Hearings and Business Meetings

250 North Street Grand Junction, CO Grand Junction City Hall Auditorium 09:30 AM

Mr. Steve Smith

Assistant Regional Director , The Wilderness Society

Statement of

Steve Smith, Assistant Regional Director
The Wilderness Society

Before The Committee on Energy and Natural Resources
United States Senate

regarding

Oil Shale Development
as contemplated in the
Energy Policy Act of 2005

June 1, 2006

Thank you, Mr. Chairman and members of the committee, for this opportunity to highlight some key environmental issues that must be addressed as federal land managers consider the possible development of oil shale resources in this region.

My name is Steve Smith. I am Assistant Regional Director for The Wilderness Society’s Four Corners States Office. My testimony today, however, reflects thoughtful research and recommendations compiled by staff and volunteers from an array of conservation and citizen organizations working in coalition to better understand this potential energy resource and to contribute to discussions about it future.

I am especially grateful for very able advice and assistance from Bob Randall and Jim Martin of Western Resource Advocates, Randy Udall of Community Office for Resource Efficiency, air quality expert Robert Yuhnke, and Kevin Markey, who was among the conservation community’s leading experts during the ill-fated oil shale boom of the 1970s and 1980s.

I live in Glenwood Springs, Colorado, 30 miles from one of America’s richer deposits of oil shale. Over the past seventeen years living there, I have watched the local people, communities, and economy slowly recover and revive from what was the disaster of the last oil shale experiment in our county.

That boom-bust disaster was the result of attempts to move oil shale too quickly with artificial acceleration and unsustainable subsidies. It is essential that Congress and federal land managers learn both from the mistakes of that past and, cautiously, from the innovations of the present when crafting oil shale policy and activities.

Perspectives
Other witnesses appearing before you today are far better qualified than am I to assess both the quantity of shale oil that is potentially recoverable and the quantity that may prove to be economically recoverable. While considering their presentations, however, it seems important to recall that producers and their investors sank five billion dollars into oil shale last time around, and then abandoned the field on May 2, 1982.

Similarly, it is important to put today’s oil and gasoline prices into perspective. As the last oil shale venture in northwest Colorado was coming apart in 1980, the Office of Technology Assessment projected that the production of oil from oil shale might be economically viable at a market price of $61 per barrel, and an internal Exxon memo pegged the number at $108 per barrel, both those numbers in 1980 dollars. Even our current prices of $60 dollars per barrel, adjusted for inflation, do not come close to those levels.

Additional perspective is found in comparative opportunities for helping match our energy supplies to our energy needs. An increase in the fuel efficiency of the nation’s automobile fleet by just one mile per gallon, for example, would save 400,000 barrels of oil per day, more than oil shale is likely to produce in the next decade or more, even by the most optimistic projections.

Oil shale, an important potential resource
Even so, energy supplies are needed, and oil shale contains at least the potential of a very large total volume of new oil replacement. This possible source of fuels warrants careful consideration, both of its potential contribution and of its potential effects on other important values and resources.

As you know, the Energy Policy Act of 2005 directed the Secretary of the Interior, that is to say the Bureau of Land Management (BLM), to make federal lands available for research and development activities for oil shale and tar sands resources, a process that the BLM has already begun. The Act also directed the BLM to analyze, through a programmatic environmental impact statement, the environmental, economic, and social impacts of potential commercial oil shale and tar sands development in three western states, to be completed by February 2007.

The Act also directed the BLM to adopt new regulations for commercial leasing of oil shale and tar sands six months later, mandating that these regulations be finalized by August 2007. Further, the Act told the BLM to gauge interest in development of oil shale and tar sands resources among state and local governments, Indian tribes, and members of the public and, if sufficient interest is found, gave the BLM the authority to hold a first-ever commercial lease sale for these resources in the spring of 2008, just short of three years after the Act was approved by Congress.

This is a very ambitious schedule, especially considering that attempts to develop oil shale have been initiated, and have failed, many times over the past century—and considering that a leading company working on perhaps the currently most innovative approach to oil shale production announced last year that it was five to ten years away from even making a decision whether it can take on commercial production.

