Israel‘s “Black Gold” – an Interview with Dr. Scott Nguyen

by Jean-Patrick Grumberg with Introduction by Jerry Gordon (October 2011)

When we posted an article on The Iconoclast, “Could Israel’s Shale Oil Development be a Game Changer?”, the stunning story of the potential oil shale development in the Shfela basin in Israel, there was skepticism. Skeptics thought that despite the presence of Dr. Harold Vinegar, former Chief Scientist at Shell, and the backing of major UK and US investors, that Israel could not avoid the environmental and economic problems that have plagued oil shale developers in North America. French-Israeli blogger, Jean-Patrick Grumberg of http://www.drzz.fr was in Jerusalem last month and interviewed a key member of the Israel Energy Initiative (IEI) Technologies team, Dr. Scott Nguyen, a colleague of Dr. Vinegar at Shell who moved from Houston, Texas to join in this important petro-resource development project for Israel’s and Western energy independence. The revelations in this Drzz fr. interview are stunning. The oil shale in the Shfela basin does not have the environmental problems encountered in the Rocky Mountains projects. Moreover, the technologies used in development and production are fairly conventional. The results could mean Israel satisfying its energy requirements beginning with production of 250,000 barrels per day by the beginning of the next decade. The Shfela oil shale reserves they could rival that of Saudi Arabia, over 250 billion barrels. If you couple the Shfela basin project of IEI with the offshore gas fields developments, Israel could become a proverbial 800 pound gorilla and game changer in the geo-politics of energy. More immediately, Israel could have a willing partner in the EU, desperate to avoid Russian control over both its natural gas and oil energy needs. That could mean Western liberation from demands by the Wahhabis, Salafists and Mahdists in the oil regions of the Middle East and Muslim Ummah. Maybe Ha Shem does work in mysterious yet positive ways with help from science and technology. Now, with the IEI oil shale developments discussed in this Drzz.fr. interview, the tables may have been turned on the perennial Jewish joke about Moses making a wrong turn and missing a lake of underground oil.

Here is an edited translation of the Drzz fr interview with Dr. Nguyen by Jean-Patrick Grumberg.

Oil shale, a dense block of smooth stone

When I published four months ago, two articles (1) on what I call “Petro Shekels” I received an avalanche of requests for clarification, but above all, a lot of email from skeptical readers. Their main doubt, was Israel set to become one of the largest oil producers in the world, at the same level or even ahead of Saudi Arabia? This would completely upset the balance of power in the region. So far, this has received little media coverage, even in Israel. If Israel could compete with OPEC, the Arab spring would have less consequences.

Shfela oil basin in green

This September, wanting to learn more about the black gold of Israel, I went to Jerusalem, where I met the Vice President of IEI Technologies which is developing the Shfela, Basin, located between Jerusalem and the sea (in the heart of Israel and away from all disputed territories).

For the record, Dick Cheney, former U.S. Vice President, former President of Halliburton, a leading global oil company, Lord Jacob Rothschild, Michael Steinhardt and Rupport Murdoch are shareholders of Genie Energy, the parent company of IEI.

Scott Nguyen, Vice President Technology at IEI

Jean-Patrick Grumberg: Mr. Scott Nguyen, you are a graduate of Harvard University in the U.S., you have a PHD and you were Senior Physicist at Shell. You filed on your behalf, more than twenty patents for inventions in the United States and you are now working in Israel for Israel Energy Initiative (IEI).

Scott Nguyen: Right.

Grumberg: How long have you lived in Israel?

Nguyen: I came to Israel a little over a year, ago. I joined IEI in August 2010.

Grumberg: Where were you?

Nguyen: I lived in Houston, Texas. I worked for Shell. I worked on the development of technologies for heavy oil and oil shale.

Grumberg: What made ??you decide to come to this small country and leave the great Houston, Texas?

Nguyen:(Laughing) Because I was working with Harold Vinegar when he was chief scientist at Shell. When he retired here in Israel, I received a phone call from him, and he asked me to join him at IEI. Upon reflection, and a visit with my wife, we decided that we had a good opportunity to try something new. So I joined IEI, which is a private company in Israel. We have multiple investors, but the main investor is a company in the United States. This is Genie Energy.

