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Bush Rule on Oil Shale Highlights Partisan Divide in West

This story was co-published with Politico.

Shell's experimental oil shale facility in Piceance Basin, Colo. (Credit: U.S. Geological Survey)Seven weeks after a congressional moratorium on oil shale development expired, the Bush administration has issued rules that take the first step toward tapping an estimated 800 billion barrels of oil trapped in sedimentary rock in Wyoming, Utah and Colorado.

The new rules have highlighted a divisive partisan issue among Western politicians, with Republicans ready to push forward with development and Democrats urging a more cautious approach. The rules establish a framework for how energy companies will lease federal land for oil shale mining. Opponents say oil shale mining uses so much water that it could threaten their drinking water supply. They also say its heavy consumption of energy could outweigh its energy benefits.

Oil shale is a sedimentary rock that contains trace amounts of oil, which can be extracted at high temperatures. But turning shale into usable oil is expensive, and the industry hasn’t been able to do it in a way that is profitable yet. There are also serious environmental consequences at every step. Digging the shale out of the earth damages the landscape, refining it dirties the air and both steps require massive amounts of water and energy.

Oil companies and the Bush administration say that incorporating oil shale into the nation’s energy portfolio is a critical step toward energy independence. Utah’s Republican governor and senators share that view.

“Some folks have been talking about this final rule as though it would unleash a flood of oil shale development; that’s just not the case,” Utah Sen. Orrin Hatch (R) said in a statement to the media. “The law is clear that the BLM [Bureau of Land Management] cannot grant commercial oil shale leases until the government consults at great length with the governors and local officials of the impacted states. I should know, I was the sponsor of the oil shale law, and it clearly puts the governors and local officials in the driver’s seat.”

President-elect Barack Obama hasn’t yet carved out a clear stance on oil shale, and Americans’ concerns about high gas and energy prices are sure to factor into his decision-making process. He could let the Bush policy stand. Or he could try to reimpose the moratorium or halt the processing of lease applications once they start coming in, which could be many years down the road.

The rules go into effect Jan. 17, three days before Obama takes office, which means it will be difficult for him to rescind it. As we reported earlier, the Bush administration urged agency heads to finalize regulations by Nov. 1, so they could go into effect well before the next administration takes office.

“The Bush Administration has fallen into the trap of allowing political timelines to trump sound policy,” said Colorado Sen. Ken Salazar (D) in a statement to the media. “Over and over again the Administration has admitted that it has no idea how much of Colorado’s water supply would be required to develop oil shale on a commercial scale, no idea where the power would come from, and no idea whether the technology is even viable on a commercial scale.”

Salazar supported the oil shale moratorium Congress enacted through the Energy Policy Act of 2005. When the moratorium expired on Sept. 30, Wyoming’s Democratic governor, Dave Freudenthal, urged the Bureau of Land Management to move cautiously in developing rules for oil shale, which he described as “an unproven and unknown resource.“r

Colorado’s Democratic governor, Bill Ritter, is also concerned, as are other state and local officials.

“The water we get from the Colorado has been over-allocated as it is, so by using more water for oil shale, we are putting ourselves at risk to everybody who needs it in Colorado,” said Susan Daggett, a member of Denver’s water commission.

Daggett is especially worried about Colorado’s ability to meet its contract obligation to provide 7.5 million square acre feet of water to Nevada, Arizona and California. “We have never gotten to a point where we’ve failed to meet our contract obligations, and we don’t know what the result would be, but I’m guessing it could lead to regional water wars.”

When the Bureau of Land Management released details of the new rules this week, it included a summary of an environmental impact statement saying that the environmental consequences of oil shale development “could not be quantified.” (PDF)  But within the report are estimates indicating it takes between one and four barrels of water to produce a single barrel of oil from shale, depending on how the shale is extracted.

Tracy Boyd, a spokesman for Shell Oil Company’s Mahogany oil shale research project in Colorado, disputed the BLM’s numbers.

“It’s their best forecast, but it’s not based on the latest information provided by oil shale companies,” Boyd said. “Nobody can crystal ball exactly how much water these projects will need.”

Shell has developed technology to heat the rock while it is still under ground, thereby limiting the damage to the environment, but this process requires more energy than traditional shale mining.

While industry officials are generally pleased that the Bush administration is opening more federal land to oil exploration, Boyd complains that the royalty rates it has set are too high to give industry the encouragement it needs.  Shell lobbied for a 0 to 1 percent royalty rate, but the BLM set it at 5 percent for the first 5 years of commercial production, followed by a 1 percent increase each year until it reaches 12.5 percent.

“From one perspective it sounds absurd for us to say that a royalty rate of 0 or 1 percent would be appropriate, but the point isn’t that we are looking to get off the hook for royalties,” said Boyd, whose company enjoyed record profits this past quarter. “We just want an environment that will allow industry to access this resource.”

To back his claim Boyd cited the history of Canada’s booming tar sands industry, which he argues did not take off until Canada dropped its royalty rate from 5 percent to 1 percent. But others attribute Canada’s tar sand boom to a sharp rise in the price of oil in the late 90s.

The Department of the Interior estimates that it currently costs between $37.75 and $65.21 to produce a barrel of oil from oil shale, compared to $19.50 per barrel for conventional crude. Yesterday, the price of oil hit a five-year low at about $50.