Hearings and Business Meetings

Jun 01 2006

09:30 AM

Full Committee Hearing- Oil Shale

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

Mr. Chris Treese

External Affairs, Colorado River Water Conservation District

 Statement of Christopher J. Treese, Manager External Affairs
 Colorado River Water Conservation District
 Glenwood Springs, Colorado

 Energy and Natural Resources Committee, United States Senate
Field Hearing
Grand Junction, Colorado
  June 1, 2006
I want to thank Chairman Domenici and Senator Salazar for this opportunity to share the Colorado River Water Conservation District’s concerns and recommendations regarding water needs and interests associated with an emerging, but as yet uncertain, oil shale industry.  I also want to extend our gratitude to the Chairman for his personal commitment to field hearings and field investigations, thereby providing greater and more cost-effective access to the Senate Committee process and ensuring first-hand committee information on issues of national importance.

The Colorado River Water Conservation District is the principal policy body for the Colorado River within Colorado. We are a political subdivision of the State of Colorado responsible for the conservation, use, and development of the water resources of the Colorado River basin to which the State of Colorado is entitled under the 1922 and 1948 Colorado River compacts.  The River District includes all or part of 15 counties in western Colorado, including all of the oil shale-rich lands of northwest Colorado.  We offer the following testimony in a spirit of cooperation and potential partnership with both the emerging oil shale industry and the federal government to ensure that adequate and safe water supplies are maintained and developed in a manner that is both timely and compatible with competing water demands in the arid West.

The hydrocarbon-rich Green River Formation resides in a region with limited precipitation.  Most of the oil shale region of northwest Colorado receives 8 to 14 inches of precipitation annually. Essentially the entirety of the oil shale resource lies within the Colorado River basin, where competition for scarce water resources is well known.  Oil shale development will inevitably compete with existing water uses and conflict with the vision of many for the desired water futures in the arid West.  The best decisions will be made on the best and most timely information.  We must know as much as possible, as early as possible about the water needs of alternative oil shale extraction technologies and their companion water quality implications.

The ability to adequately assess water supply requirements and water quality implications of an industry without a proven technology is limited at best.  Simply put, what we don’t know vastly outweighs what we do know. This, however, is not an argument in opposition to oil shale development or in favor of diverting resources to other pursuits.  Rather, it is a call for research and resource dedication to finding answers to the water supply needs and water quality implications of oil shale development.  It is also a plea for a pace of resource development commensurate with the development of reliable information and the ability of the industry and local communities to address their water-related requirements.

Irrespective of the extraction technology employed, significant new water supplies will be required by an oil shale industry.  Extraction technologies in the 1970s and 80s required up to five and six barrels of water for each barrel of shale oil produced.  More recent, emerging technologies report significantly reduced water requirements, on the order of a barrel of water required for a barrel of shale oil.  However, even under these favorable assumptions, a modest oil shale industry of 500,000 barrels per day would require roughly 25,000 acre feet of water annually.  To ensure a reliable annual yield of 25,000 acre feet of consumptive use water would require new storage facilities with 50,000 to 80,000 acre foot capacities, assuming an adequate source of water is legally and physically available.
An emerging oil shale industry with its attendant construction and operating workforces will also require new water supplies for municipal use.  This need presents an opportunity for public-private, industry-municipal partnerships for water resource development.  However, this opportunity is tempered by the memory of the recent “bust” of the previous oil shale development boom.

In addition to water availability, water infrastructure funding is a challenge.  In the most recent round of oil shale development commencing in the 1970s, the federal government set aside a significant portion of the bonus bid funds from the two federal lease tracts for local impact mitigation.  These funds became the highly successful Oil Shale Trust Fund.  This fund was distributed to each of the locally impacted counties for their individual and locally-prioritized capital needs.  Congress enacted a similar financial allocation mechanism in 1998 in the “Southern Nevada Public Land Management Act” (P.L.105-263) with specific payment of federal land sale proceeds to the regional water authority for water-related infrastructure development.  More recently, analogous water investment allocations have been specified by Senators Reid and Ensign in other southern Nevada legislation and are also currently being contemplated in draft legislation by Senator Bennett and Congressman Matheson for southwestern Utah water development.  Specific allocation of oil shale-related federal revenues for public infrastructure requirements, including express allocation of resources for regional water supply development, would significantly assist necessary water resource development.

