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One by one, all the oil-shale projects of the 1980s were scrapped. Exxon spent $1 billion within two years of its much ballyhooed plunge into shale, then abruptly abandoned the project in 1982, citing market conditions and escalating costs. The Unocal plant actually did begin producing a modest amount of oil in the 1980s, but then in 1991 it too shut down, after heavy losses.
A decline in crude-oil prices was partly responsible, but a larger factor was a government policy reversal. Although bullish on shale, coal and other synfuels in 1980, Washington soon cooled to the idea, as it had done in the past. After 1980, the Reagan Administration thought private industry, not government, should shoulder all the costs. Subsidies were reduced, and in 1985 the Administration killed the entire program, except for the synthetic-fuels tax credit. "The Administration no longer believes continued funding of the Synthetic Fuels Corp. serves any useful purpose," Budget Director James Miller told Congress. Former Colorado Governor Richard Lamm, among others, considered Washington's outlook to be shortsighted: "America's energy policy is zigzagging through history like a drunk."
To be sure, massive oil-shale development might not be feasible for the U.S., given the enormous environmental consequences. But whatever the specifics, the U.S. needs to set a policy that would genuinely add to the nation's energy supply — and then stick with it.
Canada did just that. As with the oil-shale deposits in the U.S., geologists and oilmen long knew about Alberta's immense oil-sands resources, but technological obstacles and high costs prevented development. Unlike conventional oil deposits that can be pumped to the surface, oil sand is a heavy, tarlike substance that must be mined and processed before it can be refined into gasoline and other products. Today's burgeoning industry is a testament to both government incentives and oil-company determination.
Though the first oil-sands plant, a small undertaking pioneered by Sun Oil Co., opened in 1967, it wasn't until the 1970s that Canada really got serious. Realizing that most oil companies would be reluctant to commit long-term money, the Alberta provincial government in 1974 launched the Alberta Oil Sands Technology and Research Authority (AOSTRA) to provide seed money and fund research. AOSTRA formed partnerships with oil companies and conducted tests. That work helped make oil sands economically feasible, says Eddy Isaacs, managing director of the Alberta Energy Research Institute. Perhaps more important, Isaacs says, the work showed bankers and potential investors that "we know how to do this." Besides paying for research, the governments of Alberta and Ontario invested millions of dollars in a start-up oil-sands company, Syncrude Canada. Both governments sold their interests after the company became established. The Alberta government's role, Isaacs says, "was visionary, and now we are seeing the results."
At the huge North Mine, the work goes on round the clock, 365 days a year, in some of the worst weather on Earth. In summer the ground turns mushy, and the huge trucks bog down. "It's like working in peanut butter," says a Syncruder. In the winter, when temperatures can drop to --40F, the oil sand is so hard it grinds up the shovels' steel teeth as if they were plastic combs. It's not unusual to replace the teeth after a single 12-hour shift. Suncorp, another oil-sands company, has an $8 million annual budget just for that.
Running a highly synchronized mining and oil-conversion operation in subzero climate is expensive. But the oil-sands companies have steadily lowered their costs through research, technological development, trial and error and just plain persistence. From $20 a bbl. two decades ago, the cost of production is down to less than $10, far below the world price of oil.