Observers of the century-long quest to extract oil from the shale rocks of Colorado’s Western Slope are fond of saying “oil shale is the fuel of the future … and always will be.” Never commercially viable because of the costs and resources needed to heat and extract the kerogen trapped in the rocks, an estimated 2 trillion barrels of shale oil remains locked up – perhaps forever.

But why then has Shell spent an estimated $200 million so far on research, development and demonstration (RD&D) at its Mahogany Research Project in western Colorado? And at what point will gas prices rise so high that the cost of producing shale oil suddenly makes sense?

Dr. Jeremy Boak

“With [oil] prices going back up through the roof again,” Boak said, “[companies have] an awful lot of things to spend their money on and some of them more near-term than oil shale. The big budgets tend to move toward things that are a little closer in.” Still, Boak maintains the state and federal governments should be doing far more to encourage oil shale production than the current administrations.

The OPEC oil embargo during the Yom Kippur War saw gas prices in the United States spike from 38 cents a gallon in 1973 to 55 cents a gallon in 1974, in part prompting an oil shale boom in Colorado that culminated in the “Black Sunday” crash of 1982. Exxon literally pulled up stakes overnight and turned communities like Parachute, Rifle and Battlement Mesa into ghost towns.

Exxon is one of the companies pursuing a more scaled-back RD&D lease being offered by the Obama administration, which announced in February it was taking a “fresh look” at the Bush administration’s so-called “midnight regulations” in 2008 that established a royalty structure and opened up 2 million acres of U.S. Bureau of Land Management land in Colorado, Utah and Wyoming for potential oil shale leasing.

“The previous 2008 regulations made critical decisions such as royalty rate before the RD&D program had a chance to deliver information and answers,” U.S. Interior Secretary and former Colorado Sen. Ken Salazar said in February. “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.”

But Exxon officials say they’re keenly aware of past mistakes and determined not to repeat them.

“It sounds to me like there was a lot more hype back then, but it’s always hard to tell where the hype came from,” Boak said. “Was it really the companies that were hyping it or was it the people out there who thought they could buy 5,000 acres and make a killing? Land speculators. Was it the large corporations or was it the Bernie Madoffs of their era that were really trying to cash in on this?”

Ramped up in the late 70s with the embargo fresh in everyone’s minds, oil shale crashed once Middle East oil began flowing freely and the labor-intensive process of surface mining and retorting oil shale was no longer cost-effective. But 30 years later oil prices are skyrocketing again in the wake of ongoing political upheaval in the Middle East and Northern Africa.

The U.S. Energy Information Administration on Monday put the average price for a gallon of regular gasoline at $3.79, closing in on the peak of $4.11 a gallon set on July 17, 2008. In Europe, gasoline broke the $8.60 a gallon barrier this spring as events unfolded in Tunisia, Egypt and Libya.

But even at those prices, commercial oil shale production is of limited interest to Europeans. While still part of the Soviet Union, Estonia developed a commercial oil shale industry, but there have been growing environmental concerns since that nation became part of the European Union.

Boak says companies in Estonia, Brazil and China continue to blaze the oil shale trail, with one Estonian firm “hunting for properties” appropriate for oil shale development in the United States. Still, none of the foreign firms have been able to produce much more than a few thousand barrels of oil a day – a drop in the bucket in terms of global demand. And now the European Union is considering banning oil shale and tar sands development because of studies showing higher greenhouse gas emissions than from conventional fuels.

Meanwhile, Republican members of Colorado’s congressional delegation continue to beat the oil shale drum. Just last month in a guest column in the Grand Junction Daily Sentinel, 3rd Congressional District Rep. Scott Tipton wrote: “The development of [oil shale] resources would lead to tens of thousands of good paying jobs and help stabilize our energy supply – putting an end to spikes in gas prices.”

Juxtapose that statement with what Tom Yelverton of ExxonMobil told the Daily Sentinel late last year: “At best, commercial production is a decade away and most likely more.”

Rep. Doug Lamborn of Colorado’s 4th Congressional District is a big backer of stepping up domestic oil and gas production, including oil shale, on the state’s Western Slope.