Most major oil companies, especially those operating in the Gulf and the Middle East, will have no operations in Israel.

Grumberg: It's politics.

What is the confirmed amount of oil in Israel?

Nguyen: When we speak of the oil resources of Israel, it's actually oil shale. There is a certain amount of oil in the rock, which also releases a smell of oil, at the time of extraction. This rock, if you leave if for a few million years, will turn into oil and gas.

Grumberg: Okay, so all we have to do is wait.

Nguyen: Yes, wait a million years! Or, you can heat it, and it immediately turns into oil and gas. The heat creates a hot gas. In total there is an estimated reserve of 250 billion barrels.

Grumberg: Confirmed?

Nguyen: Yes, that's a figure that comes from validated geological studies.

And I think the number of 250 billion barrels is a very prudent one.

Grumberg: And that could meet the needs of the country for how long?

Nguyen: Well, if you do the math, about 3000 years.

Grumberg: Wide-eyed.

Nguyen: Yes, it's pretty important! Right now, Saudi Arabia has the largest reserves in the world, about 250 billion barrels. So Israel has the equivalent of the oil reserves of Saudi Arabia.

Grumberg: But they have pipes, they only have to draw the liquid.

Nguyen: There is a distinction. As for the reserve of 250 billion barrels, it is easy to produce with conventional technology. Israeli oil is a “resource”, and it will be considered a “reserve” when we have demonstrated that the technology is viable. Then all the “oil” of Israel may be considered “oil reserves.”

This is a technical difference, but it should be clear that there is an additional step to the process. However, the potential of Israel's oil is there, because oil shale is there. And it is in very, very large quantities.

Grumberg: And how do we move from resource to reserve?

Nguyen: Skip to the production of oil and gas, it takes time. We are in the first phase, we call it the exploration phase, and that is where we want to know how much oil we have. We now know exactly where the resources are and where they are best.

We know its properties. Next we plan to do a field test phase. We will go into the field, and drill to demonstrate that the technology works. We know it works, we have already done that in Colorado. Harold and I did that in Colorado and we will do it here.

Grumberg: It's the same?

Nguyen: Similar. There are some differences, however. Here it is much less difficult.

Grumberg: Here?

Nguyen: Yes.

Grumberg: This is good news!

Nguyen: The test phase will be conducted in 2012, once we have received permits and approvals from the Planning Committee in Jerusalem. In 2013 we will have our first drop of Israeli oil from shale in Israel, and the test phase will end in 2014. After that, we'll start planning for commercial scale production. Our first goal is to get 50,000 barrels per day, i.e. one fifth of the Israeli market, both civil and military.

Next, we will continue on a larger scale. Israel has enough resources to be fully independent. We could provide 250,000 barrels per day by the next decade. Towards the end of this decade, we will be able to deliver 50,000 barrels per day, and increase slowly to 250,000 barrels per day. This is a project that requires significant investment to reach that production target.

Grumberg: To reach 250,000 barrels per day, you think it will take twenty years?

Nguyen: Our first goal is 50,000 barrels per day by the end of this decade, and then, in 2020, 250,000 barrels per day. The rest depends on the initiative of the Israeli government and its priorities.

Grumberg: What kind of infrastructure is needed for this operation?

Nguyen: Well, most importantly labor. It's not so much labor as in many workers, but in terms of knowledge creation. This is the most critical. We must get people in Israel to learn the skills required to produce oil and gas. Everything else, for example facilities, is not as essential, because we will use standard equipment that already exists.

We have a well inside, and then we put in what we call heaters

Nguyen: And we can drill wells. I'll show you a picture of the process. This is the layer of shale. We have a well inside, and then we put in what we call heaters, and shale becomes liquid.

Grumberg: Do you heat over 300 degrees Celsius?

Nguyen: If we want oil, yes, about 300 degrees Celsius, and when the shale is at 300 degrees, it starts to generate oil and gas, that are collected in the plants.

