Oil shale development curtailed by Administration

The Interior Department Bureau of Land Management issued a new plan which closed 1.6 million acres of federal land across Colorado, Utah and Wyoming from oil shale development. The new restrictions removed the majority of the area that had been allocated in its plan issued in 2008. Instead, the BLM has issued two leases making 700,000 acres available only for research and development. The reasons cited were environmental concerns on the wilderness characteristics of the land and endangering sage grouse habitats…

Interior proposal would limit commercial oil shale development on federal lands in West

The Interior Department on Friday issued a final [PEIS] plan to close 1.6 million acres of federal land in the West originally slated for oil shale development. The proposed plan would fence off a majority of the initial blueprint laid out in the final days of the George W. Bush administration. …

Interior’s Bureau of Land Management cited environmental concerns for the proposed changes. Among other things, it excised lands with “wilderness characteristics” and areas that conflicted with sage grouse habitats…

The administration noted the plan pushed forward Friday also included two research, development and demonstration (RD&D) leases for oil shale development. “The proposed plan supports the Administration’s all-of-the-above approach to explore the full potential our nation’s domestic energy resources and to develop innovative technology and techniques that will lead to safe and responsible production of resources, including oil shale and tar sands, which industry recognizes are years from being commercially viable, but require RD&D today,” Interior spokesman Blake Androff said….

Bobby McEnaney, senior lands analyst with the Natural Resources Defense Council, praised Interior Secretary Ken Salazar for the proposed final plan. “By significantly reducing the acreage of wilderness potentially available for leasing, Secretary Salazar is laying out a creative, thoughtful and more responsible approach in managing some of our most precious resources,” McEnaney said in a Friday statement.

While the BLM press release spun the move as promoting the development of oil shale reserves by encouraging research and development, it would appear in actuality, to be putting up more roadblocks for commercial development by the energy industry. The BLM decision was clearly noted as being made in response to lawsuits by environmental groups. The press release states:

Under the proposed BLM plan, Federal lands that would be open to oil shale development would first be available for RD&D leases. The BLM could issue a commercial lease after a lessee satisfies the conditions of its RD&D lease and meets all federal regulations for conversion to a commercial lease. The final PEIS also includes provisions for wildlife habitat conservation including Greater Sage-grouse habitat.

New land allocation decisions made on the basis of the Final PEIS replace previous land allocation decisions made in 2008. Some western communities argued that the 2008 PEIS and Record of Decision would have prematurely allowed commercial leasing without proven viable technologies and without a clear understanding of impacts on scarce western water supplies. In response to those concerns and in settlement of litigation, the agency agreed to reconsider the 2008 land allocation decisions….

Publishing the Notice of Availability in the Federal Register of the Final PEIS initiates a 30-day protest period for the proposed plan amendment decisions. The period closes on December 10, 2012. Publication of the Notice of Availability also begins a 60-day period for Governor’s Consistency review which closes on January 9, 2013. For more information on the requirements for filing a valid protest…

Glenn Vawter, executive director of the National Oil Shale Association told the Oil & Gas Journal that he was not surprised by BLM’s announcement but was concerned about the impact it would have on the future of oil shale development.

“I think the reduction in Colorado is the biggest concern because the area excluded in the middle of the Piceance basin is the area that is most amenable to development by the new in-situ technologies. There seems to be less exclusion in Utah.”

Unique requirement. Vawter noted that oil shale is the only federally controlled energy resource that requires research before leasing. “With conventional oil and gas, the producer decides which technology would be used and succeeds or fails on that basis,” he said. “Interestingly, most of the cooperating agencies told BLM to go back to the original 2008 PEIS. It obviously decided not to,” he added.

Not only are the Federal lands being excluded by the current Administration from commercial oil shale development those lands most conducive to the new in-situ extraction technologies, but they also represent the richest oil shale deposits in the country — a fact the US Energy Information Administration itself noted years ago:

The richest U.S. oil shale deposits are located in Northwest Colorado, Northeast Utah, and Southwest Wyoming. Currently, those deposits are the focus of petroleum industry research and potential future production. Among the three States, the richest oil shale deposits are on Federal lands in Northwest Colorado.

The Colorado deposits… ultimately could produce more than 1 million barrels oil equivalent per acre over its productive life. To put that number in context, Canada’s Alberta oil sands deposits are expected to produce about 100,000 barrels per acre.

The in situ processes now under development raise the temperature of shale formations by using electrical resistance or radio wave heating in wells that are separate from the production wells. Also being considered are “ice walls”—commonly used in construction—both to keep water out of the areas being heated and to keep the petroleum liquids that are produced from contaminating aquifers. The benefits of those methods include uniform heating of the formation; high yields of gas and liquid per ton of rock; production of high-quality liquids that commingle naphtha, distillates, and fuel oil and can be upgraded readily to marketable products; production yields of more than 1 million barrels per acre in some locations; no requirement for disposal and remediation of waste rock; reduced water requirements; scalability, so that additional production can be added readily to an existing project at production costs equal to or less than the cost of the original project; and lower overall production costs. Given these advantages, an in situ process is likely to be used if large-scale production of oil shale is initiated.