“It is all well and good to propose measures that may pay off decades in the future, such as alternative energy research and higher CAFÉ standards for vehicles,” Lamborn states on his website. “The most urgent and immediate solution though is to ramp up domestic production of oil and gas right now.”

Even the companies deeply involved on oil shale research say it’s years from becoming a commercial reality: “In fact, it could take up to 10 to 12 years of additional research, environmental analysis and permitting before a company could develop a federal oil shale lease,” Tracy Boyd of Shell told the Glenwood Post Independent in late 2008.

Editor’s note: This is the second in a two-part series on the future of oil shale in Colorado in the wake of rising gas prices and mounting unrest in the Middle East and North Africa. Click here for part one.

Dr. Jeremy Boak, a leading expert on oil shale technology at the Colorado School of Mines, says the Obama administration is dragging its feet on oil shale production in the United States much the way the Bush administration stalled on climate change policy.

Dr. Jeremy Boak

“It’s curious to hear the same sort of arguments being made by this administration that were made by the Bush administration for not doing anything on climate change,” Boak told the Colorado Independent. “We’ve got to have all the answers before we can move.”

Citing the “driest period on record in the Colorado River basin, Lake Mead water levels at historic low levels and impacts on the agricultural economy,” Salazar has said the Bush oil shale rulemaking “put the cart before the horse” by setting royalty rates at 5 percent for the first five years of oil shale production and opening up 2 million acres of BLM land to leasing before more research and development was completed.

Oil shale production has never been proven commercially viable in the United States because the process of heating shale rock to extract organic kerogen and then refine it into oil consumes a great deal of water and conventional power. A Shell official in 2009 confirmed to the Colorado Independent that his company’s process consumes at least three barrels of water for every one barrel of oil – a significant amount in the arid Colorado River basin.

Boak says that figure may wind up being closer to a one-to-one ratio, but regardless, he says the administration has its answer and needs to move oil shale research and production forward in light of rising global fuel costs and the increasing need for domestic energy production.

“It is a distortion to say we have to have an answer about water use because we have an answer about water use and either that answer is good enough – that three barrels per barrel is something we can live with – or it isn’t,” Boak said. “If it isn’t, then it’s incumbent on both the government of Colorado and the federal government to say why it isn’t and to say what is OK, and they have completely evaded that responsibility.”

Sen. Steve King

“Salazar’s decision to enter into a wink-and-a-nod settlement with the environmentalist opponents of oil shale and appease them by scoping out a new round of restrictions and royalty requirements is exactly the wrong policy for the Western Slope, for Colorado and indeed for America,” King wrote.

Boak also refutes a Rand Corporation report predicting it will take up to 10 new coal-fired power plants to generate the heat needed to produce just 1 million barrels a day of the estimated 2 trillion barrels of oil equivalent trapped under an approximately 16,000-square-mile area under northwestern Colorado, eastern Utah and southeastern Wyoming called the Green River Formation. New research by Shell and other oil companies indicates the heat will come from gas, he said.

“Their primary option is to use the natural gas that comes along with the oil,” Boak said. “That’s a significant fraction, especially for these companies that are doing in-situ. When you cook it more slowly you get a higher gas-oil ratio, so you get a higher fraction of it as natural gas.”

Shell’s in-situ process involves heating the rock deep underground rather than mining the shale rock and retorting it on the surface.

Still, conservationists and alternative energy advocates say it’s prudent to take a slower approach on leasing and royalty rates until more research is completed.

Randy Udall

“It is reasonable for companies like Shell that are having great difficulty increasing their own oil production – in fact Shell’s oil production of crude oil has been trending down over the last decade – so there are lots of oil companies that kind of wonder what comes next,” Udall said. “At least some of them think it’s reasonable for them to spend some of their RD&D money looking at oil shale, even though all of them – experienced petroleum geologists – understand what a big lift it will be ever to commercialize oil shale.”

Exactly why Boak says the initial 5 percent royalty rate set by the Bush administration makes sense. After five years that rate climbs 1 percent a year until it reaches a 12.5 percent cap for the 20 to 30-year life of the lease. The discounted rate up front allows companies to recoup capital costs that will likely be much higher than conventional oil and gas drilling, Boak says.

The size of the area opened for leasing is also under review by the BLM.