“We can directly produce different grades of oil”

So the facilities that are on the surface are very standard. The oil then passes through the refinery, and goes to market. What is interesting is that the oil and gas we produce is not normal oil. By heating the rock, we can produce different grades of oil. We can vary the parameters and we can make very light oil, fuel of high quality that does not require as much refining as liquid oil extracted normally.

When you get the normal crude oil, it must pass through many stages of refining. Here the number of steps and the amount of energy needed to produce fuel for your car are much lower. This is because we do much of this refining during extraction

Grumberg: Is that why you've said it is a little easier here than in Colorado?

Nguyen: Yes, and there is a significant technical challenge in Colorado, but not here. There you have the risk of contaminating the water that flows into the rivers. Here in Israel, the water table is much lower than oil shale. In Colorado, there are mixed layers of shale, water, oil shale, water, etc. In Israel, we have the layer of shale, and then there is water underneath. And in between, there is an impermeable layer where water does not pass. In 2008, we did not know all that. This is one of the main reasons why it is technically easier here in Israel.

Geologically, the basement of Israel is very kind to us.

Grumberg: How is it that there is little discussion about these huge oil reserves in the newspapers?

Nguyen: We have had our share of media. However, we would like to demonstrate the technology before any more media coverage.

Grumberg: You mean you have intentionally kept a low profile for now?

Nguyen: No, not intentionally, but here all our energy is focused on technology. I do not want to keep a low profile. Our time is devoted to technology, and we are developing a really important resource for Israel. The more we advance development, increased attention will be paid to the company.

Grumberg: Compared with the geopolitical changes, I find that there is very little media coverage.

Nguyen: Yes, yes, but the potential is there.

Grumberg: Because it will change the global equilibrium?

Nguyen: It could change the global equilibrium, yes. Technically and from an environmental point of view, we will be able to show that it works, it's just a matter of will.

Grumberg: Dr. Vinegar said that for him the most frightening challenges are the environmentalists.

Nguyen: They would not necessarily be the most frightening, but what we want to show them is that we know how to extract the oil in a sustainable manner without disrupting the environment. When you talk about oil shale, there are two different images.

Grumberg: Both are negative.

Nguyen: Well, okay! Both negative, but there are two images, when you talk about oil shale. One is the general perception of the oil industry, which is not always favorable.

The other, when it comes to shale is the thought of mining, which destroys the environment. Mining is not the process we use. The process we use has little impact on the environment. We showed in Colorado and Canada, there is no negative impact on the environment. We are able to demonstrate here that after the extraction, we can even restore the land in the same state it was before! We are scientists. We must therefore ensure that we are respectful of all environmental regulations and the Ministry of Environment. For example here, we will use less energy than in Colorado, which is better, and makes our project even more economical. We have a major motivation to continue to develop technology and improve the whole process.

Grumberg: A group of environmentalists tried to block you, and sued you in a case that is not yet over.

Nguyen: Yes, yes. It's not over, but I think the compromise is a good outcome for both parties. NGOs agreed that the Planning Committee of the Jerusalem District will decide, after the first test whether we continue to implement the drill pipe. However, before it was required that there will be a public consultation. The public will express its opinion and the committee makes the final decision to allow us to continue or not. I think this is a favorable outcome.

Grumberg: I have listed here the risks that may impede the project, and I want you to tell me what you think. First, are all the oil resources, really there, 100% there?

Nguyen: Yes, we know that the resources are there. The stone that you have before you is shale. We extracted almost a mile of this rock from the ground. We drilled six wells. From these wells, geologists have mapped the entire area, so we know exactly how much oil shale is in the area of our concession.

In this area of 245 square kilometers, we know exactly how much oil is there, and we know which are the best areas.

Grumberg: Second, what are the environmental risks?

Nguyen: This is the concern of the Ministry of Environment, the people who live in the area, and it is also our concern. From our experience we know what kind of problem we face, so we invested a lot of work here in the early years, to analyze that. We have done many tests, and each time we were more certain that we are completely isolated from ground water. There are no other risks, because it is not a mining operation.