It makes sense, therefore, to take all the time needed for a thoughtful review of the research results from the preliminary leasing program before considering any public lands leasing for commercial oil shale production. This allows federal managers, local citizens and their leaders, and the industry itself to evaluate whether and how well the new oil shale extraction technologies work and how they could affect local economies, communities, and the natural environment so key to both.

As part of the interest-and-support standard described in the Energy Policy Act as threshold to commercial oil shale leasing, that leasing should begin, if it begins at all, only when technical difficulties of oil shale production are solved and when negative environmental and social effects of commercial development are fully understood and will be avoided or mitigated.

Oil shale failures of the past all have been financial and technical failures; either we have been physically unable to transform rock into liquid fuel or the expense of doing so far outweighed the market value of the product. Today, new and very innovative technologies are evolving that may crack the physical barriers for producing fuel from oil shale. You have heard much about that technical progress even in today’s hearing.

Careful research before commercial development
Even those innovations, however, include many very new ideas and accompanying unknowns. The BLM is currently evaluating five in-situ oil shale research and development proposals in Colorado, each using technology that is the first of its kind.  Nowhere on the planet has large-scale oil shale development occurred using the in-situ techniques being considered in Colorado’s Piceance Basin. For all the effort and investment it has expended, the oil shale industry is in its infancy, and these are one-of-a-kind operations.

The BLM should let companies conduct extensive, and long-term, research and development activities—and carefully evaluate the results of that research—before it considers holding a commercial lease sale.

This sound, cautious approach to—indeed, strategic postponement of—commercial oil shale leasing on public lands does not mean foregoing oil shale energy production. In fact, the potential resource recovery from the BLM research-and-development leases themselves is very large. According to the Plans of Operations submitted with the research lease nominations, the estimated in-place oil shale resources for the 160-acre Colorado tracts are 284 million barrels, 280 million barrels, 300 million barrels, 274 million barrels, and 356 million barrels, respectively. Thus the total resource to be conveyed in the research-and-development leasing program is approximately 1.5 billion barrels in place.

We note that this number does not represent the amount of oil that will be recovered, but rather the “resource in place”. Because we do not yet know the potential recovery rate for the development methods proposed by research lessees, it is difficult to estimate the number of barrels that could actually be recovered. Whereas room-and-pillar mining resulted in recovery of only about 10% of the resource in place, in-situ methods are likely to recover much more. At a70% recovery rate, for example, these research leases stand to deliver over 1 billion barrels of oil over their life, which would represent a substantial domestic supply.

If such rates of recovery actually result from the research leases, that would suggest that commercial leasing may make sense. Conversely, until experimental leases can definitively demonstrate high rates of recovery, larger tracts should not be offered for what would be speculative commercial leasing.
 
Commercial leases offered later in time also will be likely to generate greater returns to the federal treasury. This view was supported by the Congressional Budget Office (CBO) when it evaluated legislative proposals to mandate large-scale oil shale and tar sand leasing in the next five years. The CBO found that because the technology to successfully develop shale has not yet been developed, bonus bids for commercial leases would be insignificant over the next five years.

In addition, CBO found that any increased receipts from early lease sales would be offset by forgone receipts from sales that would otherwise occur later, when the technology has been developed, as well as by administrative costs. Leases will simply be more valuable when potential lessees know what they will be able to do on them.

Protecting the environment
Even as technological improvements advance, however, researchers and policymakers must fully consider and integrate into the oil shale equation the protection of our communities, our water, our wildlife, our clean air, and the scenic beauty of this region.

The public lands in question, in northwest Colorado, northeast Utah, and southwest Wyoming, certainly have tremendous energy potential. Those lands already are producing unprecedented volumes of oil, natural gas, and coal for regional and national energy needs, and they contain a very large theoretical volume of additional energy from oil shale.

