The economic feasibility of shale oil: an activity analysis

Given the current state of technology, the existing resource supplies, and environmental constraints, we examine how much shale oil could be profitably produced in the Western United States, what processes would be used, and which constraints would be binding in long-run equilibrium. Using an activity analysis model, we show that production of over 15 million barrels of shale oil per day (five-sixths of present U.S. oil consumption) is a profitable activity when the price of oil is $18 per barrel (1975 dollars). In testing the sensitivity of our results, we find that, even under quite conservative assumptions, production of two million barrels per day is economically feasible in the long run when the selling price of oil exceeds $12 per barrel.