Congress bets on oil shale

But on the ground in the West, big companies are hedging

  • Oil shale in Green River formation

    Diane Sylvain
  • Ken Brown, manager of unconventional resources for Shell, holds a piece of shale from the Mahogany Research Project site in northwestern Colorado

    Ed Kosmicki
  • Shell says its new 'in-situ' oil shale technology, which it's testing at the site, won't be ready for 10 more years

    Ed Kosmicki

Note: this article is one of several feature stories in an issue titled "The Final Energy Frontier."

Towering over the modest homes and fast-food joints of Vernal, Utah, Dinah — a 30-foot tall, long-eyelashed brontosaurus — serves as a smiling pink icon for this booming energy outpost. The Bureau of Land Management expects the number of oil and gas wells on some 1.7 million acres of public land around Vernal to more than triple in the next 15 years. And that may be just the beginning: Oil shale, a.k.a. "the rock that burns," is once again smoldering with promise in the nation’s imagination.

Oil shale’s potential is huge — and the world’s largest known oil shale deposits are in northeast Utah’s Uinta Basin and northwest Colorado’s Piceance Basin. Domestic crude oil production has steadily declined since its 1970 peak, but a recent report by the RAND Corporation, a public-policy think tank, estimates enough oil can be squeezed from shale in Utah, Colorado and Wyoming to more than triple Saudi Arabia’s proven oil reserves.

Last summer, the Bureau of Land Management announced a 10-year program to lease small parcels of public land for research into workable oil shale production techniques. Seventeen companies applied for the leases — eight in Colorado, eight in Utah and one in Wyoming. "There’s a lot of interest. There’s a lot of people ready to get rolling," says Bill Johnson, executive director of the Uintah County Economic Development Council. "The oil shale will be the icing on the cake."

A company called Oil-Tech Inc. says it plans to begin refining oil from the greasy gray rock within a year. Oil-Tech’s lone "retort" — an eight-story tower that is essentially a giant barbecue — rises from an expanse of desolate sage on a plateau above the White River, about 35 miles southeast of Vernal. Here, the company has tested its refining technology using a stockpile of oil shale mined in the 1980s. Right now, test runs produce 24 barrels per day. Future plans include a $300 million, 20-retort complex fed by mines on 38,000 acres of state land the company has leased near Bonanza, Utah. Oil-Tech estimates that its per-day production could hit 20,000 barrels within three years, and cost $30 per barrel or less.

"We are there. We are ready with a retort that works," says Oil-Tech President Romit Bhattacharya. "We have every intention of exploiting our lease properties."

Current U.S. demand for oil is 20 million barrels per day. A trillion barrels could be recoverable from oil shale — if the industry can figure out a way to economically extract it. Despite Oil-Tech’s optimism, that’s a big "if." Coaxing oil out of the rock has always been a challenge. Oil shale is actually neither oil nor shale; it’s a hard rock called marlstone, which contains kerogen. Heat the rock, process the kerogen that seeps out, and you get a low-grade oil.

Previous attempts to develop oil shale in the U.S. ended badly — most notably an early 1980s frenzy in Colorado that busted on a single, notorious "Black Sunday." Those earlier efforts involved digging massive open-pit mines, cooking the rock at 1,000 degrees in electric surface retorts to release kerogen, then shipping the oil away for refining. The process uses large amounts of water, releases sulfur in the air, and leaves monumental heaps of salty spent shale.

Oil-Tech may be hopeful, but industry giants such as Shell acknowledge that prospects for oil shale technology, most of which is still in the research phase, will remain financially and environmentally uncertain for at least another decade.

Congress smells blood

That isn’t stopping Congress. With consumers angry over $3 per gallon gas, oil shale has re-emerged as a rallying cry for lawmakers who want to demonstrate their stand against U.S. dependence on foreign energy. The first skirmish took place during deliberations on the energy bill earlier this year. Sen. Ken Salazar, D-Colo., staved off a push for immediate commercial oil shale leasing, negotiating a two-and-a-half-year window before it would begin. He also championed mandatory consultation with the states, tribes and local governments that will be most affected by it.

But House Resources Committee chairman Rep. Richard Pombo, R-Calif., has moved to eliminate Salazar’s hard-won compromises, arguing that an increased domestic energy supply will reduce the federal deficit. Pombo’s proposal, part of the budget reconciliation package that narrowly passed in the House on Nov. 18, drastically speeds up oil shale leasing. It overrides the Department of Interior’s discretion as to where oil shale development is appropriate; mandates that 35 percent of all prospective oil shale lands must go up for lease within a year; drops oil shale royalties to as low as 1 percent during the first 10 years and caps them at 9 percent after that (oil and gas companies typically pay royalties of 12.5 percent); and slashes input from local communities. Pombo’s bill also pre-emptively declares "adequate" an as-yet-unwritten programmatic environmental impact statement that would approve oil shale leasing on more than 11,500 square miles of federal lands.

There is a slim chance that Pombo’s provisions could see some changes in conference committee before next year’s budget passes. But if his bill passes, it will work to the benefit of companies such as Oil-Tech, which still use the old, strip-mine, surface-retort technology — a process that Shell abandoned in the early 1970s.

The impossible dream?

Today, Shell is experimenting in the Piceance Basin with its proprietary "in-situ conversion" process (ICP), which might prove less environmentally destructive than traditional strip mining and surface retorting. In-situ conversion uses what is essentially a giant, underground electric oven designed to melt oil shale in place, insulated by an even bigger earthen freezer designed to keep groundwater out of the mix. After three or four years of 700-degree heat, high-grade shale oil can be pumped out of the ground, and sent to a refinery.

The process is hugely energy intensive. The RAND Corporation estimates that producing 100,000 barrels per day — enough to last about seven-and-a-half minutes at the current U.S. consumption rate — will require 1,200 megawatts of electricity. That’s equal to the output of Colorado’s largest coal-fired power plant, in Craig. Producing two million barrels of shale oil per day could require the equivalent of 20 new Craig-sized power plants. But Shell predicts that 3.5 units of energy will be produced from each unit that’s put into wresting the oil from the ground and refining it. With crude oil prices at $25 to $30 per barrel, that should be competitive — at least in the sweetest spots.

Even so, Shell admits it’s still a long way from producing shale oil commercially. "While Shell has spent many tens of millions of dollars on research and development for this technology and has learned a tremendous amount while reducing risk and uncertainty, much work and expenditure still remain before the ICP process can be commercialized," said Shell vice president Terry O’Connor in testimony last June before a House Resources subcommittee. The company — which is the biggest of those already pursuing oil shale — says it won’t commit to even a small-scale commercial experiment until at least 2010.

In Rio Blanco County, Colo., which was hard-hit by "Black Sunday" a quarter-century ago, county land-use director Mike Neumann says, "I think there’s a lot of skepticism" about oil shale’s real potential. But he adds that the times are politically ripe for speculation by big oil companies. Neumann says consultants began regularly calling him this summer about environmental impact statements for their clients, a clear indication that oil companies are preparing to snatch up the more than 4,000 square miles of initial oil shale leases Pombo’s plan will offer them next year.

Jennie Lay writes from Steamboat Springs, Colorado.

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