Oil Shale Research Is Moving Forward

The Bush Administration is pressing ahead with plans to extract oil from vast underground beds of shale rock in the Rocky Mountains, a project that Congress hopes will eventually yield at least 800 billion barrels of recoverable crude. The push, mandated by the Energy Policy Act of 2005, comes more than two decades after the last boom in oil shale busted, leaving western Colorado's economy reeling for years.

Soaring energy prices are behind the revived interest in trying to tap the large reserves of oil buried in shale beneath huge stretches of federal land in northwestern Colorado, eastern Utah, and southwestern Wyoming.

Oil shale generally refers to any sedimentary rock that contains solid bituminous materials that are released as petroleum-like liquids when the rock is heated in a process called retorting. The vast deposits of oil shale in the western U.S. have been known for a century, but attempts to commercialize the resource have failed primarily because of the historically modest cost of petroleum. Now, however, with oil prices exceeding $70 per bbl, oil shale is again being touted as part of a long-term solution to U.S. reliance on imported oil.

"The U.S. has more oil shale resources than the entire Middle East has oil," House Resources Committee Chairman Richard Pombo (R-Calif.) remarked after the Interior Department recently advanced six of 20 applications for demonstration projects on 160-acre parcels of public land. The department's Bureau of Land Management (BLM) says 10-year R&D leases will be awarded, pending environmental reviews, to Chevron Shale Oil Co., EGL Resources, Oil Shale Exploration, and Shell Frontier Oil & Gas, which won tentative approval to work three separate parcels.

Five of the projects are in Rio Blanco County on Colorado's Western Slope, and one is in Uintah County, Utah. Wyoming is expected to be part of a commercial oil shale leasing program that could begin as early as August 2007, but the only application filed in the state for an R&D lease was rejected by BLM as incomplete.

The next step in the evaluation process is an ecological impact analysis under the National Environmental Policy Act (NEPA). "Each of these proposals shows potential for advancing knowledge of oil shale recovery technology, evidence of economic viability, and adequate means for managing the environmental impact of oil shale development," says BLM Director Kathleen Clarke. "NEPA analysis will further ensure that oil shale development on federal land is conducted with environmental and economic responsibility." In addition to receiving the 160-acre R&D leases, projects that pass the environmental test will also be given the right to reserve an additional 4,960 acres of land for future commercial development. BLM hopes to make decisions on the projects by late summer or early fall.

All current methods for processing oil shale require heating the rock to mimic the geologic processes that produce conventional deposits of oil and natural gas. Clarke, former director of the Utah Department of Natural Resources, says the environmental review will help BLM determine whether current technologies will result in less surface disturbance than earlier methods. She stresses that the bureau will not award an R&D lease unless it is certain that the technology used will be environmentally acceptable.

Underground shale formations that spread across 16,000 sq miles in the three western states hold an estimated 800 billion bbl of technically recoverable oil, according to BLM. That's three times the size of Saudi Arabia's oil reserves and enough to meet U.S. demand for oil at current levels for 110 years. "Oil shale is a domestic resource with staggering potential," Clarke says. However, no oil shale venture in the U.S. has been a commercial success in more than 100 years. Sudden booms brought about by energy crises, followed by equally sudden busts when a less expensive alternative became available, have characterized development of the indigenous resource.

The first boom occurred following speculation in 1915 that the U.S. might be running out of petroleum. The boom went bust in the late 1920s when the West Texas oil fields were discovered and developed. Interest in oil shale remained relatively low until the 1970s when the shock of the Arab oil embargo suddenly heightened awareness of America's growing dependence on foreign oil. With the aid of federal price supports, major oil companies poured $10 billion into the effort to mine oil shale. But the boom ended in the early 1980s when the price of oil plunged, and it became apparent that even subsidized shale oil could not compete with conventional crude. The resulting bust caused massive job losses, business closures, and housing foreclosures that took the region more than a decade to recover from.

Environmental activists say many residents of western Colorado still remember "Black Sunday," or May 2, 1982, when oil giant Exxon (now ExxonMobil) pulled the plug on its oil shale project in Garfield County and laid off 2,200 workers. "Colorado communities cannot take another hit like the one they took in the '80s," says Corrie Bonnar, West Slope field director of the Colorado Environmental Coalition.

"Oil shale development would affect our water supplies, require enormous amounts of energy, cause serious air pollution, and have huge impacts on other uses of public land like hunting and fishing," Bonnar remarks. "BLM needs to look closely at potential consequences for an industry that already has a failing record, and it must listen to the people it would affect the most." Oil shale development would also create "vast quantities of new greenhouse gas pollution and destroy biologically and recreationally important areas," says Kassie Siegel, climate, air, and energy program director for the Center for Biological Diversity.

A study released in August 2005 by RAND Corp. cites some of the same concerns and observes that commercially viable production of oil from shale is a long way off. The analysis, which was sponsored by the Energy Department's National Energy Technology Laboratory, says the economic benefits of an oil shale industry could be substantial, but warns that adverse environmental impacts would accompany development. "Oil shale from the western U.S. could become the source of millions of barrels of competitively priced oil each day in 20 to 30 years if technological, environmental, and governance issues are resolved," according to the report.

