[Senate Hearing 109-602]
[From the U.S. Government Publishing Office]
S. Hrg. 109-602
OIL SHALE PROVISIONS OF EPACT
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
THE IMPLEMENTATION OF THE OIL SHALE PROVISIONS OF THE ENERGY POLICY ACT
OF 2005
__________
GRAND JUNCTION, CO, JUNE 1, 2006
Printed for the use of the
Committee on Energy and Natural Resources
_____
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30-202 PDF WASHINGTON : 2006
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD M. BURR, North Carolina, TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia KEN SALAZAR, Colorado
GORDON SMITH, Oregon ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky
Bruce M. Evans, Staff Director
Judith K. Pensabene, Chief Counsel
Bob Simon, Democratic Staff Director
Sam Fowler, Democratic Chief Counsel
Dick Bouts, Professional Staff Member
Patty Beneke, Democratic Senior Counsel
C O N T E N T S
----------
STATEMENTS
Page
Baardson, John, CEO, Baard Energy, LLC, Vancouver, WA............ 52
Cook, Kim, Chairman of the County Commission, Rio Blanco County,
CO............................................................. 28
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
George, Russell, Executive Director, Colorado Department of
Natural
Resources...................................................... 16
Hatch, Hon. Orrin G., U.S. Senator from Utah..................... 7
Herbert, Gary, Lieutenant Governor, State of Utah................ 12
McKee, Mike, Chairman of the County Commission, Uintah County, UT 33
Meis, Craig, County Commissioner, Mesa County, CO................ 38
Mut, Stephen, CEO of Unconventional Resources, Shell Exploration
and
Production Company, Denver, CO................................. 44
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 3
Smith, Steve, Assistant Regional Director, The Wilderness
Society,
Denver, CO..................................................... 55
Treese, Chris, External Affairs, Colorado River Water
Conservation District, Glenwood Springs, CO.................... 48
APPENDIXES
Appendix I
Responses to additional questions................................ 67
Appendix II
Additional material submitted for the record..................... 81
OIL SHALE PROVISIONS OF EPACT
----------
THURSDAY, JUNE 1, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Grand Junction, CO.
The committee met, pursuant to notice, at 9:45 a.m., at
Grand Junction City Hall Auditorium, 250 North Street, Grand
Junction, CO, Hon. Pete V. Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. We'll come to order. Good morning, everyone.
My name is Pete Domenici. I'm the Senator from the State of New
Mexico. At this time in my life, I happen to have the honor of
chairing the U.S. Senate Committee on Energy and Natural
Resources. We're having a field hearing in your city and in a
little while, we'll explain some basic rules to all of you.
That's just the way it has to be in order to conduct our
business in an orderly manner. We hope that will be
accommodating to you all and we're most appreciative that you
would all take some time, some of your precious time, to join
us here today. So once again, first of all, good morning.
I want to thank each of you for coming today, once again. I
want to thank, in particular, Senator Salazar for joining me
here today. He's a member of the committee, which I have just
enumerated to you. He's been a very valued member, although
he's only been on the committee for a very short period of
time.
We have a very enviable record, that committee. In that
short period of time, we produced the first comprehensive
energy policy for these United States in the last 15 to 20
years. And we believe it has set the path and set the record
straight, for quite some time, for America's energy future.
It was a real luxury on my part to have him as a member of
the committee and I want to personally thank him, for the first
time in the presence of the members of his constituency here in
Colorado, for all the hard work he spent in putting that bill
together and getting us to where we are today.
He and I spent the day yesterday looking at some of the oil
shale research projects currently underway, in this part of the
United States. In a moment, I'll ask him to make a brief
statement as we commence this hearing. In the short time that
he spent in the Senate, he has proven to be a valuable part of
the committee and I have come to value his input immensely.
I also want to welcome a very long-time dear friend,
Senator Orrin Hatch, who is here before us. He's sitting at the
witness table. He could either be there or up here. I choose,
every now and then, when I can, to put him down there.
[Laughter.]
The Chairman. He didn't ask me why, but that's why we're
going to do it this way. And then, when we're finished with the
testimony, he can come up here and join us, if he would like,
and we hope that he will. Senator Hatch has recognized the
urgency of our Nation's energy situation and the potential that
this resource brings for mitigating our energy shortfalls.
As everyone here knows, we face enormous energy problems in
this great country of ours and many are aware of the potential
resources found in this region. With over two trillion barrels
of oil in place, we all understand the significance of oil
shale.
The subject we are considering today can affect you here in
Colorado, and your neighbors in Utah and Wyoming, in an immense
way. We want to be part of having that take place in a manner
that is good for all of you, not bad for you, that it is good
for all of us, and good for America, because we believe that is
clearly its potential.
Some will argue that we need to conserve more. Others think
adding increased efficiency to our cars and trucks or switching
to renewables is the answer. There are others who would argue
that oil shale is a bad bet, pointing to the past boom and
bust. I believe that it is eminently clear that things are
different now. We are more dependent on foreign oil than ever
before. Our world is a more fragile and unstable place than it
was before and energy prices have soared compared to where they
were the last two times that we ventured into oil shale. But
it's also different in terms of what it means to you.
We're not going to follow the mistakes of the past. We're
going to make sure that we do this right for you, and with you,
for your communities, and for the environment, and with your
communities. With private citizens, and local government, and
industry all working together as a group, we can make this work
for America, if it is going to work at all.
And we note some signs up here that say: ``Slow.'' I don't
think anybody intends to go too fast successfully developing
this vast oil shale resource. It will mean so much more to
America than just finding one more source for energy. It could
literally shake the world. Most are familiar with the
traditional recovery process where the rock is mined and then
heated in a retort. We're also seeing an exciting new and
innovative process, such as shale's in-situ process that will
heat the rock in the ground in order to recover the oil.
Senator Salazar and I, and those who work with us, are very
proud of the Energy Policy Act that we passed last year. This
bill is already having an impact and is setting the stage for
sound development of these resources over the next several
years. As it relates to oil shale and tar sands, the energy
bill directs the Secretary of the Interior to make certain
lands available for leasing for Research and Development,
complete a programmatic environmental impact statement for a
commercial leasing program, issue final regulations, and
implement a commercial leasing program in consultation with the
States. It also directs the Secretary of Energy to establish a
task force that will develop a program to coordinate and
accelerate the commercial development of oil shale and tar sand
resources, and assigns responsibility to the Office of
Petroleum Reserves to coordinate, and evaluate, and promote the
activities of the Federal Government.
It's our intent here today to get a better understanding of
the local perspective on these provisions and the potential
development of oil shale in the region.
Now, let me turn to Senator Salazar, a member of the
committee, before we start with the committee process, and
before the eminent Senator Hatch speaks.
Senator Salazar.
STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR
FROM COLORADO
Senator Salazar. Thank you very much, Chairman Domenici.
Let me, at the outset, just say to all of the people who are
here from Colorado that we are fortunate to have the Chairman
of the Senate Energy Committee here in our State today. I thank
him for coming to our State to listen to our issues and the
potential that we have with oil shale, as well as with respect
to concerns that people also have in terms of how we move
forward.
I will say this about the chairman, he is effective and I
very much enjoyed my work with him in my first 18 months in the
U.S. Senate. I think the production last year of the National
Energy Policy Act of 2005 was a milestone in the Nation's
national security and it would not have happened had it not
been that Senator Domenici helped lead what became a very
bipartisan effort that garnered 82 votes in the U.S. Senate for
the bill that came out of his committee. So I appreciate his
leadership, his mentorship, and his friendship. He comes from
the Land of Enchantment, just to the south of our State, and we
often talk about the common histories of New Mexico and
Colorado, and I appreciate his presence here today.
I also want to recognize and appreciate my good friend from
Utah, Senator Orrin Hatch. We share not only the possibility of
oil shale between Colorado and Utah, but Orrin Hatch has been
one of the Senators who has served long in the U.S. Senate,
making sure that we are keeping our country strong, and dealing
with some of the toughest issues of our country.
I want to also, just quickly, recognize some members of our
committee and staff who have made this hearing possible here in
Grand Junction: Bruce Evans, who is our Staff Director for the
Energy Committee; Dick Bouts, who works on the Energy
Committee--if you'll raise your hand, Dick?--and David Marks,
also on the committee--David, if you'll raise your hand?--and
Sara Zecher; and from my staff, Steve Black, who works on
energy issues and helped write major pieces of the energy
legislation last year; and Trudy Kareus, Mary Beth Buescher,
Matthew McCombs, and Cody Wertz, who are also on my staff.
I want to also recognize Derek Wagner, who is here from
Senator Allard's office, today. Senator Allard could not be
here today. And I want to also recognize Rich Baca from
Congressman John Salazar's office.
Let me, at the outset, just repeat my appreciation to you,
Mr. Chairman, for bringing the Senate Energy and Natural
Resources Committee here to Grand Junction today, and to the
Western Slope. The sheer volume of potential recoverable oil
locked up in shale is indeed, tantalizing for all of us.
The Energy Information Service has indicated that there is
somewhere between 500 billion and 1.1 trillion barrels of oil
that could be recovered from the oil shale deposits in
Colorado, Utah, and Wyoming. For a Nation that is very wary of
the high prices that we are paying at the pump, and which is
very worried about our overdependence on those sheiks and kings
of the Middle East and other places, where the large global
reserves of oil currently are held, it is important that we
take a look at these--at this strategic opportunity for the
United States of America.
In fact, the amount of oil that we believe is trapped in
the oil shales of our three States, is four times the amount of
oil currently estimated to be beneath the sands of Saudi
Arabia. That tells you the sheer size of the resource.
Colorado's blessed to be home of a significant part of these
resources and we're willing to work with our Nation, as we
address the potential of oil shale development.
But we are also highly aware of the challenges that oil
shale poses and has posed in the past. We know the efforts of
oil shale extraction in Utah into Colorado in the early 20th
Century. We remember the energy crisis of the 1970's and the
oil shale mania that that created. And we vividly remember, not
so long ago, the Black Sunday of 1982. Our memories of the
failures and successes of Western resource development are long
and mature, but it also offers us wisdom from those lessons
learned about how we ought to proceed in the future.
We know that often, in the past, the non-Western interests
sometimes have driven decisions with respect to our development
in the West. And in the past, at times, we have not controlled
the development or enjoyed the full benefits of that
development. The Western communities should have a prominent
voice in the debate of whether oil shale development is
reasonable and responsible.
Today's hearing is a very good start, because we will hear
from those communities that may prosper or suffer, from those
whose water and land could be affected, and from those who have
stood here before and might do it differently this time around,
based on lessons that we learned in the past.
Our shared experiences with resource development in
Colorado have taught us to be cautious and methodical, when
others may be impatient and frenzied. When we rush the
development without considering the effects of local
communities' land and water, we sometimes end up, as we have,
on the ground, MSEP or BLM may allow gas exploration and
production in the midst of the watersheds of the town of
Palisade and the city of Grand Junction.
Before we take the bigger steps with regard to oil shale,
we must answer several questions that are of vital importance
to western Colorado. First, we must determine the economic
feasibility of oil shale development. Even in small-scale
private projects, the economic feasibility of oil shale
extraction is still uncertain and nobody has even attempted to
build a commercial-scale plant at this point. As part of this
analysis, we must determine whether oil shale will be a
sustainable and stable element in the regional economy.
This State has endured dozens of busts, when the price of
commodities have suddenly changed, so we need to make sure
that, as we move forward with oil shale development, we are
doing it in a manner that is sustainable over time.