“We’re not sure that 2 million acres should be allocated for this type of use, but nonetheless we’re willing to go back and revisit that issue and through an amendment to our land-use planning process make that determination,” BLM Director Bob Abbey said in February.

Asked why such a large swath is needed, Boak said, “Because it’s where the oil shale is. Otherwise you’re making judgments about which oil shale is OK to lease out and which is not instead of letting industry decide which it would like to lease out and which it would not.”

Editor’s note: This is the first in a two-part series on the future of the oil shale industry in Colorado in the wake of recent Middle East unrest and steadily rising oil prices. Part two will run Wednesday.

High Country News, the non-profit biweekly published in Paonia, which covers Western issues for a national audience, recently looked at the issue in some depth, but with a twist. Their subject was not Mexican. He was Taiwanese and he grew up in Boulder before attending the Colorado School of Mines and discovering that he did not have much of a future in America.

He can’t easily stay here. Since he doesn’t speak or read Taiwanese or Chinese he can’t easily return to the country of his birth.

If that article is too long for an easy morning read, the same magazine also published a much shorter opinion piece on the subject of anchor babies.

Hosted by the Colorado School of Mines and the Center for Oil Shale Technology and Research, the meeting, which runs through today, highlighted technological progress being made on six previous research, development and demonstration (RD&D) leases (five in Colorado and one in Utah).

The Associated Press quoted one industry expert who said 35 different companies are currently working on ways to affordably extract kerogen – organic material that’s a precursor to oil – trapped in the oil shale and tar sands of the Green River Formation spread over northwestern Colorado, eastern Utah and southwestern Wyoming.

Citing U.S. Geological Survey numbers much higher than previous estimates, the AP put the Green River reserves at 2 trillion to 2.5 trillion barrels of oil, with western Colorado’s Piceance Basin alone containing approximately 1.5 trillion barrels.

But the question is at what price will that oil be extracted over the next several decades?

Environmentalists, residents of the Western Slope and a growing number of politicians say full-scale, commercial oil shale production would essentially industrialize the highly arid and environmentally sensitive area of the Rocky Mountains, requiring far too much water and power and irreversibly polluting fragile mountain landscapes.

The opposition has politicized the debate, Jeremy Boak, head of the Center for Oil Shale Technology and Research at the Colorado School of Mines, told the AP. Boak said Salazar’s decision to limit new RD&D leases and more closely monitor their progress will inhibit research.

“I feel like the arguments are highly political arguments, not technical ones,” Boak said.

But Gov. Bill Ritter Tuesday issued a statement supporting Salazar’s new rules for the next round of RD&D leases, as well as his decision to pursue an Interior Department investigation of amendments made to previous leases during the waning days of the Bush administration. Here’s Ritter’s statement in its entirety:

“Secretary Salazar has wisely decided to institute reforms in the second round of the Research, Development & Demonstration program. Constraints on the size of leases and due diligence requirements are key parts of the Secretary’s new approach to focusing on questions that must be answered before oil shale research can transition to commercial development.

“Colorado has always supported a robust RD&D process to research and evaluate the technologies that could be used to develop oil shale and to better understand the environmental impacts.

“The potential for oil shale development in Colorado, and the economic opportunity that it represents, is huge. But the prospect of commercial-scale activities raises significant questions about how oil shale can be successfully integrated into our state’s economy and how we can protect the state’s environment, water and communities.

“We’re also pleased to learn that the Secretary has asked the IG’s office to investigate the details surrounding the amendment of the leases in January. We had concerns about the process by which these amendments were developed and by a number of their terms.”

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Marsha Williams, director of integrated marketing and communications at the School of Mines, disputed Thyne’s allegations and clarified his role with the school. Here’s her entire statement:

“I want you to know that no one in the Mines administration recalls having anything but cordial conversations with Dr. Thyne this spring. When Dr. Thyne was quoted during that time by the media, the school received inquiries about Dr. Thyne’s association with Mines.

“As a result, Mines officials phoned and e-mailed Dr. Thyne to inform him of the inquiries, and also to remind him of the university policy that people must be clear in public communications that the opinions they express are personal and do not represent institution positions — one way or another — on issues being discussed.

