Mr. John A. Baardson

CEO and President

Baard Energy, L.L.C.

Testimony

Before the Committee on Energy and Natural Resources

United States Senate

Hearing on the Implementation of the oil shale provisions of the Energy Policy Act of 2005

Thursday, June 1, 2006

Thank you, Mr. Chairman. Distinguished Members of the Senate and guests, I am John Baardson, the President and CEO of Baard Energy, L.L.C.  Baard Energy is a privately held firm with offices in Vancouver, Washington, Cincinnati, Ohio, Cleveland, Ohio and Salt Lake City, Utah.   Baard Energy is involved in the development of alternative fuels from advanced technologies including biodiesel, oil shale and Coal to Liquids (“CTL”).  My Company is focusing on building plants to produce ultra-clean fuels made from secure sources of abundant feedstock located here in the United States.

I have been asked to talk to you today about implementation of the oil shale provisions of the Energy Policy act of 2005 (the “Act”).  The Energy Policy Act established a task force to, among other things, develop a plan to determine the safest and steadiest route for oil shale development, implement a RD&D leasing program and establish a permanent mineral leasing program in the Department of the Interior to provide access to this resource.  The RD& D leasing program is off and running but is considered by many to be flawed because the BLM arbitrarily and severely limited the number of developers and technologies with access to federal oil shale resources.  The permanent leasing program and the problematic Environmental Impact Statement are critical to the long term success of the program and I laud its initial successes.  These are important first steps but this will not be enough.

The Act assumes that industry will step forward without the help of government to develop the oil shale resources.  However, this  scenario is contrary to the successful Alberta model and completely ignores the fact that 80 percent of the resource in the United States sits on federally owned lands, which poses certain regulatory barriers to major investment in the development of the resource.

I recall that offshore drilling was once considered an unconventional source of oil too risky and too expensive to pursue.  However, with significant government support, the cost burden was overcome, and offshore oil is now considered a conventional resource.  Similarly, getting oil from oil sands in Alberta was once considered by the “experts” to be too expensive and risky.  Now Alberta is producing huge quantities of oil from tar sands at less than $20 a barrel, as a result of government support.

If we are to follow the successful Alberta model on oil shale we must do more than we have enacted in the recently passed Energy Policy act of 2005.  Senator Bunning from Kentucky recently introduced legislation called the Coal-to-Liquids Fuel Promotion Act of 2006 that is an excellent model for us to use to advance oil shale development.  I therefore suggest that you consider a six-point plan for oil shale that is similar to what is proposed by Senator Bunning:.

1)      Authorization and appropriation to underwrite federal loan guarantees for up to ten oil shale fuel facilities through 2015. These plants should have a minimum production of 5,000 barrels per day and a maximum of 20,000 barrels per day of ready to use transportation fuels derived from oil shale.

2)      Authorization and appropriation of $100 million in deployment funding support in the form of grants or non-recourse loans to cover front-end engineering and design costs for the initial ten plants.  

3)      Authorization and appropriation for a 20 percent oil shale fuel investment tax credit to be made available to oil shale fuel facilities placed in service before December 31, 2015.

4)      Authorization and appropriation for a 50 cents per gallon fuel excise tax credit for oil shale fuels which would expire no sooner than December 31, 2020.

5)      Require inclusion of oil shale fuel in the Strategic Petroleum Reserve, authorize the construction of SPR storage facilities for oil shale fuel which could be located in Colorado, Utah or Wyoming and authorize the SPR to hold up to 20% of the reserve in the form of fuels that have been derived from oil shale.

6)      Clarification of the authority already given to the Department of Defense and other agencies for Federal government purchasing support of oil shale fuels through long term guaranteed fixed price contracts by specifying that they may purchase up to a term of 25 years. 

These programs will help support many important emerging technologies involved in oil shale development which I would like to summarize for the record:

1)      New oil shale retorts are available that can process oil shale safely and inexpensively with little or no water usage.

2)      Upgrading technologies which convert raw kerogen from oil shale to commercial grade transportation fuels. There are technologies available that will convert the kerogen directly into super-low sulfur fuels.  This will avoid having to send oil shale liquids to refineries that are already operating at maximum capacity.  In addition, combining the technologies from the coal to liquids industry into the oil shale industry will expand this ability further and help solve certain processing problems.

3)      New uses for spent oil shale have been developed that will allow the spent oil shale to be used to reduce sulfur emissions from coal fired power plants more efficiently than the limestone we now use.  This innovation alone will help oil shale fuels to continue to be competitive at under $40 per barrel.  For the project we are designing, we will need to build a railroad to Vernal, Utah to efficiently get this product to market.  The Federal Government and the State of Utah can help us to put this railroad in place.

Oil shale fuels are a win/win scenario.  We develop an indigenous secure fuel source from a material that was previously unusable, creating an environmentally friendly fuel supply and generating jobs in economically depressed areas of the nation.  To jump-start this process, however, requires the assistance of the Federal Government.  It is of the utmost importance to our Country’s national security and economic well-being that we work together to accomplish this goal.

Thank you for all that you have already done, and let’s keep pushing forward. Thank you as well for your time today.