Second, we need to make sure we are protecting Colorado's
land and water. The techniques we use to extract the oil should
not place our natural heritage at risk. The land and water of
western Colorado are just too important to the economy and our
way of life to be compromised for an uncertain oil future. For
that reason, the energy bill that we passed last year, required
that we move forward in a sequential and thoughtful manner, as
we contemplate commercial leasing of oil shale.
Third, we must assure that Colorado's water rights are
protected and gain a better understanding of the amounts of
water that will be used with regard to oil shale development.
On the Western Slope, water, we all know, is as precious as oil
and we need to know how we will protect the very life blood of
the Western Slope.
Finally, I agree we must be realistic about the role that
oil shale can play in the Nation's quest for energy
independence. The sad truth is that neither oil shale nor any
other domestic production can satisfy America's appetite for
oil. We consume 25 percent of the world's oil, yet we have only
3 percent of the world's reserves here in our country. If we
can address all the challenges associated with oil shale
development, oil shale can play a significant role in reducing
our dependence on foreign oil. But it alone will not set
America free from our dependence on foreign oil. We must also
embrace the combined strategies of conservation, improve
deficiency, and renewable energy resources. These are large
steps that we can take, and are taking today, to overcome our
national security crisis, stemming from our dangerous
overdependence on foreign oil.
Now, this is not to say that oil shale will not play a
major role in our energy future, but we in Colorado have
learned that oil shale is not an easy resource to develop. As
we try one more time to extract oil from Western shale, let us
be sure to act prudently to protect the land, the water, and
the people of Colorado, Wyoming, and Utah.
Mr. Chairman, I thank you for agreeing to hold this
hearing. I hope there will be many, many more opportunities for
Western communities to shape this process. The West has a
responsibility and a right to help determine what role oil
shale will play in our Nation's future. Thank you.
[The prepared statement of Senator Salazar follows:]
Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
Thank you, Mr. Chairman. On behalf of everyone here today, and the
great State of Colorado, I want to welcome you to Grand Junction. It
means a lot to me that my Chairman and colleague on the Senate Energy
and Natural Resources Committee is here to gather information about oil
shale, its prospects for development, and what it means to communities
in western Colorado.
I also want to say thank you to all the witnesses who are here
today. I look forward to hearing your testimony.
The sheer volume of potential recoverable oil locked up in shale is
tantalizing: the Energy Information Agency estimates that between 500
billion and 1.1 trillion barrels of oil could be recovered from oil
shale deposits in Colorado, Wyoming, and Utah. For a nation that is
weary of high gas prices and anxious to kick its addiction to foreign
oil, our oil shale resources--four times larger than Saudi Arabia's oil
reserves--inspire hope for a more energy independent future.
Colorado is blessed to be home to these resources and, as evidenced
by current oil and gas development, we are willing to do more than our
share to provide for the nation's energy needs.
But we are also highly aware of the challenges that oil shale
poses. We know the futile efforts at oil shale extraction in Utah and
Colorado in the early 20th century. We remember how the energy crisis
of the 1970's stirred an oil shale mania--a mad rush to unlock the oil
at any cost. And, most vividly, we remember ``Black Sunday'' in 1982,
when this oil shale speculation busted, leaving western Colorado
communities holding the bill.
Our memory of the failures and successes of Western resource
development is long, mature, and offers invaluable wisdom to us today.
We know that too often we have allowed the whims of non-western
interests to drive our development. We neither control the pace of
development nor enjoy its full benefits, yet we pay the greatest costs
and assume the greatest risks.
Western communities should have prominent voices in the debate over
whether oil shale development is reasonable and responsible. Today's
hearing is a good start, because we will hear from those whose
communities may prosper or suffer, from those whose water and land
could be affected, and from those who have stood here before and might
do it differently this time around.
Our shared experiences with resource development in Colorado have
taught us to be cautious and methodical when others are impatient and
frenzied. When we rush to development without considering the effects
on local communities, land, and water, we end up as we have on the
Grand Mesa, where the BLM may allow gas exploration and production in
the midst of the watersheds of the Town of Palisades and the City of
Grand Junction.
Before we take big steps forward with oil shale, we must answer
several questions that are of vital concern to western Colorado.
First, we must determine the economic feasibility of oil shale
development. Even in small-scale pilot projects, the economic
feasibility of oil shale extraction is uncertain, and nobody has even
attempted to build a commercial scale plant. As part of this analysis,
we must determine whether oil shale will be a sustainable and stable
element in the regional economy. This state has endured dozens of busts
when the price of a commodity has suddenly dropped; will we suffer
another if we invest millions in oil shale and the price of crude drops
from 70 to 40 dollars a barrel?
Second, we need to ensure the protection of Colorado's land and
water. The techniques we use to extract the oil should not place our
natural heritage at risk--the land and water of western Colorado are
just too important to the economy and our way of life to be compromised
for an uncertain oil future. For that reason, the energy bill that we
passed last year requires a comprehensive programmatic Environmental
Impact Study on oil shale development before we begin to contemplate
commercial leasing.
Third, we must protect Colorado's water rights and gain a better
understanding of the amounts of water that will be consumed to produce
oil from shale and to restore the disturbed lands. On the Western
Slope, water is as precious as oil, and we need to know how we will
protect Colorado water users and its compact entitlements.
Finally, we must be realistic about the role that oil shale can
play in the Nation's quest for energy independence. The sad truth is
that neither oil shale nor any other domestic production can satisfy
America's appetite for oil. We consume 25% of the world's oil, yet have
only 3% of the world's reserves.
If we can address all the challenges associated with oil shale
development, oil shale could play a significant role in reducing our
dependence on foreign oil. But it alone will not set America free from
our dependence on foreign oil. We must also embrace the combined
strategies of conservation, improved efficiency, and a renewable energy
revolution--these are the large steps we can take, today, to overcome
our national security crisis stemming from our dangerous dependence on
foreign oil.
This is not to say that oil shale will not play a role in our
energy future, but we in Colorado have learned that oil shale is not an
easy resource to develop. As we try, one more time, to extract oil from
western shale, let us be sure to act prudently, to protect the land,
water, and people of Colorado, Wyoming and Utah.
Mr. Chairman, thank you again for agreeing to hold this hearing. I
hope there will be many, many more opportunities for Western
communities to shape this process. The West has a responsibility, and a
right, to help determine what role oil shale should play in our
Nation's future.
Thank you.
The Chairman. Thank you very much.
Now, we're going to hear from Senator Hatch. Senator Hatch,
we're very pleased to hear from you.
Please proceed.
STATEMENT OF HON. ORRIN G. HATCH, U.S. SENATOR
FROM UTAH
Senator Hatch. Well, thank you, Mr. Chairman. I'm honored
to be here with you and Senator Salazar in this beautiful
community in our neighboring State, the great State of
Colorado. I'm grateful for the opportunity to be participating
in this hearing today on the implementation of section 369 of
the Energy Policy Act. As you know, section 369 is the result
of the Oil Shale and Tar Sands Development Act that I
introduced along with Senator Allard.
Now, I appreciated your assistance, and fully appreciate it
today, in drafting this bill and making it part of the Energy
Policy Act. Mr. Chairman, I believe that your vision and that
your leadership on this incredibly important issue and the
complete energy bill is one of the great examples of senatorial
leadership in the last many, many decades. Because of your
leadership on this important issue, this will facilitate and
will likely be a turning point in our Nation's ability to meet
our energy needs in the future.
It is important, Mr. Chairman, that Americans understand
the truth about our global energy situation, especially as it
relates to liquid fuels. Americans need to understand that the
global demand for oil far outstrips the global supply.
Historically, the world's producers have responded to this
scenario by dipping into spare capacity and restoring order to
the market. Americans need to understand that the world's
energy producers are at full capacity, that global demand has
now outgrown even OPEC's ability to respond, and that we are
facing a very serious energy crunch on a global basis and
scale. I am pleased that our Nation has begun a new focus on
the use of alternative fuels and advanced vehicle technologies,
which will help to displace our Nation's dependency on oil.
I was the author of the CLEAR Act. That was included in the
Energy Policy Act by you, and I'm grateful for that. The CLEAR
Act, or clean efficient automobiles, which resulted from the
Advanced Car Technologies Act, offers consumer tax credits to
lower the cost of hybrid, electric, and alternative-fuel
vehicles, as well as the cost of alternative fuels, and new
infrastructure to support their use.
Alternative fuels and advanced vehicle technologies play a
critical role in our Nation's energy strategy, but these
alternatives will not be sufficient to bridge the widening gap
between the global supply and demand for oil. As you know, Mr.
Chairman, there is just no escaping our need to increase
dramatically our domestic oil production. Just as it is
important to recognize the magnitude of our global energy
shortage, it is equally important to recognize that North
America has a solution that matches the scale of the problem.
The gigantic untapped oil shale and tar sands resources
found in Utah, Colorado, and Wyoming are sufficient to meet our
domestic energy needs, while also contributing to the ever
increasing global demand for liquid fuels. Experts agree that
the United States has more recoverable oil in tar sands and oil
shale in a small tri-State region than the entire Middle East.
The implementation of section 369 begins a necessary shift by
our Government from an almost complete reliance on conventional
sources of oil to our vast unconventional resources, such as
tar sands and oil shale.
We've already seen this shift in focus by the government of
Alberta, Canada. Alberta recognized the potential of its own
tar sands deposits and set forth a policy to promote their
development. As a result, Canada has increased its oil reserves
by more than a factor of 10, going from a reserve of around 14
billion barrels to its current reserve of more than 176 billion
barrels of oil in only few years.
Most Utahans would be surprised to learn that \1/4\ of our
State's oil imports already come from Alberta tar sands, even
though we have a very large resource of those same tar sands in
our State sitting undeveloped. I've read a number of newspaper
articles and editorials raising questions about whether there's
enough water, whether there's enough environmental protection,
whether it is economical enough to develop our unconventional
resources. These are all very valid questions--Senator Salazar
has raised some of them here today--but I believe that they
have valid answers. I hope that this hearing will help us to
begin to address these questions head-on. The people of this
region deserve to have these issues fully explored and
addressed.
In drafting the new law, we were mindful of the environment
and of State's water resources. We live in a different world
than when oil shale and tar sands were first developed in the
United States. We have now implemented several environmental
laws, such as the Clean Water Act; the Clear Air Act; the
Resource Conservation and Recovery Act; the Comprehensive
Environmental Response, Compensation, and Liability Act; the
National Environmental Policy Act; the Mining Reclamation Act;
and the Endangered Species Act.
Also, new technologies make the effort much cleaner and
require much less water than in the past. I do not believe
there is any aspect of oil shale or tar sands development that
would not be covered by existing environmental laws and
regulations, but the citizens living in the region deserve to
have a high level of certainty that this new activity will move
forward in an environmentally sound and in an economically
sound way.
Mr. Chairman, I know that it is your goal, and Senator
Salazar's as well, to ensure that these issues be addressed and
that this hearing is only one step in that process. Again, I
want to thank you for holding this hearing in the region that
has the greatest stake in the implementation of section 369.
Mr. Chairman, last year I spoke on this issue at the
Canadian Embassy and I wonder if I could submit that statement
to the committee as part of the record.
The Chairman. It'll be made part of the record and we thank
you for submitting it.
