Shell official confirms thirsty nature of oil shale, denies push to ‘corner water market’

A Shell Oil official confirmed Friday that the “in-situ” oil shale production the company is researching at its Mahogany facility near Rangely currently consumes about three barrels of water for every barrel of oil produced.

But, he said, contrary to recent media reports on an environmental study of energy company water rights on Colorado’s Western Slope, Shell is not trying to “corner the market on water” in the Colorado and White River basins.

“We’ve been working for quite a number of years to acquire a pretty broad diversity of water rights in different areas that will allow us to have the flexibility so that we can source water from different locations so that the impacts to the agriculture and the other historical and traditional users will be minimized,” said James Thurman, a government affairs manager for Shell.

A report released Wednesday by Boulder-based Western Resource Advocates (WRA) cataloged more than 200 water rights held by six different energy companies with the potential to divert 7.2 million acre-feet and store up to 2 million acre-feet of Western Slope water. By contrast, the entire Denver metro area annually consumes less than 300,000 acre-feet of water.

Oil shale production, an experimental process in the research stages for decades, uses extreme heat to extract organic kerogen from shale rock and convert it into shale oil or gas. The “in situ” process being developed by Shell takes the heat directly to the underground shale, while the more conventional surface retorting process mines the shale rock and applies the heat on the surface.

Thurman, speaking during a Western Business Roundtable webinar called “Environmental Technologies for Oil Shale Development,” confirmed that the in-situ process currently uses a 3-to-1 water to oil ratio, while surface retorting consumes water at a 5-to-1 clip. Some oil shale proponents had questioned water-consumption stats being offered by environmentalists.

But, Thurman added, extraction technology is still being developed, and water-to-oil ratios could improve by the time oil shale production is commercially viable in the coming 10 to 15 years.

“We’re still in the research stages, and there are some things we won’t have final answers on for some number of years, and it’s hard to know the size of what commercial operations are ultimately going to be because that’s many years down the road,” Thurman said.

The WRA report used Bureau of Land Management (BLM) estimates of peak production of 1.55 million barrels of shale oil a day, which would use about 378,000 acre-feet of water a year.

According to the WRA report, ExxonMobil owns the most water rights on the Western Slope — 49 conditional claims and ownership in 48 irrigation ditches, mostly in the White River basin — but Shell has the second most on the Western Slope, with 31 conditional rights and ownership in five irrigation ditches in both the Colorado and White River basins. Shell also has filed for a substantial water right on the Yampa River and has been aggressively buying up land in far western Colorado near Grand Junction.

“Large-scale commercial oil shale development would harm both West Slope and Front Range communities,” said WRA Executive Director Karin P. Sheldon. “A shift of water to oil shale will dramatically change the landscape in the areas developed. It could mean an end to agriculture and to the historic economic base of these rural communities.”

Sheldon said many of the energy company water rights date back to the 1950s and are senior to agricultural rights and rights held by ski resorts and water districts that would supply future residential growth, both on the Western Slope the and Front Range.

She also said the state may have difficulties meeting its downriver delivery obligations to other states under the 1922 Colorado River Compact in a full-scale oil shale production scenario, as well as meeting endangered species requirements for certain fish in the Colorado River.

“WRA opposes development of oil shale resources in the West unless and until industry and government demonstrate that proven technologies can develop oil shale without unacceptable environmental, climate, economic or socials costs,” the report concludes. “The industry has barely begun to address that challenge.”

But on Friday, Shell’s Thurman said Colorado’s share of the oil shale reserves in the three-state Green River Basin, which includes southwestern Wyoming and eastern Utah, amount to between 1.2 trillion and 1.8 trillion barrels – equivalent to all the world’s current reserves. The BLM estimates put the figure closer to 800 billion barrels for the entire Green River region.

Asked about Interior Secretary Ken Salazar’s statements that Bush administration midnight oil-shale royalty rates of 5 percent might be too low and whether that political sentiment could hurt research efforts, Thurman didn’t hesitate: “The right royalty rate is one that’s going to help stimulate a successful creation of a new industry, an industry that will provide the jobs that are so desperately needed, that will provide the energy going forward that’s going to be a huge challenge for us and a number of other benefits, and frankly one that can be done in an environmentally responsible way.”

He pointed to a 5-percent royalty rate in Canada that he said kept oil shale projects from being built. The rate came down, Thurman said, and Canada’s oil production is booming.