Question No. 2. I am confident that private risk capital will be available within the next 5 to 10 years for commercial shale development. Naturally there must be an economic climate that will attract private industry to commit the large sums required. Since all energy sources operate within a matrix of government support (depletion allowances, investment credits, Federal research support, etc.) shale oil obviously will need to have a set of governmental policies no less favorable than other competing sources. Considering the uncertainties, political and economic as well as technological, the timing and magnitude of a completely private endeavor cannot be predicted; thus, if government desires to have a specific level of production at a given time in the future, some form of government incentive or guarantee probably will be necessary. Question No. 3. A suggested relationship between government and industry to encourage oil shale development, as well as synthetic fuels from coal and tar sands, is outlined in the attached paper entitled, “A Plan for Accelerating Commercial Production of Shale Oil and Other Synfuels." Question No. 4. As a consulting organization we as a company probably would not enter shale oil development as a corporate endeavor. Question No. 5. It would be misleading to attempt to cite a specific price at which shale oil will become profitable. Inflation factors make any projection of costs hazardous. One must first define the time frame in which production would begin. Then there is the question of what stage of commercial development a valid comparison of shale oil costs and the cost of alternative fuel sources can be made. Although it is my belief that present technology is adequate for the beginning of commercial shale oil production, the first plants would likely experience high costs initially and may not be profitable to begin with. Second generation plants (i.e., those built subsequent to the pioneer units) would have lower real costs. I have felt that shale economics should be evaluated at the second generation level. Some of the aspects of the economics of shale oil production and in particular, production using present technology, are discussed in the attached paper entitled, "Economic Variables in the Production of Oil from Oil Shale". Question No. 6. The present price of oil in the United States with quality characteristics comparable to that of a synthetic crude from oil shale would be in the range of $4.50 per barrel. At $1.00 per barrel over this price, discounting inflation, I believe that second generation application of current technology would be economically viable. Please contact me if you have any further questions. Very truly yours, 64 RUSSELL J. CAMERON, President. APPENDIX III FURTHER DETAILS OF THE CAMERON PROPOSAL The following discussion was prepared by Russell Cameron. The cost If a 50,000 B/D (barrels/day) plant went into operation in 1977 followed by two in 1978 and two in 1979, production under the program would be as shown in the tabulation on the following page. The annual and total cost at various differentials between contract price and value of products at the time of sale also is given. The underwriting cost for a 250,000 B/D synfuels industry could range from less than $500 million if the differential averaged $0.50 per barrel to $1.8 billion if the differential were $2.00 per barrel. What levy would need to be placed on oil imports to cover the cost of such a 250,000 B/D synfuels program? If imports of oil follow the NPC Intermediate Supply Case III the results of a le, 2, and 3 per barrel levy starting in 1973 and extending through 1988 are shown in table XIII. A le per barrel levy would be more than adequate for a $0.50 per barrel difference between purchase and sales price while a 3¢ per barrel levy would finance a $2.00 per barrel differential. Implementation of the program 1. Following establishment of the necessary authorities for the program, publish a proposed plan, convene hearings, and request comment and suggestions to make certain the most workable method of operation is being used. 2. Prepare a draft environmental impact statement that meets the requirements of the Environmental Protection Act yet defers preparation of the final statement(s) until specific sites for production have been identified. 3. Publish final regulations, which, when effective would immediately impose a levy on imports, the proceeds to be used to purchase interest-bearing government securities that would be placed in trust to be called upon as needed to fund the program. 4. Request bids for the supply of up to 50,000 B/D of marketable products from oil shale, coal or tar sands with production to begin by January 1, 1977, bids to be submitted 6 months from date of invitation. 5. Simultaneously with (4) request bids for the supply of up to 100,000 B/D, with production to begin prior to January 1, 1978, and likewise, 100,000 B/D with production to begin prior to January 1, 1979. 6. Bidder should quote a firm price for production quantities on an annual basis, his price to include any escalation factors he feels are required; alternatively, a standard escalation factor could be used for all bidders. 7. Government would be obligated to accept the lowest bid, allowing for differences in quality of products, but would require proof of financial capability of the bidder to meet obligations of the contract. 8. In the event of only one bid for any increment of production, the producer would be required to make a rebate to government at any time the producer's rate of return on his synfuel facilities exceeds his average rate of return on other operations. 9. When deliveries begin government would sell production on an annual basis to highest bidders. 10. At any time the price received by government exceeds price paid producer, the levy on imports would be reduced proportionately. Conversely, if the fund from the levy becomes inadequate to meet the anticipated difference between purchase and sale price, the levy would be increased. Alternate financing method An increment of our future oil imports could be purchased and resold by an agency of the Federal government with the profit from the sale to be used for the purposes of the program. The quantity and price could be varied to meet the specific needs of the program. U.8. Energy Outlook: A Summary Report of the National Petroleum Council, December 1972. (65) CONSIDERATIONS IN APPRAISING THIS PLAN Coal and oil shale have long been counted on as sources of oil and gas when our wells run dry. Many years of research and much money has been spent to prepare for this eventuality. The first fuel shortages have occurred but where is our capability to provide synfuels? If the course we have been following is continued synfuels may be at least a decade away. The plan presented herein is aimed at reducing the time factor. Recognizing that higher risks are involved it is proposed that government and industry share them. This plan, if adopted, should accomplish the following: 1. It would place the production of synfuels on a definite timetable. 2. It would determine which organization, which synfuel sources and which processes are ready for commercial production. 3. It would determine by competition, which synfuels are most economical at the present stage of development. 4. It would get the synfuel industry started in the shortest time at minimum cost and with minimum involvement by government. TABLE XII-ANNUAL PRODUCTION AND UNDERWRITING COSTS FOR 250,000 BARRELS PER DAY 1 Import projection from NPC intermediate supply case III through 1985, level assumed constant after 1985. D. URANIUM RESOURCES The most comprehensive information available on the uranium industry is contained in annual statistical data of the uranium industry (GJO-100) published by the U.S. Energy Research and Development Administration. In its 1976 issue, the agency provides information on the reserves of uranium expressed as a function of more recently established production costs within the industry, historical estimates of uranium ore reserves, changes in uranium ore reserves during 1975, and the ownership of uranium resource lands in the United States. HIGH GRADE RESERVES More than 90 percent of high-grade uranium ore reserves in the United States are located in two Western locations-the Colorado Plateau and the Wyoming Basins. (See figure 3). Another 8 percent of the reserves are located in the Northern Rockies. Although another mining district is located in the Gulf coastal plain of Texas, more exploration is needed to determine the total extent of these reserves. Reserves of uranium, like almost all other minerals, are usually expressed as a function of the cost of producing the concentrate. |