Senator Hatch. And thank you, Mr. Chairman, for the
opportunity to give these remarks this day and for your
leadership on this important issue. I am extremely interested
in it as well, and thank you for inviting me to sit with you on
this.
[The prepared statement of Senator Hatch follows:]
Prepared Statement of Hon. Orrin G. Hatch, U.S. Senator From Utah
``discovering the possibilities for north american petroleum
production"
Before the Woodrow Wilson International Center for Scholars, Canadian
Embassy, Washington, DC.
Thank you very much for that introduction and for the opportunity
to address you today. Let me say that it is a pleasure to be among you.
If you are in attendance at this conference, there is a good chance
you are part of the small but growing group of individuals who
recognize--not only that there is a worldwide energy crunch looming in
our future--but that an economical and domestically available solution
to that problem already exists in North America's vast unconventional
oil resources, namely in the form of liquid fuel from oil sands, oil
shale, and coal.
You also may have recognized the profound geopolitical shift that
will likely occur over the next decade or two as the supply of
conventional oil begins to dwindle in the Middle East, and the
commercial production of our unconventional resources takes off in
North America.
We need to recognize the implications of this shift for our region.
And the governments of Canada and the United States absolutely
should be taking a proactive approach to preparing for that future.
Those who state otherwise, in my opinion, are underestimating either
the economic viability of developing our unconventional resources, or
overestimating the world's ability to keep up with international energy
demand, or both.
In the United States, our thirst for oil has increased by about 12
percent in the last decade, but during that same time our production of
oil has grown by less than one-half of one percent. Is it any wonder
that we rely on foreign countries for more than half our oil needs?
And any hope that a worldwide increase in oil production will solve
our domestic shortage is based on an unlikely scenario, because the
supply shortage is being felt worldwide.
World demand for oil is growing at an unprecedented pace,--about
two and a half million barrels per day in 2004 alone, and production is
not keeping up. Moreover, new discoveries are certainly failing to keep
pace.
The United States imports 56 percent of its oil, and, if existing
circumstances persist, that is projected to grow to 68 percent within
20 years.
But who says that we are trapped by existing circumstances? I, for
one, don't. The United States Congress has spoken loud and clear on
this subject.
I believe the recently enacted Energy Policy Act takes a strong,
proactive-approach to addressing our nation's future energy needs by
actively changing the circumstances we currently face--changes which I
believe will improve the lives of our people.
We are willing to pay high prices for oil because it is so critical
to our way of life. Humans initially enjoyed important advances using
early fuels such as wood, coal, whale oil, and then gas and steam. But
it was liquid petroleum that allowed us to advance into the Space Age
and then the Information Age.
For a century, we have relied on a steady supply of light crude,
which is the easiest oil to get. Those days are not quite over, but
their decline is in sight, and there is no upside to ignoring the fact.
I have been a leader in Congress in promoting the use of
alternative sources of energy. I was the author of the CLEAR ACT, which
will promote the use of alternative fuels in our transportation sector.
The CLEAR ACT was enacted as part of the Energy Policy Act, and I
believe it will make a real difference.
At the same time, I also recognize that our society will be
dependent on liquid petroleum into the foreseeable future. It's not a
fact that I like to admit, but it is a fact, nonetheless.
The world has experienced tremendous growth of service sector, but
we shouldn't let that mask the fact that the global economy remains
dependent on abundant and affordable natural resources. Even the
service industry must have buildings, computers, paper, transportation,
communications, and let's not forget food. Other than our bodies and
the air we breathe, it would be nearly impossible to find something in
this room that is not produced from agriculture, mining, or oil and gas
production. Keep in mind that liquid and gas fuel remains the principal
engine driving the production of those natural resources we need to
maintain our way of life.
We may have dodged a bullet in the United States with our recent
spikes in energy prices. I believe our strong economy has helped to
diminish the economic effects of recent sharp increases in energy
costs.
This summer, Federal Reserve Chairman Alan Greenspan stated:
``Markets for oil and natural gas have been subject to a
degree of strain over the past year not experienced for a
generation. Increased demand and lagging additions to
productive capacity have combined to absorb a significant
amount of the slack in energy markets that was essential in
containing energy prices between 1985 and 2000.''
I shudder to think what the effect of these high prices would have
on our way of life if they were to occur during a serious economic
downturn. I am also intensely aware that sustained high prices could
themselves cause such a downturn.
We should take note that our major oil companies, including Chevron
and ExxonMobil, are beginning to state publicly that we may be reaching
peak oil. And with the economic growth in India and Asia and other
regions, it looks like we'll have high oil prices into the-foreseeable
future.
This is a new scenario for the world, and it forces us to shift our
focus to our unconventional resources. Shell Oil Company has, for
years, been preparing for such a shift. Its successful activities in
Alberta with oil sands and their investment in new technologies to
produce oil from oil shale are a testimony to Shell's recognition that
unconventional oil is in our future.
Those who doubt that unconventional fuels are economically viable
probably are suffering from a neck ailment that keeps them from looking
north.
The 800-pound gorilla is sitting just above Montana, and let's face
it, it's hard to miss.
Alberta is now second only to Saudi Arabia in proven oil reserves
and ninth in the world in annual oil production. This is owing mostly
to their successful development of oil sands. In Alberta, you have
dozens of major oil companies, using a variety of technologies and
recovery--methods, going after very different types of oil sands
resources, and in almost every case doing so for less than $20 a
barrel, including during their very tough winters. It is a gigantic
success story, and it began with Alberta's government deciding to
promote the development of this resource and not giving up.
Anyone watching what is happening up north will recognize that,
before long, Canada will inevitably overtake Saudi Arabia as the
world's oil giant. And Alberta clearly has its sights on increased
annual production to match its growing reserve. Already at about a
million barrels a day, Alberta's production is expected to double in
the next five or six years.
What does all this mean for the United States? I think it means a
great deal.
First, it means that the United States can enjoy a new gigantic
source of oil from a friendly neighbor.
Here, we have one of the largest energy producing nations sharing a
very large border with one of the world's largest energy consumers. Our
proximity to one another facilitates our energy relationship in
countless ways--the most obvious being the ability to transport energy
products cheaply through pipelines and other means.
My state of Utah is an oil producing state, and we also have our
nation's largest deposits of recoverable oil sands. Although we are not
yet developing our sands commercially, one-fourth of all of our oil
imports come in a pipeline from Alberta oil sands. It's an unlikely
scenario, but it is possible because of the interdependence our two
nations already enjoy.
Alberta's success in developing oil sands is important to the U.S.
in another way. It provides our nation with a successful model for
developing our own unconventional resources. A number of important U.S.
companies are very active in Alberta's tar sands, and are only waiting
for the U.S. government to adopt of policy similar to Alberta's which
promotes rather than bars the development of our unconventional
resources.
Utah has more recoverable oil in oil sands than the entire U.S.
reserve. That's a significant number, but it is overshadowed by the
fact that the largest recoverable hydrocarbon resource in the world
rests within the borders of Utah, Colorado, and Wyoming in the form of
oil shale.
Energy experts agree that there is more recoverable oil in these
three states than there is in all the Middle East. The U.S. Department
of Energy estimates that recoverable oil shale in the western United
States exceeds one trillion barrels and is the richest and most
geographically concentrated oil shale resource in the world.
This gigantic resource of oil shale and tar sands is well known by
geologists and energy experts, but it has not been counted among our
nation's oil reserve, because it is not yet being developed
commercially. And it is not being developed commercially because, the
U.S. government has not allowed industry access to the resource.
Every signal from the U.S. government has been to keep this
resource off limits. That is, until now.
With the help of industry, government officials, energy experts,
and the chairmen of the relevant congressional committees, I sponsored
and was able to pass the Oil Shale Tar Sands Development Act as a part
of the Energy Policy Act. My legislation represents a necessary shift
by our government from an almost complete reliance on conventional
sources of oil toward a focus on our vast unconventional resources,
such as tar sands and oil shale.
My legislation will establish a task force to, among other things,
to develop a five-year plan to determine the safest and steadiest route
to developing oil shale and tar sands. It will also establish a mineral
leasing program in the Department of the Interior to provide access to
this resource.
Recognizing the tremendous national interest in this resource, my
legislation provides a number of programs to encourage oil shale and
tar sands development, including federal royalty relief, federal cost
shares for demonstration projects, and advance procurement agreements
by the military.
Some have said that oil shale has a great future and will always
have a great future. It's a cute saying that reflects the view held by
a dwindling few that oil shale is just too expensive ever to develop
commercially.
The fact of the matter is that producing oil from oil shale is
fairly straightforward, and there are a number of technologies that
could be used economically to develop this resource, now that the
government is making it available.
Many point to the large oil shale operation in Colorado that went
bust in the late seventies as an example of how oil shale cannot be
commercially developed. However, that was the result of the price of
oil dropping down to ten dollars a barrel, not of a lack of efficient
technology.
Last time I checked, oil prices were above ten dollars a barrel.
To be honest that old technology could still work efficiently
today, but fortunately many new processes have been developed since
then, some of which have proven to be very efficient and economical.
I was disappointed with a recent report by Rand Corporation titled
Oil Shale Development in the U.S.; Prospects and Policy Issues. The
report relied on 30-year-old data for its model to show that the price
of oil would have to reach $70 a barrel before mining and surface
retorting of oil shale would be economical.
Of the various experts involved in the on-the-ground development of
these technologies, none believes that the price of oil needs to be
higher than $40 a barrel for the economic development of oil shale, and
some of the most knowledgeable experts are confident the price could be
even lower than that.
I was especially disappointed that the report used its $70 a barrel
model to argue that government should not actively promote the
commercial development of oil shale in this country. That conclusion
can only be made if a blind eye is turned toward the global supply and
demand trends that are widely acknowledged to be a major concern for
policymakers.
The report assumes that industry will step forward without the help
of government to develop this resource. Such a scenario is contrary to
the successful Alberta model and ignores the fact that 80 percent of
the resource in the United States sits on federal land, which poses
certain regulatory impediments 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 some to be too--expensive and risky. Now the province is
producing huge quantities of oil from tar sands at less than $20 a
barrel, as a result of government support.
I have to say the Rand report appears to be a bit out of touch with
what is happening on the ground among the various industry groups
actually pursuing the development of oil shale in the United States.
I have been on the ground and seen how the newest technologies can
work, and I have been very impressed with the advances that have been
made in this area.
I have no doubt that once industry is given access to our
unconventional resources, we will quickly follow in the footsteps of
Alberta, Canada.
I have no doubt that the abundance of existing technology and
continued growth in the global demand for oil will inevitably lead to a
major shift toward the development of unconventional oil resources.
And as this scenario unfolds, I believe the United States and
Canada will emerge as the dominant energy powers in the world. It has
been slow in coming, but the United States is slowly awakening to this
fact.
I commend our friends in Alberta for their active effort to call
this to our attention, and their success in leading the way down this
path.
The United States and Canada have much to learn from one another
and much to share with regard to meeting America's energy needs. By
working together in this regard, we can only become stronger, and I
have no doubt that all Americans will benefit from it.
Again, I want to thank the sponsors of this conference for the
chance to address you. It has certainly been my pleasure. Thank you.
The Chairman. You're welcome. Now, I have to make a little
statement for all of you to pay attention to, because we have
to handle things in an orderly manner. So if you'll follow our
rules, I think we'll get everything done in due course and
properly. Before we get started, let me tell you the process.
