We'll Get it Right Next Time

Commercial Leasing

Running parallel but independent of the RD&D program, the commercial leasing process stipulated by the 2005 Energy Policy Act is also underway. The act required the BLM to prepare a programmatic environmental impact statement (PEIS) for "the most geologically prospective lands" (meaning the land above the richest oil shale deposits) in the Green River Basin within 18 months of the bill's August 2005 passage. The act then mandated that commercial leasing commence roughly a year after the PEIS was completed. That was the original plan, anyway. Although the timeline for development is shorter than the RD&D program, the commercial leasing process has not proceeded as far as its counterpart, mainly due to opposition from key Colorado lawmakers.

Slow Start on the Fast Track

In 2006 the BLM began the rulemaking process for commercial leasing, and in December 2007 it released a draft version of the PEIS for public comment, finalizing it nearly a year later in September 2008. Already well behind schedule with the PEIS, the BLM's commercial leasing program has been further slowed down by the consistent efforts of three Colorado lawmakers: Senator Mark Udall (a representative prior to 2009), Representative John Salazar, and his brother, Secretary of the Interior Ken Salazar (a senator prior to 2009). These three, supported by allies at the federal and state level including Colorado Governor Bill Ritter, organized a legislative moratorium that delayed the BLM from finalizing the regulations for commercial leasing until the final week of the Bush Administration in January 2009.

Map of oil shale deposits

The BLM has identified the most...

This cautious coalition maintains that they are not categorically opposed to oil shale development, but that they want to ensure that any development proceeds in the most socially, economically, and environmentally responsible manner possible. As Secretary Salazar has explained, rather than the rush to development that they feel is at the heart of the 2005 Energy Policy Act's oil shale section, a "judicious approach to oil shale development will help Western Slope communities avoid any unfortunate bust that comes from an unchecked boom on commercial leasing. . . . as happened in the 1980s, when we went through our last bout of oil shale fever - of which many of the communities of Western Colorado are still feeling the effects of today."

The likeminded legislators have been assisted by a coalition of environmental groups who filed multiple suits aimed at preventing the commercial leasing regulations from taking effect. The suits have put the status of commercial leasing and the BLM's land use plans for Shale Country into limbo while they slowly work their way through the courts. Meanwhile, the go-slow position gained new prominence when President Obama appointed Ken Salazar as Secretary of the Interior. A little more than a month after he was confirmed by the senate, and just days after he told a group of Western governors that oil shale was still "on the table," in February 2009 Secretary Salazar announced that he was withdrawing the recently solicited second round of RD&D lease offerings. In their place, he has directed the BLM to offer a new round of RD&D leases that rectify what he considered the flaws of the earlier regulations.30

Royalty Rate Debate

One of the most contentious aspects of the commercial leasing rulemaking process, and one that Secretary Salazar identified as a major problem with the regulations he withdrew, is the royalty rate, the percentage that companies pay for extracting public resources. In the now-withdrawn regulations, the BLM set the royalty rate at 5% for the first 5 years and then increasing 1% per year until it reached 12.5%. Ken Salazar (speaking as a senator when the rates were first announced in November 2008) called them a "pittance" compared to the 12.5% to 18.8% that the government typically collects on domestic oil production.

The royalty rate can be a powerful tool to encourage - or discourage - development. Oil shale advocates contend that a lower royalty rate will help offset the high startup costs and risks associated with developing a new industry and will go a long way toward encouraging companies to take the plunge. But policymakers like Udall and the Salazars are concerned that setting the rate too low will shortchange taxpayers if the industry takes off. Some would like to avoid setting the rate "prematurely" before the technology is proven and other key questions about its impact on the environment and local communities have been answered, but companies operating in Shale Country are hesitant to large long-term investments without some certainty in the regulatory framework they will be operating under.31

Private Enterprises

Apart from the federal RD&D program, several energy companies, including independent ventures like Red Leaf Resources in Utah and energy industry heavyweights like ExxonMobil, are also working privately on oil shale processes with an eye toward obtaining commercial leases when the time comes.

Utah-based Red Leaf is developing a hybrid technology it calls the EcoShale Process, which combines elements of conventional mine and retort methods with in situ techniques. Exxon, in its return to Shale Country, is developing an in situ technology it calls the Electrofrac process, which it may test on private property at the company's defunct Colony Project site near Parachute, Colorado. Exxon plans to fracture the target oil shale formation and fill the cracks with an electrically conductive material that will serve as a heater. As the heated kerogen separates from the rocks, the resultant oil and gas will be pumped to the surface. Exxon believes this process will require less drilling than individual heaters and thus leave a smaller footprint on the landscape.

Other major energy industry players such as Schlumberger, the world's largest oilfield services company, are positioning themselves to take advantage if an oil shale industry does get off the ground. In early 2008, the company put 375 acres of private ranchland near DeBeque, Colorado, under contract. Although the site will primarily be used as a base of operations to serve the current oil and gas operations in the Piceance Basin, the Paris-based company also has an eye toward oil shale. Around the same time they purchased the land, Schlumberger also acquired an in situ technology that uses radio wave technology to separate the kerogen from the rock underground. Additionally, Schlumberger is already dipping its toes into the shale deposits through a venture with AMSO to help characterize the resource on their RD&D lease.32

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