Conventional wisdom in Colorado holds that a minimum of twenty years is required to plan, design, engineer, permit, finance, and construct even a modest new water storage reservoir.  No one can point to the exception to this twenty year minimum, and there are plenty of examples exceeding this twenty year standard, many by decades.  The stimulus of oil shale’s water need may reduce this standard, but it may not.  Accordingly, immediate cooperative efforts should be initiated between would-be oil shale developers and local and regional water authorities to identify public and private water needs and alternatives to their supply.

An additional lesson learned from the previous oil shale “boom” is the need for cumulative impact analysis.  If Congress advocates for a vibrant, multi-company oil shale industry operating in the region, the traditional project by project analysis of environmental and socio-economic impacts will be insufficient.  Impact analyses of oil shale development must examine the cumulative impacts of the entire, reasonably foreseeable industry.  During the last boom, the industry formed a cooperative, public sector-private sector “Cumulative Impacts Task Force” to mutually assess the socio-economic impacts of the then anticipated oil shale industry.  Additionally, through this, and an allied industry-only group, decisions were made regarding the equitable allocation of impact mitigation.  The region and the industry would be equally well served by a similar effort this time.

Finally, the lessons learned from the last oil shale boom and bust are vivid in the minds of the area’s elected and planning officials.  We can and will prepare for oil shale development in a manner that assures mutual benefit to both the industry and the local communities without undue risk on the latter.  We have the institutional capacity and human resources to accomplish this with appropriate assistance from the federal government.  However, if Congress or the administration artificially accelerates oil shale development either by rewarding or requiring rapid development before technologies are sufficiently mature or without proper analysis of potential impacts and the time to prepare for those impacts, you will have doomed the local communities to repeat the disastrous and disruptive boom and bust cycle of previous incarnations of the long-promised oil shale industry.  Accordingly, this is my plea for a deliberate and thoughtful pace to oil shale development that will ultimately reward all who are party to it, whether by choice or proximity.

While the unknowns and uncertainties regarding oil shale development will continue to loom large, there are actions that can and must be initiated immediately by Congress and the Administration, as well as by state and local governments, to ensure a well-planned and locally-beneficial oil shale industry compatible with and sustainable for the local community.

Federal Actions:
• All environmental assessments should include a thorough analysis of water-related requirements of oil shale development.  This should include direct water needs of oil shale on-site development, as well as the indirect, companion water requirements of ancillary oil shale activities (e.g., electrical generation or other energy requirements of oil shale production, municipal demands of energy-induced population growth).
• Mitigation measures required by federal agencies should include a sort of “adaptive management” approach allowing for new and emerging technologies changing information regarding water use requirements and water quality impacts of oil shale development;
• Congress should clarify that state and local permitting authorities apply equally to activities and projects on federal land as on private and non-federal public lands.
• All future oil shale leases should include specific allocations of lease proceeds, including bonus bid revenues, to assist local and regional governments in addressing water storage and development needs occasioned by the lease and related oil shale development.
• Finally, Congress and the administration must make a long-term research and development support commitment to this national resource, one that transcends the wildly fluctuating world oil market.  This hydrocarbon resource is simply too substantial and its development too nascent to allow research and development to follow world oil prices, as it predictably will if reliant solely on private funding sources.  A successful oil shale industry that is harmonious with local communities requires a long-term federal commitment to developing new technologies, exploring new ways to minimize and mitigate impacts, and entering into new partnerships with state and local agencies to allow us to adequately prepare for and support this new energy industry.

State and Local Government Actions:
• Regional governmental coordination and cooperation is required to adequately plan for the rapid growth likely with an emerging oil shale industry.  This has begun through the Associated Governments of Northwest Colorado and Club 20 but must be broadened and accelerated.
• Watershed planning and water supply development alternatives must be advanced.  State and regional water authorities have the capacity to lead these efforts but may require additional funding to expedite the process.
• Development of contingency planning and creative capital financing mechanisms that don’t place present and future residents at financial risk of default in case of another “bust” are imperative.

Industry Actions:
• The industry should partner with local governments to mutually assess potential impacts and benefits of oil shale development.  Considerable time and expense will be spared by a NEPA-like analysis of a potential oil shale industry that meaningfully involves locally- affected communities and interests from the earliest stages of the process (e.g., development of the scope of work, contractor selections, modeling decisions, selection of assumptions). Such early involvement can dramatically reduce the predictable distrust of large volumes of technical documents being presented as fait accompli in long, boring technical public meetings subsequent to the material decisions.
• A functional oil shale trade group focused on the cumulative impacts and their mitigation should be formed.  With water resources traditionally requiring the greatest lead time, emphasis should be placed on analysis and planning for adequate water supplies for the industry and the local communities.