Today, the hearing is to gather a local perspective on the
prospect for developing our Nation's vast oil shale and tar
sand resources. Although we would like to hear from everyone
here today, we are limited to testimony from invited witnesses
only. I would like to encourage anyone wishing to provide
testimony to do so by providing a written statement within the
next 2 weeks. That means that this record will be open and the
testimony accepted into it, just in the same manner as it's
given, so long as you give it to us within the 2 weeks. It will
be given the same perusal and the same review.
I would like to remind our witnesses to summarize their
testimony within a 5-minute timeframe. This will provide ample
time for questions and discussions. All written testimony will
be included in the committee's official hearing record and
available to the public.
I want to welcome Lieutenant Governor Gary Herbert of Utah;
Russell George, executive director of the Colorado Department
of Natural Resources; Commissioner Kim Cook from Rio Blanco,
CO; Colorado Commissioner Craig Meis from Mesa County;
Commissioner Mike McKee from Uintah County, UT; also here are
Steve Mut of Shell Oil Exploration and Production; John
Baardson of Baard Energy and Oil Tech; Steve Smith of the
Wilderness Society; and Chris Treese from the Colorado River
Water Conservation District.
We just had Senator Hatch, so now we're going to move ahead
with the other witnesses in the appropriate order. Having said
that, who are the witnesses that we're going to hear from
first?
Mr. Russell George and the Honorable Gary Herbert,
Lieutenant Governor of the State of Utah. Thank you both, and
welcome. Please proceed. You know the rules.
Mr. Herbert. Thank you.
The Chairman. You're first.
STATEMENT OF GARY HERBERT, LIEUTENANT GOVERNOR, STATE OF UTAH
Mr. Herbert. Thank you, Mr. Chairman. I'm honored to be
here. For the record, my name is Gary Herbert, Lieutenant
Governor of the State of Utah, and I would like to extend my
appreciation to you, Mr. Chairman and Senator Salazar,
particularly, for welcoming me to the great State of Colorado
and to be here with my good friend, Orrin Hatch.
On behalf of Governor Jon M. Huntsman, Jr., I am honored to
represent the great State of Utah this morning regarding an
issue we feel is an important component of our public policy
agenda.
The primary purpose of my visit today is to ensure this
body that the State of Utah is supportive of sustainable
development of the oil shale and tar sand resources within
Utah's boarders.
The Governor and I recognize that the guiding principles
for such sustainable development align well with the objectives
that we hope to achieve for the State, namely, one, promote
economic prosperity, two, encourage responsible environmental
protection, and three, enhance the quality of life by
addressing the social and cultural needs of the people of Utah.
We applaud the work of the U.S. Congress for the passage of
the Energy Policy Act of 2005 and for specifically addressing
oil shale leasing in section 369 of the Act.
I am here today to indicate to this committee that the
State of Utah stands ready to support, coordinate, and
collaborate with the Federal Government in carrying out the
provisions section 369.
Estimates of Utah oil shale resources potential by the Utah
Geological Survey exceed 300 billion barrels of oil in the
ground and possibly over 20 billion barrels of oil that's
recoverable. Development of these resources could represent
substantial economic benefit to the State, and therefore is of
keen interest to the government of Utah and its people. Also,
because over \2/3\ of the land of Utah is owned and managed by
the Federal Government, Federal land management policy for oil
shale development will significantly influence both the methods
and timing for development.
In support of Federal responsibilities for oil shale
development, there are several organizations within our State
government that can play various and important roles. As I've
previously mentioned, the Utah Geological Survey performs
research and analysis of the State's mineral resources, and the
technical professionals of the UGS will be particularly helpful
for assisting with the national oil shale assessment described
in section 369.
Also within Utah's Department of Natural Resources are the
Division of Water Resources and the Division of Water Rights
that manage the water resources of the State and adjudicate in
matters of water use. These agencies will also be able to
provide information pertaining to the demand for and
availability of water with respect to the development of oil
shale.
From what we understand of current oil shale extraction
technology, water resources will play a big part in making such
mineral extraction feasible. The State of Utah has recognized
this for many years, and plans were made over 20 years ago to
consider potential water needs for oil shale development and
how those needs might be addressed. These plans will be
addressed anew and updated as future proposals for oil shale
development are considered.
Another important agency within the Department of Natural
Resources is the Division of Oil, Gas, and Mining. This agency
conducts the permitting and monitoring of oil shale development
as it relates to mining and extraction operations regulated by
the Utah Mined Land Reclamation Act. It is likely that initial
efforts to develop Utah's oil shale resources will be mining
activities, and DOGM will oversee both exploration and
development operations to ensure appropriate accounting,
accountability, bonding, environmentally sound operations, and
final land reclamation once extraction has ceased.
There currently are no existing or pending oil shale
operations permitted, of record, in Utah; however, there are 13
existing and new permits on file with DOGM for tar sand
exploration and for tar sand mining operations, and several
industrial representatives have contacted DOGM expressing
interest in future oil shale development operations.
Of particular interest to our local governments and
communities in Utah are the impacts that oil shale development
will have on local infrastructure, community services, water
resources, and other multiple uses of the land. We encourage
Federal land managers to be contemplative and cautious in their
planning for oil shale development to ensure that such impacts
will be, in fact, addressed. At the same time, we recognize the
need of the private sector to proceed expeditiously with
business plans and development activities, and we, therefore,
urge the Federal Government to timely process leasing and
operational applications as they are received.
One proposal has been recently accepted for a research,
development, and demonstration project for oil shale
development in Utah and should contribute significantly to the
body of oil shale knowledge for many companies developing oil
shale. This proposal, currently undergoing environmental
assessment, would allow the winning bidder to re-establish
operations at the inactive White River Oil Shale Mine in Uintah
County, UT. I look forward to consultation with the Federal
Government, State agencies, and local governments in Utah, as
we move forward with environmental assessment on the ultimate
consideration of project approval.
In order to continue to support the efforts of the U.S.
Bureau of Land Management, the State of Utah seeks, through a
Memorandum of Agreement, Cooperating Agency status on the
preparation of their Programmatic Environmental Impact
Statement that they are conducting for larger-scale oil shale
leasing. We are anxious for the prospect that these resources
may be responsibly developed in the near future for the benefit
of Utah and its citizens, and for America, for that fact.
Our cautiously optimistic view is that many bridges must be
crossed prior to full development, and that we will assist
companies accomplish those crossings of the environmental,
technological, and political divides consistent with existing
law.
Clearly, there is significant potential for oil shale and
tar sands resources to become one of several alternatives for
addressing future energy demands in the United States. Along
with the many other mineral and energy commodities that Utah
provides for America, oil shale will be needed at some point in
the future in order to ensure economic prosperity and domestic
self-sufficiency of energy resources.
Finally, let me emphasize and point out that Governor
Huntsman and myself believe that development of these resources
can be performed with due protection of our environment while
enhancing the quality of life for all Americans.
I again thank you, Mr. Chairman, for the allowing me to
address the committee. I have brought with me Mr. Mike Styler,
our executive director of natural resources, and John Baza,
who's the director of our Oil, Gas, and Mining Division. And at
the appropriate time, we'd be more than happy to answer any
questions you have for us. Thank you again, very much.
[The prepared statement of Mr. Herbert follows:]
Prepared Statement of Gary R. Herbert, Lieutenant Governor,
State of Utah
Mr. Chairman, members of the committee:
For the record, my name is Gary R. Herbert, Lieutenant Governor of
the State of Utah.
I would first like extend my appreciation to Senator Domenici for
the opportunity to address this committee and to Senator Ken Salazar
for welcoming me to the beautiful State of Colorado.
On behalf of Governor Jon M. Huntsman, Jr., I am honored to
represent the Great State of Utah this morning regarding an issue we
feel is an important component of our public policy agenda.
The primary purpose of my visit today is to ensure this body that
the state of Utah is supportive of sustainable development of the oil
shale and tar sand resources within Utah.
The Governor and I recognize that the guiding principles for such
sustainable development align well with the objectives that we hope to
achieve for the state, namely to: 1) promote economic prosperity, 2)
encourage responsible environmental protection and 3) enhance the
quality of life by addressing the social and cultural needs of the
people of Utah.
We applaud the work of the United States Congress for the passage
of the Energy Policy Act of 2005 and for specifically addressing oil
shale leasing in Section 346 of the Act.
I am here today to indicate to this committee that the state of
Utah stands ready to support, coordinate and collaborate with the
federal government in carrying out the provisions section 346.
Estimates of Utah oil shale resource potential by the Utah
Geological Survey (UGS) exceed 300 billion barrels of oil in the ground
and possibly over 20 billion barrels of recoverable oil. Development of
these resources could represent substantial economic benefit to the
state, and it is of keen interest to the government of Utah and its
people. Also, because over two-thirds of the land area of Utah is owned
and managed by the federal government, federal land management policy
for oil shale development will significantly influence both the methods
and timing for development.
In support of federal responsibilities for oil shale development,
there are several organizations within our state government that can
play various and important roles. As I previously mentioned, the Utah
Geological Survey performs research and analysis of the state's mineral
resources, and the technical professionals of the UGS will be
particularly helpful for assisting with the National Oil Shale
Assessment described in Section 346.
Also within Utah's Department of Natural Resources are the Division
of Water Resources and the Division of Water Rights that manage the
water resources of the state and adjudicate in matters of water use.
These agencies will also be able to provide information pertaining
to the demand for and availability of water with respect to the
development of oil shale.
From what we understand of current oil shale extraction technology,
water resources will play a big part in making such mineral extraction
feasible. The state of Utah has recognized this for many years, and
plans were made over 20 years ago to consider potential water needs for
oil shale development and how those needs might be addressed. These
plans will be addressed anew and updated as future proposals for oil
shale development are considered.
Another important agency within the Department of Natural Resources
is the Division of Oil, Gas and Mining (DOGM). This agency conducts the
permitting and monitoring of oil shale development as it relates to
mining and extraction operations regulated by the Utah Mined Land
Reclamation Act. It is likely that initial efforts to develop Utah's
oil shale resources will be mining activities, and DOGM will oversee
both exploration and developmental operations to ensure appropriate
accountability, bonding, environmentally sound operations, and final
land reclamation once extraction has ceased.
There currently are no existing or pending oil shale operations
permitted of record in Utah; however, there are 13 existing and new
permits on file with DOGM for tar sand exploration and for tar sand
mining operations, and several industrial representatives have
contacted DOGM expressing interest in future oil shale development
operations.
Of particular interest to our local governments and communities in
Utah are the impacts that oil shale development will have on local
infrastructure, community services, water resources and other multiple
uses of the land. We encourage federal land managers to be
contemplative and cautious in their planning for oil shale development
to ensure that such impacts will be addressed. At the same time, we
recognize the need of the private sector to proceed expeditiously with
business plans and development activities, and we, therefore, urge the
federal government to timely process leasing and operational
applications as they are received.
One proposal has been recently accepted for a research, development
and demonstration project for oil shale development in Utah and should
contribute significantly to the body of oil shale knowledge for many
companies developing oil shale.
This proposal would allow the winning bidder to re-establish
operations at the inactive White River Oil Shale Mine in Uintah County,
Utah. I look forward to consultation with the federal government, state
agencies and local governments in Utah on this environmental document
and on the ultimate consideration of project approval.
In order to continue to support the efforts of the U.S. Bureau of
Land Management (BLM), the State of Utah seeks, through a Memorandum of
Agreement, ``Cooperating Agency'' status on the preparation of their
Programmatic Environmental Impact Statement that they are conducting
for larger scale oil shale leasing.
