Environmentally Conscious Consumers for Oil Shale

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HISTORY

Oil shale has been utilized by humans since ancient times because high-quality deposits readily burn without processing. The retorting, or processing, of the resource has been documented as early at the 1300’s. Modern production could be traced to the late 1700’s and 1800’s. In 1781, a patent was granted to Archibald Cochrane, 9th Earl of Dundonald in Scotland, for an extraction process that produced tar, pitch, and oil from coal and shale using masonry retorts and wooden condensers. Fairly extensive commercial oil shale operations began in the 1800’s in France, Germany Scotland, Canada, Australia and Brazil. In the United States, commercial oil shale retorting and production began in 1857 in Kentucky and Ohio.

Worldwide interest in oil shale rose considerably before and during World War I as conventional oil supplies became more scarce and unstable. In 1912, the United States Navy established the Naval Petroleum and Oil Shale Reserves (NPOSR) to ensure an adequate supply of energy for our Naval Fleet. Recognizing the massive potential of oil shale, the federal government set aside land for energy development on the Roan Plateau near Rifle, Colorado.

Throughout the 20th century, oil shale industries grew around the World. However, the high cost of processing oil shale and cheaper crude oil reserves hindered development of oil shale. Nevertheless, research and study into oil shale continued, including the establishment of the United States Bureau of Mines Synthetic Liquid Fuels Program at the end of World War II in 1944. The stated purpose of this program was:

...the construction and operation of demonstration plants to produce synthetic liquid fuels from coal, oil shales, agricultural and forestry products, and other substances, in order to aid the prosecution of the war, to conserve and increase the oil resources of the Nation, and for other purposes. (emphasis added).

In the 1950’s, under this program, the Bureau of Mines opened a mine and pilot project at Anvil Points near Rifle, CO.

Interest in oil shale in the United States grew again in the 1970’s as oil embargoes, supply disruptions, and high prices took their toll on the United States economy. The U.S. government encouraged oil shale research and production, including tax incentives and opening federal lands to energy companies for research and development. By the late 1970’s, most major energy companies operated oil shale research projects.

However, in the early 1980’s, low oil prices and reduced government support resulted in a collapse of this early oil shale industry. The collapse culminated on “Black Sunday”, when Exxon closed its Colony Oil Shale Project near Parachute, Colorado, resulting in job losses and major economic disruption in the region. In 1985, the federal government completely abandoned the Synthetic Liquid Fuels Program, effectively ending all government support for the oil shale industry.

Oil prices remained relatively low and world crude oil supplies remained relatively high until just the past few years. Study and research into oil shale continued during the 1980’s and 1990’s, especially in places like China, Estonia, Brazil, and Australia. In addition, private companies and public entities continued to research and characterize the oil shale deposits in Colorado, Utah and Wyoming.

Historic Oil Shale Retort in UtahThe resource was just too big to ignore.

In the past few years, we have seen oil prices spike again. In 2008, we experienced an oil price shock sending oil to over $147 per barrel, and gasoline to over $5.00 per gallon in some locations. Many economists believe this energy shock was a major cause of our current Great Recession. More recently, oil has again risen above $100 per barrel and gasoline prices are on the increase.  Most believe the days of cheap, easily recoverable oil are over. Therefore, oil shale has seen renewed interest and investment.

In 2005, the Energy Policy Act started a leasing program for oil shale on public lands. Six (6) Research, Demonstration and Development (RD&D) leases were granted to four (4) private companies, so they could develop new, economic, and environmentally responsible techniques to extract oil shale.  As an additional incentive, each 160-acre lease could be expanded to a 5,000-acre commercial tract if their technology was proven environmentally and economically viable.

In November 2008, the United States Bureau of Land Management (BLM) issued final oil shale rules and regulations which would govern a future commercial oil shale industry. These rules offered companies certainty as to what rules they would operate under, encouraging them to invest in further research activities. In addition, a new round of RD&D leasing was initiated in early 2009 under the same royalty and commercial conversion terms.  20 companies submitted applications.

After taking office in 2009, President Barrack Obama and Interior Secretary Ken Salazar halted the second round of RD&D leasing and revoked the new regulations, throwing considerable uncertainty into companies’ decision-making.  The Obama Administration has taken a very cautious approach.  They released a new second round of R,D,&D leasing, but incentives were reduced including higher royalty rates and a commercial conversion to only 640-acres (instead of 5,000-acres).  Only 3 companies submitted applications.

In February 2011, Sec. Salazar announced he would be taking a "fresh look" at oil shale regulations as a part of a legal settlement with environmentalist groups.