As Jeremy Boak, director of the Center for Oil Shale Technology and Research at the Colorado School of Mines explained, the largest deposits of oil shale in the world are found in the United States, which has more than half of the estimated 2.6 trillion barrel-world reserves. Active commercial oil shale production is already occurring in Estonia, Brazil and China, which is producing about 20,000 barrels per day. Mining and retorting have produced shale oil for more than 100 years, but there are a number of new technologies being developed that are increasing efficiency and reducing impact, such as in situ and in-capsule extraction methods.

The Federal government appears to be going backwards in embracing scientific progress towards the commercial development of oil shale reserves. Moreover,  it appears to have done an about-face on the important role of oil shale in a national energy policy and its strategic importance to the country.

In 2004, the US Department of Energy issued a report, America’ s Oil Shale: A Roadmap for Federal Decision Making, outlining the sustainable development of the country’s oil shale resources. It recognized the long lead times required for industry development and the urgency of increasing domestic fuel supplies as part of a national energy policy. In its support of these efforts, it said: “Prudent government actions and cooperative efforts with private industry and other stakeholders will stimulate sustainable private sector development of a domestic oil shale industry producing 2 million barrels per day by 2020 and 3 million barrels per day by 2040, while respecting and protecting our Nation’s environment.”

The report added:

The United States government has long recognized the strategic potential of the nation’s vast oil shale resources to support national security…

America’s 2 trillion barrel oil shale resource is recognized as having the same production potential as Canada’s tar sands. Tar sand production, initiated in the 1960s, has increased steadily to more than 1 million per barrels/day and is moving toward a near-term goal of 2.5 million barrels per day by 2017. This amount of oil is equivalent to the volume of oil currently imported by the United States from Middle East countries. Tar sands production has enabled Canada to add 174 billion barrels to its recoverable oil reserves, making Canada’s proved reserves second only to those of Saudi Arabia….The essential government programs and policies needed to stimulate industry development of oil shale in the United States are not now in place….

A domestic oil shale industry would reduce import dependence and associated costs to the U.S. economy while creating thousands of stable, high paying jobs and stimulating economic activity here at home. Significant public and private collaboration and investment will be required to initiate a domestic oil shale industry and achieve meaningful quantities of shale oil production in the foreseeable future. It is now both prudent and timely for Federal decision-makers to consider the strategic potential of oil shale to meet the nation’s energy needs and to stimulate the domestic economy.

Global conventional oil production is projected to peak and decline while global demand is projected to continue to rise, reaching a point where demand will likely exceed supply in the first half of this century. Rising imports of crude oil and refined products, and higher prices driven by rising demand, are already costing the U.S. economy billions of dollars per year. If not addressed quickly, deteriorating global market conditions will result in even higher oil prices and reduced availability of light oil. This could threaten U.S. economic security, limit the fuels available to the military and first responders to defend American interests at home and abroad, and significantly impact the standard of living enjoyed by Americans today.

What about claims in the news that oil shale is commercially unviable, as evidenced by the failure of an earlier oil shale venture in Colorado? The US Department of Energy addressed those claims in its earlier report, too, stating:

The oil shale development efforts conducted in this country between 1974 and 1990 provide a solid foundation of information, technology, and experience on which to build a new oil shale industry. When the nascent oil shale industry collapsed in the 1980s, it was due neither to failure of the resource or the potential of the technology. Nor was it due to environmental considerations. It collapsed because crude oil prices fell sharply and projects became uneconomic.

In fact, Unocal, which operated one of those earlier Colorado facilities, produced 4.5 million barrels of oil from oil shale, averaging 34 gallons of oil per ton of rock during the project.

Not only have the prices of oil and production costs soared since the 1980s, making oil shale development more financially viable and attractive today, but the industry has matured, technological performance and product quality have improved, higher efficiencies have been achieved, and the per-barrel energy and operating costs have steadily declined. Private companies don’t spend money working on long-range technologies they don’t think will work. In fact, the higher yield and better quality of oil shale may actually offer certain economic advantages over earlier tar sand ventures, according to energy specialists writing in the August 4, 2004 issue of Oil & Gas Journal.

As industry experts and the Colorado School of Mines and Tallinn University of Technology noted at this summer’s International Oil Shale Symposium:

Energy independence is not a sustainable concept without economic viability. Oil shale energy, especially shale oil production can be economically competitive for long term investments. Oil shale industry is without a doubt profitable, but more importantly to local communities – it provides sound income and economic welfare by creating new jobs within the industry as well as in the related areas….

For Estonia, the idea of having a local shale oil based liquid fuels industry is no longer a dream but a very realistic outlook – within the next four years, Estonia may become the second country in Europe able to satisfy its total demand for liquid fuels out of its own industry output. Furthermore, Estonian electricity generation capacity already exceeds its energy demand and most of its power plants are using local fuel, mainly out of oil shale.