We are anxious for the prospect that these resources may be
responsibly developed in the near future for the benefit of Utah and
its citizens.
Our guardedly optimistic view is that many bridges must be crossed
prior to full development, and that we will assist companies accomplish
those crossings of the environmental, technological, and political
divides consistent with existing law.
Clearly, there is significant potential for oil shale and tar sands
resources to become one of several alternatives for addressing future
energy demands in the United States. Along with the many other mineral
and energy commodities that Utah provides for America, oil shale will
be needed at some point in the future in order to ensure economic
prosperity and domestic self-sufficiency of energy resources.
Finally, I would be remiss if I did not point out that the Governor
and I also believe that development of these resources can be performed
with due protection of our environment while enhancing the quality of
life for all Americans.
I thank you again for the opportunity to address the committee and
will answer any questions you may have at this time.
The Chairman. Thank you very much, Governor, for your
enlightening remarks.
And now we'll proceed to Mr. Russell George.
STATEMENT OF RUSSELL GEORGE, EXECUTIVE DIRECTOR, COLORADO
DEPARTMENT OF NATURAL RESOURCES
Mr. George. Mr. Chairman, Senator Hatch----
The Chairman. First, let me say that it was my privilege to
be with you yesterday and to let a little bit of your wisdom
and knowledge rub off. I wish I had more time to learn from
you, but over time, perhaps we'll have that opportunity with
further testimony and a further exchange of views. But thank
you for your informed knowledge, and the information you share
with us.
Mr. George. Well, thank you. Mr. Chairman, Senator Salazar,
good morning to you all and welcome to our home. I am Russell
George, executive director of the Colorado Department of
Natural Resources. As the lead State agency responsible for
natural resource management, I appreciate this opportunity to
present to you our latest thinking on oil shale, on behalf of
our Governor, Governor Bill Owens.
It was just about a year ago when we were last together in
your Senate Hearing Room in Washington, DC, where I was able to
present detailed testimony focusing on what worked and what did
not work in the oil shale boom of the early 1980's, including
Federal incentives, cumulative impact assessments, coordinated
permitting, technology implications, and environmental
concerns. It was my hope then, as now, that oil shale
development will proceed in a fashion that will allow for
adequate public review and comment, and regulatory oversight at
the State and local level.
Today, I would like to amplify those comments specific to
the socioeconomic impacts of oil shale development, as well as
issues related to water quantity and quality, and the need for
power generation to development of the oil shale resource. I
will do all of this with the caveat that many project specifics
are unknown, and will be unknown until we see the permit
applications in their detail.
Now, I've already submitted much lengthier written
testimony. I hope you have an opportunity to review it. I would
also hope that it is soon available on your website for fellow
citizens here and the rest of the public. So I will only
summarize the key points in the short time that we have here.
Let me say that Colorado, and certainly the Department of
Natural Resources, is ready to be a full partner in the
development of a resource that is both abundant and in the
national interest. But of course there are buts, and here are
some of the points that I would call standards or
recommendations that we would like everyone to consider. First
of all, both technology oversight and environmental oversight
must be rigorous. We would expect development of this resource
to use best available, best management practices at all times
to minimize impacts. State and local needs must be anticipated
and funded. Development on public land must be prioritized by
resource and by region. The cumulative impact of mineral and
energy development on both public lands and private lands need
to be mitigated.
The Department of Natural Resources has participated
already in the development of the EIS for the RD&D parcels and
will participate, either formally or informally, in the
development of the programmatic EIS. The timeframe to meet
Energy Policy Act requirements, as you may know, is
extraordinarily tight. Because of potential impacts, our
department will dedicate whatever resources are available and
necessary to ensure that this programmatic EIS fully addresses
the impacts to Colorado's environment.
The Chairman. What if you don't have enough resources?
Mr. George. I don't think that's an option, Senator. I
think we need to marshal the resources. We need to rise to the
occasion. This is here. It needs to be done. Colorado will do
its part, somehow.
The Chairman. All right. So you're telling the people that
you have confidence that through the legislature of the
Governor's office or elsewhere, whatever needs you think are
necessary to do these overviews and oversights that you deem so
important, they'll be there?
Mr. George. I do believe that. I believe we have the
Governor's attention and support, and we have the legislature's
attention and support.
The Chairman. And you also are telling this U.S. Senate
that if it's not available, you will be the appropriate person
to so say?
Mr. George. And if it gets too large, I'll also come to you
and say, please help me.
The Chairman. That's what I'm talking about.
Mr. George. We're in this together.
The Chairman. That's what I'm talking about. If it's not
there, it's not there, and you will claim it's not there; is
that right?
Mr. George. Of course.
The Chairman. OK, thank you.
Mr. George. Governor Owens has asked us to participate in
the Department of Energy's Strategic and Unconventional Fuels
Task Force that's in motion now. The task force will make an
interim report to Congress on its activities to date, this
month. A more formal plan for accelerating commercial
development of oil shale will be delivered to Congress by the
task force this November.
Colorado has consistently supported the development of oil
shale resources in western Colorado while ensuring that the
projects are fiscally and environmentally sound, and that the
communities do not incur extraordinary economic burdens.
Oil shale leasing, on top of any existing energy
development and changing land uses, which includes increasing
tourism and recreation in an expanding urban population, all
may put more pressure on an already fragile ecosystem and
public temperament.
Three things are essential: There needs to be a Federal
statutory and regulatory scheme that provides support that is
sustainable over an extended period of time, in order to
encourage private sector investment; of course there needs to
be a thorough ongoing environmental review process; and we
think of great importance is that there exists a safety net for
local governments that allows for growth to pay its way and
allows front-end financing.
Through the history of oil shale, we have learned a few
things that we would prefer not to repeat. We should avoid
processes that preempt or supercede local and State land use in
the environmental permit processes. We should avoid the
development of technologies without adequate oversight to
ensure that public acceptance and the environmental
compatibility exist. We should avoid a national effort that
does not address the financial and infrastructure needs at the
local level.
The Chairman. I didn't get that.
Mr. George. That at least from the national level, we
should avoid creating financial hardship on our local
communities. We need to build the infrastructure in the local
communities to support the change that comes with developing
this industry.
The Chairman. OK.
Mr. George. The true cost of the development of strategic
resources, such as oil shale, must be evaluated, not only in
the context of their technology and development costs, but also
the costs and benefits to the community. Securing a safety net
is the primary lesson of the last bust.
So, we're asking that Congress consider a long-term life
cycle of oil shale development, as it contemplates this renewed
national oil shale effort. Only this view will portray the
complete picture, so that the appropriate technological,
environmental, and economic structures can be defined and
funded for a successful long-term effort.
I think most of us agree that there is a time for
development of oil shale. It may be now, but I think the key
that we want to keep in our minds is we really do need to get
it right. If, for reasons that we could have avoided, we don't
get it right this time, we don't take the time and deal with
the enormous complexities it presents to us, and miss this
chance, I would guess that we won't get another political or
sociological chance for many decades to come.
Over the last 20 years or so, it seems to me, we could have
done more in anticipating what we had. A few companies did
remain. Paraho continued their technical research, Unocal and
Oxidental continued quietly to do their research.
But as Federal, State, and local governments, we haven't
done much over the last 20 years. We aren't ready for the
demand that's here today, but we can get ready, and I think
your energy bill gets us started. I think our willingness to be
full partners and to help decide the right way to move forward,
that if we'll take our time and do it right, we can really make
this work over time and I think that's what we should do for
our national policy.
Thank you very much for this time.
[The prepared statement of Mr. George follows:]
Prepared Statement of Russell George, Executive Director, Colorado
Department of Natural Resources
Members of the Committee, Colorado Congressional members and staff,
and local officials--welcome to Western Colorado. I am Russell George,
Executive Director of the Colorado Department of Natural Resources
(DNR). As the lead state agency responsible for natural resource
management, I appreciate the opportunity to present our latest thoughts
on oil shale development on behalf of Colorado Governor Bill Owens.
In April 2005, I presented detailed testimony focusing on what
worked and what did not work in the oil shale boom of the early
1980's--including, federal incentives, cumulative impact assessments,
coordinated permitting, technology implications, and environmental
concerns. It was my hope, then as now, that oil shale development will
proceed in a fashion that will allow for adequate public review and
comment and regulatory oversight at the state and local level.
Today, I would like to amplify those comments specific to the
socioeconomic impacts of oil shale development, as well as issues
related to water quantity and quality, and the need for power
generation to develop of the oil shale resource. I do so with the
caveat that many project specifics are unknown pending the submittal of
permit applications.
background principle
The State of Colorado has consistently supported the development of
oil shale resources in northwest Colorado since the Arab Oil Embargo of
the early 1970's. Our focus has been to ensure that the projects are
fiscally and environmentally sound, and that the communities do not
incur extraordinary economic burdens either before the boom or after
any bust. As history has shown, if development pays its way, the
community impacts are less if the projects do not materialize. With
perhaps as much as two trillion barrels of oil locked in the shales of
western states, it is important for federal, state and local
governments to partner in the development of this vast resource.
While we still do not know the specifics of the technologies and
projects that may be pursued in the current research and
commercialization cycle, we do know water availability, materials
handling, power requirements, and transportation networks must be
assessed in detail and the impacts mitigated in an appropriate and
timely manner.
where we are today
We have record coal production that is straining existing
transportation networks. We have record natural gas production levels
and ever increasing permit applications for natural gas development.
The development of this resource has dotted the landscape, increased
truck traffic on county roads, and access to the resource has impacted
many private landowners where the surface and mineral estates are
severed. Additionally, there is a growing public sensitivity to in-situ
activities, such as fracking with ``proprietary fluids.''
This development overlaps an area with increasing tourism and
recreation opportunities and an expanding urban population. Oil shale
leasing on top of this existing network of energy development and
changing land uses may put more pressure on an already fragile
ecosystem and public temperament.
The federal Programmatic Environmental Impact Statement (PEIS) is
underway, and the details will be critical. A prioritized use of public
lands for the development of specific resources is essential. Federal
financial support must be sustainable over several decades to encourage
private sector investment. The environmental review process must be
thorough. A financial safety net for local governments that allows for
growth to pay its way, and allows front-end financing of infrastructure
assessment tools and capital needs, is critical. Technology and
environmental oversight must be rigorous, and developers must use the
best available practices to minimize impacts. Environmental regulatory
standards must be set in a way that addresses impacts in the Research,
Development, and Demonstration (RD&D) phase as well as the commercial
phase in order to achieve desired production levels. In addition, the
cumulative impact of mineral and energy development on both public
lands and private lands must be mitigated.
DNR intends to participate either formally or informally, in the
preparation of the PEIS. During the development of the PEIS, DNR will
work with the BLM and other interested entities to ensure that the
concerns expressed here are reflected and addressed in the PEIS. The
timeframe for development of the PEIS is very aggressive because of the
mandate established in the Energy Policy Act of 2005. This timeframe
and the magnitude of the issue will result in additional demands on DNR
staff. We are prepared to spend the resources necessary to participate
in the development of the PETS because of the importance of this issue
to the residents of Colorado.
During the past year my department has participated in the review
and evaluation of the Research, Development, and Demonstration (RD&D)
proposals submitted by industry to the Bureau of Land Management. The
evaluation group included representatives of the governors of Utah and
Wyoming, Department of Energy, Department of Defense, and Bureau of
Land Management. Ten of the twenty proposals to demonstrate the
commercial viability of oil shale were located in Colorado and five of
those have advanced to the final stages of approval by BLM.
