'S been very quiet for a while, but if you listen closely you can hear voices in the financial markets whispering the “s” word. No, not that one. The s-word that Slugcatcher hears is the one that ends in “hale” – shale!
Slugcatcher cooks up a brew with the S-word Slugcatcher cooks up a brew with the S-word Slugcatcher cooks up a brew with the S-word Slugcatcher cooks up a brew with the S-word Slugcatcher cooks up a brew with the S-word

There, it’s been said, and when you’ve all finished falling to the ground in fits of laughter it is worth thinking about shale, and the many alternatives that exist for the production of liquid fuels from rock and tar sands.

Technical people who know their stuff will be quick to slam-dunk this suggestion because they genuinely believe that we went about as far as we could in the 1970s with plans to produce oil from shale.

A few barrels dripped out of the big retorts and other vessels used to “cook” shale – at a cost well above the price of oil.

It was the financial factor more than the technical issues which killed projects like the Stuart shale project in Queensland and an assortment of equally clever ideas proposed for Canada, the U.S., and even as far away as Scotland.

So what, you might ask, has changed which is causing the Slug to start thinking about shale again.

Three factors have triggered the thoughts:

1. The oil price itself, sky-high and looking awfully like it’s going to stay there for a long time.

2. The kiss of death given to the Stuart project in early March because all hope had been lost after 30 years of experimenting.

3. A long-held theory that it is always darkest before dawn.

Contemplating these issues caused the Slug to ponder why the original efforts to produce oil (at a commercially viable price) from shale had failed. The primary answer was that the technology was not up to scratch, but of greater importance was the lack of stability in the oil price.

In a nutshell, no-one was going to invest a few billion dollars in a massive factory to boil down great lumps of rock unless there was a known, and consistent, sales price for the end product. In that regard, a shale oil plant was no different to a liquefied natural gas plant.

The closure of the Stuart project, which had eaten its way through $100 million in investor funds and government grants, was seen by most people as the final word in Australia’s dalliance with shale oil – though the timing was truly bizarre, March 3, just as the world oil price went on one of its stratospheric runs through the $US50 a barrel mark.

This takes us back to another key word beginning with the letter s – stability.

It seems to the Slug that if we have genuinely entered a period of perpetually high prices then now might be a good time to dust off a few of the shale oil plans that have been gathering dust around the place.

Queensland is not a bad place to start, but there are many others, including the massive Green River Formation in the north-west states of the U.S. where geologists estimate there’s a rather substantial 1.5 trillion barrels of oil waiting for the technology and a stable oil price to be developed.

From where the Slug sits right now is a time when financial players, more than technical people, will be dusting off their plans to milk (a) a pile of rock with oil embedded and (b) a few unsuspecting investors who believe the shale oil story.

Which takes us back to that first s-word. If, and this really is an enormous if, the oil price has found a new and higher price level which can be sustained (another s-word?) then shale might start to make its way back into the occasional headline.