Due to the rise in world petroleum prices and advances in extraction techniques, RAND says, oil shale deposits that are now difficult to extract could be recoverable in the future at costs that would make them a major provider of U.S. energy needs and an attractive alternative to conventional crude oil. But the study notes that many uncertainties about technology performance and environmental impacts will not be fully resolved until the initial round of large-scale commercial oil shale facilities are constructed and operated.

As a result, RAND says the federal government should refrain from making major investments in oil shale development until the private sector is prepared to commit its technical, management, and financial resources. But the report adds that a few low-cost efforts should begin in the near future to move development forward.

Producing 3 million bbl of oil per day from shale could cause petroleum prices to decline by 3 to 5%, saving U.S. consumers roughly $15 billion to $20 billion annually, according to the report. A multi-million-barrel-per-day oil shale industry could also create several hundred thousand jobs in the U.S.

But the study says oil production based on older oil shale mining and processing technologies would not be profitable unless crude prices consistently stay above the $70 to $95 per bbl mark. New technologies could lower production costs, though, and make oil shale competitive when conventional oil is priced in the $50 to $60 range, according to the RAND report. The price of crude jumped past $70 per bbl on April 18 amid continued concerns about the nuclear standoff between Iran and the West.

Significant environmental problems are associated with oil shale mining, aboveground processing, and disposing of the spent shale. Historically, oil shale was mined through open pits. The rocks were hauled to an aboveground heater, or retort, to melt the oil out of the rock. The process consumed large quantities of energy and water and resulted in mountains of tailings.

"In the past 25 years, there have been significant technical advances in mining, materials processing, and controlling environmental damage," says James T. Bartis, senior policy analyst at RAND and the report's lead author. "That may be good news for oil shale, but we don't yet know how these technical gains translate into lower costs or whether they significantly reduce adverse environmental impacts."

Five of the R&D projects tentatively approved by BLM involve a process called in situ retorting, in which the oil shale is heated while it is still in the ground. Mining is not required. Instead, electric heating elements are placed in bore holes, slowly heating the shale oil deposit. The released liquids are gathered in wells specifically designed for that purpose. In contrast to surface mining, BLM says, in situ conversion does not permanently modify land surface topography and may be significantly less damaging to the environment.

Small-scale field tests Shell has conducted with its patented in situ conversion process on its privately owned land, which is 200 miles west of Denver, appear promising, the company says. During a presentation on the company's research project at the National Western Mining Conference in Denver in February, Michael B. Long, Shell's regulatory affairs manager, explained that the underground heating process slowly converts oil shale into light oil and natural gas liquids, which can be pumped out of the ground and refined into valuable transportation fuels such as diesel, jet fuel, and gasoline.

The technology, he said, has the potential to yield up to 1 million bbl of oil per acre. "Colorado oil shale is the most concentrated energy source in the world," Long declared. "Basically, we hope to create a new domestic oil industry."

Shell's first small field test was conducted in 1996-97, followed by three subsequent tests. The most recent experiment, completed in early 2005, produced in excess of 1,500 bbl of light oil plus natural gas from a small test plot, according to the company. On the basis of the encouraging results of these tests, Long said, Shell will continue to research how to keep the hydrocarbons produced from escaping into groundwater. The results of those tests, which are due around 2010, will determine whether Shell moves forward with large-scale, commercial operations.

But the RAND study maintains that adverse land and ecological impacts will result from oil shale development with any approach. "Oil shale production will also result in airborne and greenhouse gas emissions that could severely limit oil production levels," according to the study. Water quality is another important issue, because the oil shale deposits lie in the Colorado River drainage basin. At present, RAND says, not enough is known about how to prevent water contamination from surface and in situ operations. "Because oil shale resources are so geographically concentrated, leasing has to balance environmental and land-use impacts with development opportunities," Bartis says. "Otherwise, early oil shale developers might overstress the environmental carrying capacity of the area, and we will never see more than a few hundred thousand barrels per day of production."

Pombo, who authored the oil shale provisions in the sweeping energy bill passed by Congress last year, said the technologies developed by the companies selected to participate in BLM's research program "may lead to a cleaner type of oil and enormous amounts of natural gas." By utilizing domestic resources such as oil shale, he said, "America could decrease its reliance on foreign oil and fight back against [the Organization of the Petroleum Exporting Countries'] stronghold on energy prices."

At a hearing last month on the Interior Department's fiscal 2007 budget request, Senate Energy & Natural Resources Committee Chairman Pete V. Domenici (R-N.M.) also expressed support for the oil shale leasing program. "I am very excited about the potential for this country to tap its gigantic oil reserves from oil shale," Domenici told outgoing Interior Secretary Gale A. Norton. "I am pleased to see that you have requested funding for that program. I think there ought to be more that we can do to spur development of this resource, and I look forward to working with your department on that."

The Interior Department's budget proposal includes $4.3 million for BLM to begin an oil shale development program. "Oil shale resources represent an abundant energy source that could contribute significantly to the nation's domestic energy supply," Norton testified. She said the requested funds would support the demonstration leasing program and the development of a "robust programmatic environmental impact statement commensurate with the technological challenges involved in developing oil shale and the high level of environmental protection the department wishes to ensure during exploration and production."