Our State Geologist also worked with the State Geologist of
Wyoming, with BLM personnel, and the Utah Geological Survey to develop
the geologic setting and Reasonable and Foreseeable Development
scenario for the initial stages of the Environmental Impact Statement
for the area-wide commercial leasing of oil shale mandated in the 2005
energy bill. The Department is also providing information and working
with BLM during the development of this PEIS. Finally, my office has
been working with the Department of Energy Task Force on Strategic
Unconventional Fuels.
development impacts and carrying capacity
A key component of the socioeconomic impact of intense and rapid
oil shale development is the cumulative impact of growth on the
carrying capacity of the region. Given the density of natural gas and
coal development in some areas of NW Colorado, the need for
recreational/wildlife habitat/undeveloped areas, and the network of
privately held oil shale lands that did not exist in the last boom, the
federal government must determine those areas where oil shale
development could be accommodated in a manner that is least disruptive
to communities and existing activities. Not all types of resource
development can occur everywhere. The carrying capacity of the land,
communities and infrastructure must be evaluated. That will determine
the suitable areas for coal, natural gas, and oil shale development--as
well as realistic production scenarios.
One type of mineral and energy development today, may preclude or
limit another type of resource development tomorrow. We cannot forget
that a consequence of the oil shale pull-out of the 1980's, and the
sustained soft energy market in the 1990's, has been the transformation
of the NW Colorado economy from an energy base to a tourism,
retirement, second home and recreation base--and public attitudes have
changed as well. That cannot be underestimated if accelerated
development is to occur.
The Department of the Interior should provide this cumulative
impact analysis and identification of areas suitable for oil shale
development as an element of any environmental review, leasing plan,
and build out over time. Existing resource management plans may also
need to be amended and impacts mitigated.
cumulative economic impact
Once the development area is determined, a procedure must be
established to evaluate economic impacts at the local level. The
federal government should fund, either through a bonus bid process or
other authorizing legislation, a process to analyze the cumulative
financial impacts of multiple and simultaneous resource development.
This analysis would not only guide the timing of needed permanent and
temporary community services and infrastructure, but also allow local
governments to establish fiscal tools that would insure that growth
could pay its own way.
To assess the fiscal impact to individual communities and counties
in high development areas, it is essential to model the budgets,
revenues and expenditures of affected jurisdictions in northwest
Colorado. The key task would be to determine what projects would cause
what economic impacts to what jurisdictions in what years based on
different population and development scenarios.
financial impact mitigation
Another component of socioeconomic impacts is the financial burden
to local economies to mitigate those impacts. Along with an oil shale
lease process that generates production royalties for the federal
government, the 1970's concept of the front end bonus bid should be
applied to any oil shale leases.
The federal government leased two tracts in each state--Colorado,
Utah, and Wyoming-in the early 1970's. Bonus payments accompanied each
of these leases that determined the winning bid for the lease. Half of
those bonus payments were distributed back to the state. The Colorado
General Assembly established the State Oil Shale Trust Fund and Program
which developed planning and coordination mechanisms for federal,
state, and local governments and provided funding for designated local
government services and projects ($100+ million). This economic cushion
is essential to community stability, and the ability to withstand the
economic shock of a project termination. The federal leasing program
should include front-end financing for infrastructure needs and impact
mitigation--with the objective to mitigate the ``boom town'' syndrome.
The federal government should not subsidize private investment by
foregoing revenues that would mitigate financial impacts at the state
and local level. If favorable tax and royalty terms in the early years
are necessary, the federal government must identify the alternative
source of state and local impact mitigation funds. A cumulative
economic assessment will determine the necessary amount. This analysis
would identify major infrastructure requirements, including roads,
sewer, water supply and storage, schools and key government services.
The investment of industry funds to mitigate these impacts should
coincide with the project development schedule. Industry funds should
also finance the local government planning and permitting requirements.
It will also include the financial reserves necessary to maintain the
services, facilities and infrastructure well before industry-generated
revenues are available.
If the federal government is willing to forego front-end revenues,
a credit against future federal royalties for investment by operators
in the socioeconomic and infrastructure needs identified by the
affected state/local governments is another option. Make no mistake,
this will still be a significant upfront investment by industry as well
as lost federal revenue--but it would also send the money directly to
the area in need in a timely and efficient manner. Provision of
adequate funds should be a necessary and binding condition of any
commercial lease.
A condition for a project to move forward should be that no
unfunded liabilities should exist for the affected local government.
History has proven that low rate loans, loan guarantees and bonds are
not practical, if the project and associated future revenues do not
occur. Outstanding financial obligations by local entities are not an
option. Upfront payment in full for the needed infrastructure and
impact mitigation has been proven to be the only effective safety net
if a bust occurs.
coordinated permitting process
To fully understand the socioeconomic and environmental impacts of
oil shale development, a coordinated and integrated permitting process
is essential. The environmental and land use permitting process can be
complex and time-consuming when all the local, state and federal
requirements are considered. Coordinating the process is essential, and
cannot be underestimated. For the requirements in place 20 years ago,
the average timeframe to permit an oil shale project was about 42
months. Some processes have become more complex since then--and
certainly public interest is more organized and focused.
As a reminder, the Colorado Joint Review process grew out of the
concerns raised over the concept of the Energy Mobilization Board. That
Board would have had the power to preempt local and state regulatory
requirements in the national interest. The reaction in the west was to
coordinate and streamline, not dismantle, the existing process. And it
worked. Attempts in recent years to truncate the process have been met
with public criticism and lawsuits. Such efforts have proven to be
counterproductive to the goal of developing these important resources.
Community acceptance is the only way to avoid what could be well
organized and sophisticated opposition to oil shale development.
Seeking, tracking and addressing stakeholder concerns and encouraging
participation is essential for project implementation in the timeframe
contemplated by Congress.
Today's Colorado Coordinating Council is an option that the federal
government should consider fully funding, or partially funding along
with industry, to assure a rigorous review with adequate public input
and consultation. A coordinated permitting process will reduce
uncertainties by clarifying technical requirements, timeframes, lead
regulatory agencies and public input.
The outcome is a centralized facilitation of the permit process at
the local, state, and federal level. The council would determine the
timelines of the various required permits, coordinate the scoping
process for the environmental impact statements, and facilitate public
hearings and public comments. The overall coordination of the effort
could allow for the application of several permits for an individual
project to occur simultaneously.
power generation requirements
According to the RAND report, an in-situ extractive type operation
is estimated to consume 1,000 MW of dedicated electrical generating
capacity for each 100,000 barrels of shale oil produced daily. The
power requirements for the commercial base will be based on the
technologies used.
But, here is where we are today. Colorado's current permitted coal
production capacity is about 48 million tons--about 10 million tons
higher than current production. The Craig power Plant, at 1274 MW, uses
5 million tons of coal annually. Therefore, the current productive
capacity could fuel two Craig Plants. The key is rail transportation.
We urge Union pacific and private investors to resolve those
infrastructure needs. Increasing permit capacity at existing mines is a
relatively routine process; construction of new coal mines--of which
one may be in the works for northwest Colorado--could take several
years to permit and construct.
Xcel Energy tells us that their current system on the Western Slope
is anticipated to be in balance for the next couple of years--with some
supply relief when the Comanche 3 plant comes on line in 2010. The
company intends to compensate for additional growth by buying from
other regions--or building, if necessary.
water requirements
Water will be required for communities, recovery processes,
disposal and reclamation purposes. Requirements vary by technology, and
will not become apparent until the RD&D applications are submitted.
Colorado's permitting process requires a permit applicant to provide an
estimate of project water requirements, to include flow rates and
annual volumes for development, mining and reclamation. The applicant
must also indicate projected amounts from each of the sources of water.
It is yet to be determined if the public or the private sector will be
required to develop the necessary water storage facilities if senior
water rights are not available. It may be necessary for the federal
government to play a significant role in defining, planning and
constructing the necessary water storage and distribution systems.
The U.S. Water Resource Council estimates that oil shale
development will increase annual consumptive water use in the Upper
Colorado Region by about 150,000 acre-feet per year for each million
barrels (oil equivalent) per day of production, about a 3 to 1 ratio
water to oil. The range given is 2.1 to 52 barrels of water per barrel
of shale oil produced dependent upon the extractive technology used.
The RAND report goes on to say that the availability of water in the
region does not appear to be a ``constraining factor,'' but this
statement is too simplistic. What certainly is a continuing factor is
the water supply infrastructure.
air and water quality
The permitting issues at the RD&D and commercial phases are yet to
be determined based on the permit submittals. Probably the best
overview of air and water quality issues is contained in the 2005 Rand
Report. Let me summarize several of the issues that permitting agencies
will review and applicants must mitigate.
Air Quality. The proposed development regions are high quality
Class II areas. Therefore, only moderate increases in ambient air
quality pollution levels are allowed. Specially protected areas are
within the Piceance Basin--including the Flat Top Wilderness Area.
Oil shale operation emissions may emit pollutants currently on the
list of air toxins by the Clean Air Act. The Rand Report recommends an
approach in which emissions limits for initial plants are established
so that future production can occur within the allowable PSD Class II
and Class I increments. This could be useful input for the Programmatic
PEIS and any work by the Air Quality Control Commission of the Colorado
Department of Public Health and Environment.
Water Quality. The regulatory structure for water quality is an
evolving science for hybrid mineral and energy extraction methods such
as those proposed in the first round of RD&D leases.
SB 89-181 delegated authority to the Oil and Gas Conservation
Commission and the Division of Minerals and Geology for ground water.
Classification as a Designated Mining Operation will require an
Environmental Protection Plan by the Division of Minerals and Geology.
Drill hole casing requirements may be set by the Oil and Gas
Conservation Commission for enforcement by the Division of Minerals and
Geology. Class II, III and V underground injection wells will be
subject to state or federal oversight depending on the type and liquids
used. The Water Quality Control Commission will regulate surface water;
and the Hazardous Waste Program may have oversight of waste disposal.
So, the regulatory regime will be a function of the technology
employed.
conclusion
It is essential that Congress consider the life cycle of oil shale
development as it unfolds its national oil shale effort. Only this view
will portray the complete picture, so that the appropriate technology,
environmental and economic structures can be defined and funded for a
successful long-term effort. I look forward to working with you in the
months ahead.
The Chairman. OK. Thank you very much. If you have any
questions, we're going to proceed to questions. Well first,
you, distinguished Senator, you're first.
Senator Salazar. Thank you very much, Mr. Chairman. Let me
ask a question of both witnesses, Lieutenant Governor Herbert
and Executive Director George. I would take it from your
comments--I don't know if I'd call you Speaker George or just--
--
[Laughter.]
Senator Salazar. One of the big concerns is the impact to
the local communities, and yesterday, when we were in Rio
Blanco County, I know that there's a lot of development going
on with respect to oil and gas in the Rio Blanco County, and I
know that one of the concerns that I hear loud and clear from
the commissioners in Rio Blanco County and other affected
counties along the Western Slope is what's happening with the
roads and what's happening with the infrastructure? And so I
would like you to elaborate, if you can, on how it is that we
might address some of those impacts as the oil shale research
and development and potential commercial development moves
forward.
The Lieutenant Governor first, and then why don't we ask
Mr. George as well.
