Union Oil Co.'s oil shale project sits on the side of a mountain above Parachute Creek in what may or may not be splendid isolation.
Once there were nine major oil shale projects, betting big money that soaring oil prices would justify the high cost of oil from shale in Colorado. But when oil prices began a steep slide, other companies reran their numbers and decided that potential gains weren't worth the billions to be gambled.
Now Union remains the only oil shale project under construction in the United States.
A couple of things make Union different. One is that it has federal price guarantees for the oil it will produce and a guaranteed buyer. If the market fails to deliver the price Union needs, the Department of Defense will buy the oil at the market price and the U.S. Synthetic Fuels Corp. will make up the difference.
"If we did not have price supports and had to depend on the price of oil for the rest of our lives, it would be tough," said Jim Cloninger, manager of administrative services at the Parachute Creek facility.
Another difference is Union's chairman and president, Fred L. Hartley, who is strongly committed to the notion of making oil shale extraction pay. "It's because Fred Hartley has a lot of emotional investment in the process because he developed it when he was vice president in charge of research and development," said Albert J. Anton Jr., an analyst with Carl H. Pforzheimer & Co.
That attachment is useful to the project but wouldn't be enough by itself to sustain it, said Anton. "The company and Hartley are also very return-on-investment oriented," said Anton. "Even though it's a pet project of Hartley's, if it looked like it was going to drag the company down, Hartley would drop it."
Probably more important is that Union's investment in each barrel of oil to be produced each day is much smaller than it would have been for some other oil shale projects.
The $570 million facility is expected to begin producing 10,000 barrels a day of oil in 1983, in contrast to the Colony project abandoned by Exxon Corp. two months ago, which would have produced about 47,000 barrels a day beginning in 1986. Even using the $3.5 billion estimated price of the Colony project in 1981, the investment per daily barrel of capacity for Colony would have been almost $80,000 compared with approximately $57,000 for Union, Anton said.
When Exxon pulled out of Colony, a joint venture with Tosco Corp., the cost of the project was reported to have climbed to $5 billion. In contrast, Union's project has increased in cost from $500 million to $570 million. Industry observers say that Exxon approaches projects with a cautiousness that leads to expensive built-in safeguards and over-engineering.
If production from Union's first phase is promising, the company can add capacity to produce another 80,000 barrels a day by the mid-1990s.
"We wanted to go the modular route for two important reasons," said Cloninger of Union. "It would allow us to take technical improvements from the first unit into subsquent units, and the modular approach brings fewer people into a sparsely populated area . . . We'll never get to the next stage of technology till we get through this one."
Oil shale has been a constant lure, promising huge quantities of energy, but no one has figured out yet how to produce the oil cheaply enough to be commercially viable. Releasing the oil from the rock requires crushing the ore and heating it to temperatures of 700 to 900 degrees to release kerogen, a complex organic compound that forms crude or raw shale oil.
Since Exxon pulled out of the Colony project--to which Exxon president Clifford Garvin has indicated it will eventually return--Union officials have tried to reassure area officials that they plan to stay.
Exxon's departure had other ramifications for Union, too. "There were some things we were doing jointly," he said. "We tried to get all the companies together on things like a common pipeline corrider, and with Colony we were going to have a joint power line," he said. As a result, Colony's shutdown means Union will bear additional costs.