Those same public lands also include integrated and critical wildlife habitat, popular hunting and other recreation opportunities, water supplies for local agriculture and communities, and astounding scenic wonders. For all its energy potential, the oil shale country must be considered in the larger context of natural and public values. Correspondingly, any energy policies affecting those lands must protect those other, more enduring and more complex values and the region’s tourist- and recreation-dependent communities that relay on those natural features.

Direct surface impacts—Some threshold considerations, for both a limited research program and the possible commercial leasing program on federal public lands (including conversion of research leases to commercial scale), include:

• Leasing should be offered only for research and development of clearly new technologies and not for continued use of old technologies or minor variations on them;
• Leasing must not be a license for speculation. Potential lessees should be required to demonstrate, in advance, how their proposed activities in the particular areas proposed for leasing reduce the environmental impacts of oil shale development or how their technologies or processes improve energy efficiency, contribute to resource conservation, make development of oil shale more economic, or reduce waste outputs;
• No leases should be offered or issued on any lands in Colorado, Utah, or Wyoming that any federal agency has identified as having wilderness characteristics—wilderness study areas, wilderness inventory areas, or lands with a reasonable probability of wilderness characteristics;
• No leases should be offered or issued on any lands proposed for wilderness designation in legislation pending before Congress (examples from past Congresses include America’s Redrock Wilderness Act, Colorado Wilderness Act, Northern Rockies Ecosystem Protection Act, and Wyoming Wilderness Act);
• No leases should be offered or issued on any lands designated as Area of Critical Environmental Concern;
• No leases should be offered or issued on any lands that provide critical habitat to game animals, imperiled species, or recovering species;
• The Bureau of Land Management (BLM) and other federal agencies involved in oil shale research leasing should fully consider new information supplied by citizen groups or generated by the agencies themselves regarding potential wilderness values before leasing any lands for oil shale research;
• Leases for oil shale research or for commercial development should include strictly enforced non-waiveable stipulations mandating that lessees submit a reclamation plan to the appropriate state and federal agencies prior to authorization of any ground disturbing activities. Those stipulations should include the requirement that reclamation activities begin promptly upon lease expiration, termination, or relinquishment. Leases should be issued only in exchange for genuinely adequate bonding or other advance mechanism to ensure the completion of reclamation;
• Leases should contain stipulations requiring lessees to conduct air quality monitoring to establish baseline conditions, modeling to anticipate impacts from lease-based activities, and continuing monitoring to measure and control impacts on air quality, visibility, and human health.
• Similar monitoring and precautions should be required relative to water quality, watersheds and streamflow, wildlife habitat, and the protection of plants and plant communities.

Most of the considerations listed above relate to surface disturbance, that is, direct damage to the land and its vegetation. These points are particularly important when analyzing the new in-situ production techniques, which employ well bores (for down-hole heaters, water and gas recovery bores, coolant injection, and monitoring) every 10-12 feet, in effect, 100% surface disturbance over individual production tracts of 640 acres or more and single company leases that may ultimately range from 5,240 to 40,000 acres.

The analysis of potential impacts to lands and water, and means of avoiding and mitigating those impacts, must also consider the auxiliary effects of new roads, traffic, worker camps, and influx of dramatically increased industrial and recreational activity on lands that now enjoy a relative state of solitude and minimal disturbance.

In addition to these precautions related to public and natural values found directly on the lands in questions, decisions about oil shale leasing and development must consider the broader contexts of energy inputs and their sources, water supplies and their sources, regional air quality, extended wildlife habitat, agricultural economies, and regional scale cumulative effects of a potential oil shale industry.

Energy inputs—The amount of energy needed, as an input, to make oil shale production work is immense. Traditional, above-ground retorts must heat mined and pulverized oil shale to 900 degrees Fahrenheit, consuming 40% of the energy value produced from the shale itself. Even in the new in-situ heating technique, underground electric heaters must bring the ore to 700 degrees Fahrenheit and hold there for up to four years!