Mr. Herbert. Thank you, Senator. Before I was Lieutenant
Governor, I was a local county commissioner, so I have a near
and dear appreciation for local government and the challenges
they face. And clearly, as we see this opportunity coming to us
in Utah, some of our local communities are impacted
significantly when it comes to the infrastructure. The big
trucks, the rigs that come in and out of their communities are
tearing up the roads.
We are addressing that in Utah by a collaborative effort of
at least, one, understanding the issue, seeing if, in fact,
moneys can be put back into those regions, not only the regions
where the extraction is sighted, but those regions where trucks
and the traffic impacts are being felt, adjacent to that local
community, whether that's a difference in realignment or a tax
policy with mineral lease moneys, the sharing of moneys that
are generated from this economic expansion. But put back in to
keep the----
Senator Salazar. Are you doing--excuse me, are you doing it
in a manner, Lieutenant Governor, where the moneys that are
being collected, whether they're through mineral lease revenues
or severance stack, as you may have in Utah and I don't know
whether you do, but those moneys are being directed to the most
impacted of communities from the mineral development? Is that
how you're trying to address it in Utah?
Mr. Herbert. That's being discussed right now, as far as
whether we need to change the tax policy in Utah, so that more
money goes back to those regions which are directed. The
severance tax and mineral release moneys are looked at as Utah
moneys, but some of it goes back already. Whether there needs
to be some additional money to go back into those areas for the
impact that they're feeling is the discussion or the debate
now.
We also believe it's not just infrastructure, but it's
impact on schools. There is the boom and bust cycle that people
fear. We also think that money should be reinvested to broaden
the economic opportunity, to broaden the base. Let's not just
look at only natural resource extraction, but there's other
areas that we can invest money into, so that when there is a
downturn, it will be a soft landing and not such a bust that it
hurts everybody, as has been experienced in the past 20 years.
Senator Salazar. And that essentially is the security net
that you were talking about, Executive Director George. Can you
elaborate on the response to the question?
Mr. George. Well, the Lieutenant Governor has it exactly
right. I would add that one of the good things, one of the
right things that we all did 20-some years ago was the use by
the Federal Government of a bonus payment for the leases of
public lands that were granted to the companies. That money was
then paid, in part, to the State of Colorado. A General
Assembly then took that money, deposited it in what we called
the Oil Shale Trust Fund, a considerable sum of money. I recall
something around $100 million at that time. Then the Board of
that trust fund applied those funds to the impacted communities
and this was mostly the towns, cities, and counties all across
northwest Colorado. That money was then invested in the front
end in order to build the infrastructure and did, in fact,
provide an appropriate cushion, not knowing at the time we were
going up when and how hard we would come down. But we did, as
we all know. But, except for maybe one school district, I think
virtually all of the local governments were substantially
protected by the wisdom of how they invested those funds that
came through those leased bonus payments administered through
the Oil Shale Trust Fund. Some arrangement similar to that
would be as appropriate today.
Senator Salazar. OK. Let me ask one more quick question,
because I know we have three more panelists to go through, on
the issue of water. You know, I think Colorado, Utah, Wyoming,
and New Mexico have always stood hand in hand with respect to
our debate on water usage and allocation on the Colorado River.
When we look at oil shale development in three of those States,
we're looking at a significant increase in the consumption of
water from the Colorado River Basin. Can you respond to the
question of the sufficiency of water availability for oil shale
development? And knowing your expertise in this, Mr. George,
I'll ask you to respond to that question first.
Mr. George. Senator Salazar, I think the most significant
way I can describe what I think the water issue in the oil
shale development is, is that the amount of water and the
availability of water for the long-term development of oil
shale is unknown and I think it's also unknowable. Now, that's
pretty hard, but we can't know yet how much water is going to
be needed for what purpose until we know what technology is
going to used and what the water requirement for that
technology is. We can't know about the amount of water
necessary for reclamation until we know the extent of the
development planned over a time period.
So, I think it's only fair for us to call it like it is:
it's unknown, it's unknowable. Nonetheless, we must position
ourselves, as we do for all other things in this arid land we
live in, to continue to be more efficient in our water use, and
to continue to look for ways to develop storage, and therefore,
increase the availability.
There are a number of water districts, conservation
districts, conservancy districts. The Colorado Water
Conservation Board are all hard at work today for a lot of
reasons, trying to imagine how we can increase our storage
capacity, increase our availability of water in this part of
the State, while not shorting our neighbors in the Upper Basin
and in the Lower Basin, so that we can also, over the same time
period, comply with the Colorado River Compact.
We're bringing more and more resources at the State level
to bear on this issue. My guess is that over time as oil shale
develops, the need for expending resources on water storage and
transportation structure will be greater than we can afford
locally and with State support, and we may need Federal
assistance and support developing those water resources over
time.
Senator Salazar. Maybe just a comment, more than anything
else. You know my understanding has always been, as I worked on
Colorado River Compact issues, that Colorado's entitlement
still allows us to develop somewhere between 500,000 at a very
low end, to above 1,000,000 acre-feet of water a year. That's
Colorado's entitlement. I would assume that, as you think about
it as executive director to the Department of Natural
Resources, the quantum of water--that some of that quantum of
water may, in fact, be available for oil shale development.
Mr. George. I agree totally with your statement, Senator
Salazar.
Mr. Herbert. Can I just add to what Russell has said? I
agree with what he said, from Utah's prospective, he mentioned
we learn from history. I think we are into history and we want
to make sure we don't make mistakes of the past. But we also
learn from history that technology has a way of evolving to
meet the demands and the needs of the marketplace. I know there
is technology out there that is going to be using less water,
maybe no water at all, and I expect that technology will be
pressured to evolve as market pressures occur.
I also believe that conservation is becoming much more a
way of life, certainly in my State, than ever in the past. And
Utahans would probably trade the less long for lower gasoline
prices. So there's probably some tradeoff that will occur in
the marketplace as we respond to what's available out there.
Technology has always been our savior and I think it will be
our savior in the future. We need to do our part with the
conservation, but I believe that as we move proactively into
the future, we will solve the issues working together.
The Chairman. Let me ask you, Mr. George, I don't think
that people quite visualize what I'm seeing up here, but I keep
looking up like this, because I can't see his name plate and I
hope you understand. And that's just the way they've got this
podium constructed. Maybe that's not the way they do their
regular meetings.
[Laughter.]
Senator Salazar. I think the people of Grand Junction are
just very tall.
[Laughter.]
The Chairman. I mean, I served on as a mayor for a long
time, and I wouldn't have been able to see.
Anyway, now let me get it straight, and let's see if all
these people out here get it straight. Sir, you're in charge of
evaluating these various projects, programs, activities that
relate to shale?
Mr. George. Yes.
The Chairman. And you just got through telling the people
of Colorado, as the principal advisor to the Governor of the
people, you're the one that looks at the programs and projects,
as they appear; right? That they'll promote them and propose
them, and you will look at them, evaluate them, and see how
they fit with the availability of the resources for the people,
and then you'll square with the people on the impact of the
application, if implemented; is that correct?
Mr. George. That is correct, Senator.
The Chairman. All right. And so far, what you're telling
us, everything seems OK, because you will see to it that the
projects and the project needs, as evaluated, versus the
availability of resources will be properly presented such that
you will either have the resources or you won't; is that
correct?
Mr. George. Yes, sir.
The Chairman. That's why you say we may have it and we may
not, and we don't know. That's why you made that kind of
statement, which sounds kind of like you don't know anything.
[Laughter.]
Mr. George. But, the matter is--
The Chairman. You know a lot.
[Laughter.]
The Chairman. Thank you everybody.
Mr. George. Senator, you probably just gave away my
lifelong political secret.
[Laughter.]
The Chairman. Anyway.
Mr. George. May I respond?
The Chairman. Yes, please do.
Mr. George. I agree totally with your statement and I would
like to amplify it this way: More in this discussion than maybe
many other things we do, we really are all in this one
together. And I mean you folks on behalf our Federal
Government, me here as today's spokesman for State government,
and all of our friends and neighbors here, speaking on behalf
of local governments, and all of us as citizens. This is going
to happen. It needs to happen. There are all kinds of world
reasons why this needs to happen. You're going to hear that
again and again. You've already started the day that way. So my
point is that of course we'll do it, that's our responsibility.
The Chairman. Right.
Mr. George. And we do it either as regulators, or we do it
as partners without regulation and law, but we will, together,
get it done right. Thank you very much.
The Chairman. But it is not expected that anybody knows all
of the answers yet.
Mr. George. Thank you.
The Chairman. That's the point. And we will hear from the
head of a very refined project that is being developed over
time, with a lot of resources, by Shell Oil. They're going to
tell us how they're proceeding. They're doing it with very,
very delicate research, so that they evaluate step by step and
they have lots of answers. And everybody should know, their
answers are being evaluated versus an enormous investment, so
they're not expecting wrong answers, they're expecting right
answers; right? Invest $50 million, you expect what the
scientist told you is right. You expect to invest $500 million,
you expect the answer is probably right; right?
You know, in my opening remarks, I said it could literally,
quote, shake the world. Did you hear that?
Mr. George. I did.
The Chairman. Well, I wasn't kidding. What we're talking
about could shake the world, because if those currently
producing energy oil conventionally find out this is going to
work, it could shake the world; right? And I clearly don't know
whether it's going to happen, but from what I am figuring out--
I'm not totally foolish, I think it's going to happen. And for
those people that wonder why it didn't happen last time, I want
to just remind you of one thing: Just remember what the price
of oil was. That's the big difference. The price of oil was so
cheap and now it's so high. That's a very big difference in
terms of making it feasible, that certain things will fit.
Having said that, unless Senator Hatch has a question, I
have no further questions other than one last one. You said you
will have to have continual oversight. That was a statement you
made, I wrote it down. Again, for the record, for the Federal
Government, as a spokesman for the people of the State of
Colorado and working through the Governor's office, there is no
question, in your mind, that you are provided with adequate
resources in both professional and actual resources, to do that
job. Even when you are working up against, and in conjunction
with, very wealthy companies, you are not lacking in
confidence. Is that a fair statement?
Mr. George. Senator, we have the responsibility as the
State regulator of this industry, to be able to meet the
challenge and we will run as fast as we can to stay on top of
it. That is our expectation and our promise.
The Chairman. OK. Thank you. I don't have any further
questions. You're excused.
Mr. George. Thank you very much.
Mr. Herbert. Thank you.
The Chairman. Now, we have the county commissioners. If
you'd please come up, we'd appreciate it. Chairman of the
County Commission of Rio Blanco, is that Mr. Kim Cook?
Mr. Cook. Yes, sir.
The Chairman. Yes, sir. Mr. Cook, you're right there. And
we have Mr. Mike McKee, chairman of the County Commission of
Uintah County. And then, we have Craig Meis, county
commissioner, Mesa County, Grand Junction. All right, you're
all there. You all know the game plan? Your testimony will be
made a part of the record as if you read it and you can deliver
it in the time provided by the committee. Please proceed,
starting with you, Mr. Cook.
STATEMENT OF KIM COOK, CHAIRMAN, COUNTY COMMISSION, RIO BLANCO
COUNTY, CO
Mr. Cook. Mr. Chairman and members of the committee, my
name is Kim Cook, county commissioner of Rio Blanco County, CO.
I am here today to present testimony on behalf of my county and
two organizations that Rio Blanco County is a member of--Club
20, a community-based organization representing cities,
counties, businesses and citizens throughout western Colorado;
and the Associated Governments of northwest Colorado, also know
as AGNC. And AGNC represents the cities and counties in the
five-county region of Mesa, Garfield, Rio Blanco, Moffat and
Routt Counties.