“Also, as a matter of clarification, Dr. Thyne left employment at Mines in August 2006 due to employment at the University of Wyoming. He has remained in a very limited role on a non-paid basis (in an advisory capacity with graduate students) since then, and that contract ends at the end of August 2009.”

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Colorado School of Mines in Golden (CC photo by proforged, Flickr)

Dr. Geoffrey Thyne is no Ward Churchill. He’s a geologist and an academic with three decades of field work and experience as a research scientist in the oil and gas industry, including the last 13 years at Colorado School of Mines in Golden.

Thyne said in an interview that he was caught completely off-guard in late May when his bosses at the 135-year-old school threatened to fire him for comments he made to reporters on hydraulic fracturing — an increasingly controversial but equally common practice of injecting natural gas wells with high-pressure water, sand and chemicals to force open rock formations and free up gas.

U.S. Rep. Diana DeGette, a Denver Democrat, is co-sponsoring legislation that would remove a Safe Drinking Water Act exemption for the process, also known as “fracking,” that was put in place by the Bush administration in 2005. Oil and gas industry trade groups have mounted a massive — and expensive — campaign to fight DeGette’s bill and maintain the exemption, which no other extractive industry enjoys.

Prof. Thyne

Thyne said he was threatened with termination as a research associate professor at Mines, a position he still holds through the end of the summer, because of pressure put on the state school by powerful players in the oil and gas industry who were upset with his position that federal regulation of hydraulic fracturing may ultimately be necessary if oil companies don’t find other solutions.

“I was shocked,” Thyne said. “It’s fine to call up and complain. It’s fine to call up and say, ‘Hey, we want an explanation of why you said this.’ I think that’s totally reasonable. What I found so interesting is no one’s ever called me, except my bosses, and they just come in and go, ‘Your ass is going to get fired if we can find a way to do it.’”

As it turns out, a position came open as a senior research scientist at the Enhanced Oil Recovery Institute at the University of Wyoming, and so Thyne is transitioning there by the end of the summer. But he clearly was rattled with the fallout from comments he made to both National Public Radio and Denver’s KUSA Channel 9 TV in late May.

“There’s some really powerful people that are making a lot of money off of this, and when they see any kind of opposition, their response is to pick up the phone and say, ‘Fire this guy,’” Thyne said. “I’m first surprised that a state institution can be influenced that way …”

Colorado School of Mines public relations officials did not return a call requesting comment Thursday. Late Thursday afternoon a spokeswoman provided an e-mail response (see related blog item).

Thyne contends there needs to be much more rigorous study of fracking to determine the extent to which it can contaminate groundwater supplies. Industry money currently being poured into the aggressive and highly defensive campaign to defeat DeGette’s legislation would be better spent building a credible scientific case for why the exemption was necessary in the first place, he adds.

Industry officials claim state regulation of the practice is more than adequate and that the chemicals used in fracking need to be kept secret for competitive purposes. They also argue that in 60 years of fracking there has never been a case directly linking it to the contamination of drinking water wells because so many precautions are taken.

But Thyne is currently being employed as an independent consultant by Garfield County to study a case near Silt in which a property owner claims fracking contributed to an ongoing gas seep in Divide Creek. Thyne’s report on those claims may be discussed at a meeting next week of the Colorado Oil and Gas Conservation Commission, which dismissed the claims.

Working for the consulting company he founded, Science Based Solutions, Thyne has conducted other studies for Garfield County that showed elevated levels of methane in groundwater since the most recent drilling boom began in 2000.

Thyne says the West Divide Creek seep in 2004 resulted from a bad cement job by EnCana Oil and Gas, which was fined a record amount of more than $370,000 by the COGCC, and had nothing to do with fracking.

But at the same time he was asked as a professor at Mines to conduct an unfunded review of a 2004 EPA study of fracking for the Oil and Gas Accountability Project. Thyne was not as convinced as the EPA that the fracking exemption is justified by current data, and he wants to see far more study on the topic because it has taken off so much in the last decade.

“You want to know those things because now that we’re employing this technology broadly we’re hearing about problems,” Thyne said. “Not many, but a few. And if we’re going to employ it even more broadly, and particularly into residential areas, it’s just the prudent thing to do is be sure.”

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