Grumberg: Third, what is the economical risk? That is to say, the cost of extraction, I realized that you have estimated it at approximately 30 dollars per barrel.

Nguyen: Yes, 30 to 40 dollars a barrel. However, I think the economic context is a higher risk, more than the cost of extraction. There are the current crises, economic, political, and social. These are things that can change. We decided not to start commercial production before the end of the decade. A lot can change by then, I call it the uncertainty of operations. This is not necessarily the technical aspect.

Grumberg: What are the costs of extracting “normal” oil?

Nguyen: You have wells that can easily produce large quantities of oil at 5 dollars a barrel, and it goes to 80 dollars a barrel. In Saudi Arabia we're talking about a very low price, from 5 to 10 dollars a barrel. The oil sands in Canada are generally high, from 60 to 80 dollars per barrel.

Actually, the prices of production are all going to increase over time. We estimated our cost of production at 30 to 40 dollars per barrel. If we are able to do that, then we are in the market. Another thing is the political side. Major oil companies prefer to work with the United States or with stable countries. In that regard, Israel is a very good place.

Grumberg: What is the Israeli government involvement?

Nguyen: The Israeli government knows that it is a good project for the state

Grumberg: Let me ask the question differently. Do people in the Israeli government believe in this project 100%, or are there people who are hesitant?

Nguyen: I think most people are in favor of this project. They know that we are competent, that we can demonstrate the technology and increase commerce.

We are still a small company of fifteen employees at IEI. We actually use a lot of contractors in many areas, including universities. We have created a scientific research program, and we have a laboratory in the United States.

We have established a number of projects at Israeli universities. And we have invested in equipment for the universities, probably more than half a million dollars, and we fund the students as well. On top of that, we hope that more and more students will study this field because it's still fairly new to Israel.

Grumberg: Of course!

Nguyen: At these universities, they have barely begun to initiate this program in the engineering departments. At the start there will be oil engineering. There is also the work of the Academy of Natural Sciences on how best to develop the gas industry here in Israel.

I believe that it is possible for Israel to catch up and advance this project. If Israel is able to accomplish this, it will make things easier for the Israeli economy.

Grumberg: Scott, apart from the professional challenge, do you have a deeper motivation behind your decision to have abandoned the comforts of the United States, and to be here?

Nguyen: Yes, and a strong motivation: it is the desire to have a long lasting impact. I wanted to implement a technology that has the potential to change the whole geopolitical dynamics of the region.

Interview September 25, 2011 at the offices of IEI in Jerusalem.

Notes:

Extraction of oil shale is done by heating to 325 degrees Celsius of the rock underground with electric heaters, which produces a light oil that can easily be turned into diesel fuel, kerosene, jet aircraft and related products.

An aquifer passes a few hundred meters below the basin drilling. The risk of pollution of its water is zero due to impermeable crust that separates the layer of shale.

http://www.mni.gov.il/mni/en-US/NaturalResources/MinesandQuarries/QuarriesOilShale.htm http://www.mni.gov.il/mni/en-US/NaturalResources/MinesandQuarries/QuarriesOilShale.htm

(1) http://www.drzz.fr/confirmation-israel-2e-plus-grosse-reserve-de-petrole-au-monde/(1) http://www.drzz.fr/confirmation-israel-2e-plus-grosse-reserve-de-petrole-au-monde/

http://www.israelnationalnews.com/News/News.aspx/147035 http://www.israelnationalnews.com/News/News.aspx/147035

http://www.israelnationalnews.com/News/News.aspx/147319 http://www.israelnationalnews.com/News/News.aspx/147319

http://www.oilinisrael.net/top-stories/special-report-zion-oil http://www.oilinisrael.net/top-stories/special-report-zion-oil

http://www.investorplace.com/2011/04/israel-shale-oil-leviathan-field-crude/http://www.investorplace.com/2011/04/israel-shale-oil-leviathan-field-crude/

http://www.texasisrael.org/newsletters/q22011/q22011.html http://www.texasisrael.org/newsletters/q22011/q22011.html

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