Global unrest, energy uncertainty fuel renewed interest in Colorado oil shale production

With crude oil prices creeping back toward $100 a barrel and unrest racking the Middle East from Egypt – where 3 million barrels of mostly U.S.-bound oil passes through the Suez Canal each day – to Bahrain, home to the U.S. Navy’s 5th Fleet, it’s not surprising there’s renewed interest in Colorado’s vast oil shale reserves.

“As we all know, the energy challenges our country faces are serious and have gone unaddressed for far too long,” U.S. Bureau of Land Management director Bob Abbey said Tuesday, “and therefore we believe we need to responsibly develop our oil and gas supplies to help us reduce our dependence on foreign oil, but we also must do so in a thoughtful and balanced way.”

Abbey was speaking the same day the BLM filed a settlement in federal district court in Colorado promising to revisit oil shale leasing rules approved in the waning days of the Bush administration in 2008. Those rules opened up 2 million acres of BLM land to commercial oil shale leasing and set a royalty rate of 5 percent. Several environmental groups filed two lawsuits in 2009 challenging those rules.

“The previous 2008 regulations made critical decisions such as royalty rate before the RD&D [research, development and demonstration] program had a chance to deliver information and answers,” U.S. Interior Secretary and former Colorado senator Ken Salazar said. “They put the cart before the horse, and in so doing they heightened the risk of speculation and bad decisions and yet another oil shale bust.”

Salazar was referring to “Black Sunday” on May 2, 1982, when Exxon pulled the plug on its Colony oil shale project and laid off 2,200 workers on Colorado’s Western Slope. Whole towns from Parachute to Rifle virtually went bust overnight. Exxon was one of three companies selected last year by the Obama administration for a second round of RD&D leases.

It’s estimated the United States holds more than half the world’s oil shale reserves, with more than 2 trillion barrels of oil equivalent trapped in the shale rock between 1,000 and 2,000 feet below the surface of a 16,000-square-mile area of Colorado, Utah and Wyoming called the Green River Formation. Between 70 and 80 percent of that oil shale is beneath federal land.

Such reserves, if ever commercially tapped, would far outstrip Saudi Arabia’s known reserves of 260 billion barrels and even its projected reserves, including expected new discoveries, of 900 billion barrels. However, the projected reserves may have been overstated by as much as 40 percent, according to dispatches from a top Saudi oil exploration engineer posted by Wikileaks.

Companies for more than century have been trying to figure out how to commercially unlock the oil from the rocks in the American West. It’s a costly process that involves heating up the rocks to more than 700 degree Fahrenheit and extracting the organic kerogen. The current process consumes inordinate amounts of conventional power and already scarce western water supplies.

Shell, which has been working for years on its In situ Conversion Process at the Mahogany Research Project in Rio Blanco County, has acknowledged it currently takes at least three barrels of water for every barrel of oil produced from oil shale.

“In the last six years U.S. natural gas production has increased 20 percent,” said Randy Udall of the Association for the Study of Peak Oil & Gas – USA. “In North Dakota, the Bakken Formation is yielding 300,000 more barrels of oil today than it did five years ago. The oil and gas industry is very good at unlocking difficult oil and gas petroleum resources.

“But oil shale continues to be a laggard. It continues to be a no-show, and one must really wonder whether oil shale is ever likely to be a significant player in U.S. energy supplies.”

Udall points out that global oil shale production has never exceeded more than 25,000 barrels a day, largely because the process have never been proven commercially viable. Still, with conventional oil supplies locked up in politically volatile regions of the world and crude prices climbing, companies like Exxon and Shell continue to explore oil shale’s vast potential.

Even Udall, an environmentalist and advocate for more sustainable energy policies, acknowledges that “the potential resource is so large – a trillion tons of these rocks – that I think it’s really unreasonable to expect the nation to entirely turn its back on them.”

A Rand Corporation report on oil shale estimates it could take up to 1,200 megawatts of power to produce 100,000 barrels of oil shale oil per day. To produce 1 million barrels of oil a day – or 5 percent of current U.S. consumption — it could take the equivalent of up to 10 new coal-fired power plants in Colorado. That has prompted oil and gas companies to explore other sources of energy to fuel production, and some politicians have even speculated that nuclear power may be the answer.

But water remains the biggest hurdle.

“From our perspective, oil is perhaps a scarce resource, but water is also pretty scarce here in the arid West, and fish and wildlife habitat and the hunting and fishing and outdoor recreation that habitat provides is a resource that has helped sustain rural communities in the West,” said Kate Zimmerman of the Rocky Mountain Regional Center of the National Wildlife Federation.

Bill Midcap of the Rocky Mountain Farmers Union (RMFU) worries oil shale production could adversely impact his industry as well.

“Every drop of water Mother Nature blesses Colorado with has the potential to run out of our state,” Midcap said. “How society chooses to use that water is a really good question. The dependence on agriculture in this state is huge; we are the second largest industry in the state. We can’t just keep doing more with less.”