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
"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
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
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
"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.