With oil at $70 a barrel, firms try coal, shale, even turkeys

Alternative energy got a boost from President Bush this week, but projects are typically small - or secret.

At more than $70 a barrel, the price of oil is causing angst for millions of Americans. But for some others it's an opportunity to move the United States beyond conventional oil:

• In Carthage, Mo., a company is turning the inedible parts of Butterball turkeys into up to 350 barrels of biodiesel per day.

• In Gilberton, Pa., businessman John Rich is planning to convert huge piles of low-quality coal into diesel. The state has promised to buy the production of 5,000 barrels per day, once it starts.

• In Utah and Colorado, four companies are preparing environmental assessments to show the feasibility of producing oil from shale.

With gas now becoming as pricey as a gallon of milk in some places, the economics of energy production is changing. Processes that didn't make any sense in the good old days of $30-a-0barrel oil are now being pulled out of filing cabinets. From the tundra of Alaska to the depths of the Gulf of Mexico, energy dreamers are trying to tap into new frontiers.

Prospects for alternative energy got a boost this week when President Bush spoke to the Renewable Energy Association. "What we are seeing is more creativity," says John McLennan, a director of technical services at ASRC Energy Services E&T, Inc. in Salt Lake City.

The potential reserves in some cases are gigantic. The Bureau of Land Management has estimated the potential US recoverable oil shale reserves at 800 billion barrels of oil, three times the proven oil reserves of Saudi Arabia. In some cases, there is already a significant production: tar sands in Canada are currently producing about 1 million barrels of oil per day and expanding rapidly.

However, don't expect to see changes overnight. "As the oil price rises, it doesn't mean that we're all going to turn a switch on and be awash in alternative fuels," says Aaron Brady, an energy analyst at Cambridge Energy Research Associates. "There is no one technology that is the silver bullet that will overturn the dominance of petroleum, but a lot of efforts will become part of the mix that increases the supply of liquid fuels for the world."

Some of the most promising large-scale efforts are the tar sands of Canada. Mr. Brady says they are in the process of "ramping up quite rapidly" and could increase their output to several million barrels of oil per day. But he also points out that there are limits to their development. "There are shortages of natural gas [needed to heat the bitumen] and it's pretty low-quality oil, so you need refineries that can chew up this stuff."

Some of the attempts to produce new liquid fuels resemble those of the 1970s and '80s. That's the case with oil shale, rock that is infused with kerogen, a bituminous material that, when heated, may produce oil.

But, unlike the earlier era, there are now more water, air, and waste restrictions. In fact, a significant amount of the shale is in highly sensitive park lands. "There are too many eco groups ready to mobilize and the deposits are in very beautiful places," says Steven Schamel, a principal at GeoX Consulting and formerly a professor of chemical engineering at the University of Utah in Salt Lake City. "And, much of it is on arid lands, which are very tough to reclaim."

Despite the potential problems, the state of Utah says it would like to press ahead. "Our governor's position is strongly supportive of economic development," says John Baza of the Utah Department of Oil, Gas and Mining. "Something must break loose or oil prices won't ease much."

Currently, much of the work being done in the oil shale is on relatively small parcels of land. Shell Oil is reportedly working on a process that heats the shale to 700 degrees F for two to three years while it's in the ground. But, like much of the shale work, it's secret. "Shell claims to be producing oil, but I don't know anyone who knows for sure," says Mr. Schamel. Shell itself says it is in a "quiet" period prior to its earnings announcement and cannot comment. [Editor's note: The original version incorrectly explained why Shell Oil would not comment.]

Many of the efforts maintain they can now produce fuel at a cost well under the current market price. That's the case in Gilberton, Pa. where Waste Management and Processors Inc. (WMPI) says it can make diesel fuel out of waste coal for $1 a gallon less than the current price. The WMPI effort utilizes technology developed in South Africa to produce fuel during the apartheid boycott. "As we scale up, we can drive down the cost even more," says Mr. Rich, the president of the company, which received a $100 million federal grant in 2003.

Yet scores of other efforts are finding ways to convert biomass to diesel. In Carthage, Mo., Changing World Technologies, Inc. has set up a plant adjacent to a Butterball turkey processing facility. Using heat, the company breaks the organic products down similar to how the earth produces oil, but in in two hours, not hundreds of thousands of years, says Julie Gross Gelfand, a company spokesman. "The beauty is that this can be expanded to any carbon-based material so stuff that used to go a landfill can be made into oil."

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