The Rand Corporation’s report, Oil Shale Development in the United States, Prospects and Policy Issues, prepared for the U.S. Department of Energy last year, notes that oil shale production of 100,000 barrels per day (less than one half of 1% of U.S. daily oil consumption), using the so-far most advanced in-situ underground heating retort technique, would require 1.2 gigawatts of dedicated electric generating capacity. That equates to construction of a dedicated power plant equal in size to the largest coal-fired plant now operating in Colorado.

For a 500,000 barrel-per-day industry, the scale projected by some oil shale enthusiasts, that equates to need for 6 gigawatts of new electric power, an amount equal to that generated from all of Colorado’s existing coal-fired power plants.

Although some small amount of that electric generation might be fueled by natural gas, a by-product of the in-situ process, most of it likely would be fueled by the abundant coal supplies in the vicinity, prompting additional technological challenges in providing carbon sequestration and particulate air pollution control.

Water—The region underlain by oil shale is notably arid, with relatively low annual rainfall, and existing over-commitment of existing water supplies and facilities. Against that dry backdrop, the Rand report cites the Office of Technology Assessment’s projection that traditional oil shale operations require between 2.1 and 5.2 barrels of water to produce one barrel of shale oil product. While the new in-situ processes may require relatively less water, the Rand report notes that “considerable volumes of water may be required for oil and natural gas extraction, postextraction cooling, products upgrading and refining, environmental control systems, and power production.”

The BLM projected in 1996 that oil shale (by traditional methods) would reduce the annual flow of the White River by up to 8.2 percent and “would result in the permanent loss or severe degradation of nearly 50% of BLM stream fisheries.”

Air quality—The Rand report notes that there were no publicly available analyses regarding how modern pollution control systems could be incorporated into oil shale production facilities, and that further studies would be needed to determine the extent to which nonpoint-source air emissions (i.e. dust and off-gassing) from both surface and in-situ operations could be prevented or controlled.  Rand also found that no studies of the cumulative impacts of oil shale development on air quality had been reported since the 1980s.  Because so much has changed in terms of air-quality regulations, mining and process technologies, and pollution-control techniques, the earlier air quality analyses were found to be no longer relevant.  Elsewhere, Rand characterized available studies on air quality effects of oil shale development as “so out of date, it is not possible to provide an analytically based estimate of the extent to which air quality considerations will constrain the technology profile, pace of development, and ultimate size of an oil shale industry.”

Additional air quality study and modeling must be completed before making decisions about commercial oil shale production.

Some earlier experiences provide some perspective on this important question. Primary among pollution types is the inevitable generation of sulfur and, once that element is exposed to air, the generation of sulfur dioxide. That was an important issue in 1980, when the court held that oil shale operations must comply with direct and regional incremental degradation of air quality. The technologies for control of sulfur dioxide has improved in the past two decades, but not all sources of the pollutant, primarily electric power plants, have taken measures to use them. If oil shale operations add sulfur dioxide to the regional mix, oil shale operators may be able to mitigate those additions by investing in pollution control technologies at existing power plants. Such exchanges of so-called pollution credits must, however, be investigated and integrated into any expanded oil shale program.

All of these factors must be thoroughly and thoughtfully analyzed in the pending programmatic EIS and used as the basis for decisions about where oil shale activities will be allowed, and where they would not be appropriate and so will not be allowed.

Conclusion:  go slow, go carefully
Oil shale holds a tremendous potential contribution to our energy supply. Researched carefully, developed slowly, and considered in the important contexts of communities, recreation, and the beauty and natural environment of these wondrous states, it can make that contribution without destroying longer-term resources and values.

Congress and federal land managers should, in careful consultation with states and local communities, learn from the oil shale research leasing program before beginning any commercial leasing or commercial production on public lands.

The oil shale will be there when we are ready to develop it in a truly sustainable and environmentally sound manner. We should not venture too fast until we are.

I have included with my testimony, for the hearing record and for your reference, a copy of comprehensive comments submitted earlier this year as part of the oil shale programmatic EIS process. I invite your questions on that document, on my comments today, and on any other opportunity that we may have to help with your work and consideration.

Thank you again for this opportunity to address the committee.