by J.R. Pegg

WASHINGTON, DC - The Bush administration finalized regulations to govern the commercial development of oil shale on federal lands on Monday, rebuffing concerns that the rules are premature and ignoring the serious environmental concerns about tapping the resource.

Administration officials said investors keen to unlock the nation's vast oil shale resources need "rules of the road" even though the technology is still not commercially viable.

The rules, announced by the U.S. Interior Department's Bureau of Land Management, provide the regulatory framework for commercial oil shale development, including royalty rates and lease sizes.

The regulations are largely aimed at some two million acres of federal land in Colorado, Utah and Wyoming rich in oil shale - an area known as the Green River formation. The BLM estimates the nation's oil shale reserves, much of them in the Green River Formation, could yield some 800 billion barrels of recoverable oil.

That is enough to displace foreign oil imports for more than a century, said Stephen Allred, the Interior Department's assistant secretary for land and minerals management.

"Production from domestic resources makes us more secure and less vulnerable to future energy crises, and increases our security and economic well-being," Allred said. "The tremendous oil shale resources that we have in the U.S., containing several times the oil reserves of Saudi Arabia, can be a vital component of that secure future."

But Allred acknowledged commercial technology to economically tap the resource does not exist and could be a decade away from reality.

"It is going to be some time," Allred told reporters on a telephone briefing.

That is one reason the decision to issue the rules has irked environmentalists and some Democratic lawmakers, who also worry about the massive outlays of water and energy needed to convert compounds in sedimentary rocks into synthetic crude oil.

Oil shale has been labeled the "dirtiest fuel on the planet" by the Natural Resources Defense Council, which estimates that production will emit four times more greenhouse gases than conventional gasoline production.

"Cooking rocks and scorching the Earth is not a solution to our energy crisis," said Amy Mall, a senior policy analyst for NRDC.

Allred said little about the environmental concerns of oil shale, but said the regulations will help investors and all those who "want to make sure that there is due diligence and that environmental concerns are being considered as those activities go forth," Allred told reporters.

Leasing is at least five to 10 years away, he added, and several environmental reviews, including a final site-specific analysis, will be required before development is approved.

Allred acknowledged that the BLM lacks the information to project demand for leases or the economics of producing shale oil.

BLM estimates oil shale technologies under development "may be profitable in the neighborhood" of oil prices of $60-$80 a barrel "more than the current price," Allred said.

In a bid to further encourage development, the rules offer a bargain on royalties energy companies must pay to lease lands for oil shale development.

Whereas companies developing conventional oil and gas from public lands pay upwards of 12.5 percent in royalties to the federal government, those tapping oil shale will only have to pay five percent during the first five years of production. The rate will then rise one percent every year thereafter until the rate reaches 12.5 percent.

Allred defended the discount, noting that companies are going to spend "hundreds of millions of dollars" to develop oil shale.

The royalty rate is "a compromise" that will encourage development and "provide a fair return to the American public," he said, adding that states from which the oil shale is produced will receive up to 49 percent of the royalties collected.

U.S. Senator Ken Salazar, a Colorado Democrat, called the five percent royalty rate "a pittance."

He further criticized the rules as hasty, arguing that the BLM has yet to fully analyze the environmental impacts of oil shale production, particularly the effect on scarce water supplies in Colorado and other western states.

"Rather than completing the necessary research and development, the Bush administration is rushing ahead with rules for a development process they know little about," Salazar said

What impact the rules will ultimately have on U.S. development of oil shale is uncertain. Environmentalists have threatened to sue to repeal an earlier Bush administration decision to open the Green River corridor to oil shale production and there is vocal opposition to oil shale from some Democrats in Congress.

Democrats had previously blocked the Interior Department from issuing oil shale rules, calling for more analysis of the environmental impacts. That ban expired in September, as lawmakers reacted to growing public pressure over high energy costs.

President-elect Barack Obama has previously suggested more research is needed to understand the costs and benefits of oil shale development, but has said little else on the issue.