I would like to begin my remarks by referring back to
comments made by AGNC before this committee last year, when we
gave the overall impression that local governments were pleased
with the research course that the Federal Government was taking
during this time of oil shale development.
In fact, not much has changed in the minds of AGNC members
since then. We still believe oil shale presents an opportunity
to provide a secure domestic fuel source. And since more than
80 percent of the oil shale resource is located on Federal
lands and since that future development is driven by national
interests, we continue to believe the Federal Government must
play a lead role in addressing the socioeconomic and
environmental impacts and costs. We naturally do not want to
see local governments and local taxpayers burdened with the
costs of new infrastructure and the mitigation of environmental
impacts.
As an example, and turning to what may be the foremost Rio
Blanco County concern, you must travel on my county's roads to
reach all of Colorado's oil shale RD&D leases. These roads have
no base, or at best a shale base, and they were never designed
for the heavy energy traffic we are currently experiencing due
to gas drilling, and expect to receive from oil shale
development.
To reconstruct just 1 mile of paved road so that it is
designed to carry heavy loads currently costs approximately $1
million per mile. And with 65 miles of paved roads in the
Piceance Basin at present and the possible need for more
asphalt roads in the future, that is a cost that cannot be
borne by Rio Blanco County's 6,500 citizens.
Another example, turning from infrastructure to personnel,
would be State troopers. Rio Blanco County used to have four
State troopers located in our county, two at each end.
Currently, we have none. If you have an accident on State
highways in my county, you're a long time waiting for a state
trooper to come by. So our county sheriff is burdened with
covering the State function. That's my point. There's going to
be needs, not only with infrastructure, but with personnel.
Whether it be additional Federal personnel at the BLM level to
do their work, or at the State level with State troopers or
others, there's infrastructure and personnel needs as well.
My county is concerned that efforts to incentivize the
unconventional fuels industry, could negatively effect state
and local revenue streams, as well as impact funds which are
currently utilized to mitigate conventional natural gas
development. We are further concerned whether adequate impact
funds would be allocated by the Federal Government for the
mitigation of impacts which will occur as a result of
unconventional fuel research development.
It's our hope that efforts to streamline regulatory
approval of projects does not circumvent the intent of the
regulations, but focuses instead on providing adequate funding,
staffing, and cooperation to enable the regulatory agencies to
do the necessary work in a timely fashion. In some, we prefer a
deliberate and reasoned approach to oil shale development,
which avoids a gold rush of speculators and opportunists, and
instead, leases public lands on the basis of promising
technologies.
Wrapping up, I would like to return to a final AGNC
concern, and that is with regards to funds being accumulated in
the U.S. Treasury through the oil and gas lease payments that
are occurring at the Naval Oil Shale Reserve lands, also known
as the NOSR lands.
Last year, we reported to you that, according to a letter
from the Department of the Interior, some $44 million may be
accumulated by March 2007 in the U.S. Treasury account from the
current national gas leases on those NOSR lands. Those lands
were transferred by Congress from DOE to the Department of the
Interior with a congressional price we established for natural
gas leasing.
Some of those funds, approximately $6 million, are
earmarked for an environmental clean-up of the Anvil Points
spent shale pile. Otherwise, we believe Congress has the
opportunity for the remainder of these funds to be made
available to address the socioeconomic and environmental
aspects of oil shale development here in northwest Colorado.
In the future, still more revenues should be available from
this source and we would appreciate Congress establishing a
priority to address oil shale and other energy development
impacts in northwest Colorado from these leasing revenues.
Attached to my testimony is also an oil shale policy
resolution from Club 20. You will notice that it is a very well
thought out and balanced policy, in spite of the cheap shot
taken by the editorial writers in today's local newspaper. I
think you'll see that as a policy that meshes well with the T-
shirts that you see in this audience this morning: Take It Slow
on Oil Shale. That policy supports the RD&D leasing program and
it appreciates the involvement and participation of local
governments in both the DOI oil shale leasing program and the
DOE Strategic Fuels Program.
Thank you to the committee for holding this field hearing
here in Colorado. I will attempt to answer questions later.
Thank you.
[The prepared statement of Mr. Cook follows:]
Prepared Statement of Kim Cook, Chairman, County Commission,
Rio Blanco County, CO
Mr. Chairman and Members of the Committee:
My name is Kim Cook, County Commissioner of Rio Blanco County,
Colorado. I am here today to present testimony on behalf of Rio Blanco
County and two organizations that Rio Blanco County is a member of Club
20, a community based organization representing cities, counties,
businesses and citizens throughout Western Colorado; and the Associated
Governments of Northwest Colorado (AGNC), which represents the cities
and counties in the five-county region of Mesa, Garfield, Rio Blanco,
Moffat and Routt.
I would like to begin my remarks by referring back to comments made
by AGNC before this committee in April 2005, when we gave the overall
impression that local governments were pleased with the course that the
Federal government was taking during this time of oil shale
development. We further commented on the need for supporting local
governments' ability to mitigate socioeconomic and environmental
impacts.
In fact, not much has changed in the minds of AGNC members. We
still believe oil shale presents an opportunity to provide a secure
domestic fuel source. And, we still believe that since more than 80% of
the oil shale resource is located on federally-owned public land and
recognizing that the future development is driven by national
interests, the federal government must play a lead role in addressing
the socioeconomic and environmental impacts and costs. We do not want
to see local governments (and local taxpayers) stuck with the costs of
new infrastructure and the mitigation of environmental impacts.
As an example, you must travel on Rio Blanco County roads to reach
all of Colorado's oil shale RD&D leases. These roads have no base, or
at best a shale base, and were never designed for the heavy energy
traffic we are currently experiencing due to gas drilling, and expect
to receive from oil shale development
To reconstruct one mile of paved road so that it is designed to
carry heavy loads currently costs approximately $1 million. With 65
miles of paved roads in the Piceance Basin at present and the possible
need for more asphalt roads in the future, that is a cost that that
cannot be born by Rio Blanco's 6500 citizens.
Rio Blanco County has concerns related to the initial DOE report to
Congress on ``Development of America's Strategic Unconventional Fuels
Resources.'' Efforts to develop ``A fiscal regime that improves
attractiveness of capital investment through tax and royalty terms in
the early years'' need to provide adequate compensation to state and
local funds which would normally use these revenue streams to mitigate
development impacts. Proposed incentives to industry relating to
royalties, severance tax, and property tax are likely to be detrimental
to current sources of local revenue available to mitigate impacts and
develop local infrastructure. Allowing capital costs for unconventional
fuels to be expensed or depreciated on an accelerated schedule could
also have a negative effect on local taxes derived from real and
personal property. Likewise, production tax credits could negatively
affect severance tax revenues which contribute to the Energy and
Mineral Impact Assistance fund--our major source of grants for impact
mitigation.
Funding for socioeconomic impact assessment and community
infrastructure planning and development is very important. This needs
to be followed up with funding for implementation of these plans and
for the operation and maintenance of the expanded infrastructure as
well. Much of this region lies within the public domain and has low
population density, both of which limit the ability of local
governments to study and finance large scale improvements. Therefore,
establishing a federal impact fund and/or a local/regional trust fund
for the mitigation of impacts is critical to local government efforts
to mitigate impacts and create new infrastructure.
Rather than cutting corners in ``streamlining'' regulatory
processes or gutting existing processes and procedures, the integrated
program plan should allocate funds to provide levels of staffing to
these agencies (BLM, FERC, EPA, etc.) which are adequate to produce the
needed throughput in the desired timeframes. Cooperation between intra-
agency regions (i.e.: BLM White River Field Office and Vernal Field
Office) as well as between agencies should not only be streamlined but
required. Be careful in granting regulatory agencies quasi-judicial
powers; placing such power in federal agencies risks the loss of local
participation in the decision making process. The Colorado joint review
process is a model to be encouraged for interagency cooperation.
The Colorado-Wyoming-Utah transportation network needs study and
funding to develop efficient and time-effective routes between
development sites, communities, and markets. Interstate traffic, even
in the current natural gas development boom, follows inadequate and
circuitous routes throughout this region. State funding for maintenance
of existing roads, much less the development of new roads, is not
sufficient for the task. Significant interstate traffic is occurring on
county roads which were never designed for such impacts and stretch
limited county resources to maintain. Such a regional study in
conjunction with the development of unconventional resources should
involve state, federal, and local governments in planning, development,
and funding.
The future needs of the electrical power infrastructure in the
Piceance Basin, considering the current conventional natural gas
development and the potential oil shale need for in-situ heating, may
be very significant and beyond the current capacity. The demand for
electrical power might be best addressed in conjunction with other
unconventional resources such as a coal gasification process to
generate electricity. Rio Blanco and Moffat Counties have significant
coal resources, current CO2 injection in the Rangely Weber
Sand oil field, along with the need for additional electrical power in
the Piceance Basin.
Rio Blanco County hopes that research park development and
community college training programs would be housed within the
immediate locale being affected by the resource development, as these
types facilities help grow and diversify the local economy and provide
for the tax base of the local governments. Any community college
unconventional resource programs should include Colorado Northwestern
Community College.
Finally, a small number of corporations within the industry have
already invested significant private funds in oil shale research and
development. Any new federal incentives and initiatives to accelerate
the research and development process need to respect this investment
and avoid inclusion of those corporations or companies operating in a
more speculative and opportunistic fashion.
One final AGNC concern has to do with the funds being accumulated
in the U.S. Treasury through the oil and gas lease payments that are
occurring on the Naval Oil Shale Reserve lands
Last year we reported to you that in a letter from the Department
of Interior, some $44 million may be accumulated by March 2007 in a
U.S. Treasury account from the current natural gas leases on their NOSR
lands. These NOSR lands were transferred by Congress from DOE to the
Department of Interior with a Congressional priority established for
natural gas leasing.
Some of these funds, estimated at $6 million, are earmarked for
environmental cleanup of the Anvil Points spent shale pile. Otherwise,
we believe Congress has the opportunity for the remainder of these
funds to be made available to address the socioeconomic and
environmental aspects of oil shale development in Northwest Colorado.
In the future, more revenue should be available from this source.
According to industry estimates, additional leasing of the NOSR lands
could produce leasing bonuses of up to $360 million (to be shared 50%
federal and 50% state), plus ongoing production leases of an estimated
$32 million annually for at least 20 years. That would be another $640
million total also to be split 50/50, federal and state. Congress
should establish a priority to address oil shale and other energy
development impacts in Northwest Colorado from these leasing revenues.
However, on December 15, 2005, Colorado State BLM Director Sally
Wisely informed AGNC that, as of November 29, 2005, the Treasury had
accumulated $37 million.
This leaves only $7.25 million left to be collected. With recent
increased gas prices, royalties are averaging $1.25 million per month
over the past 11 months. At this rate, the remaining funds should be
recouped by June 2006, nearly a year ahead of schedule.
The Transfer Act states that the Secretaries of Interior and Energy
must jointly certify to Congress that the monies have been recouped
prior to making revenue available for distribution to the State of
Colorado. As these funds should be recouped by June, DOI and DOE should
currently be coordinating the certification process to Congress.
We respectfully request that the Committee monitor the activities
of these Departments in the coming months and push for the earliest
possible release of these funds to the states upon certification, per
section 7439(f)(2) of the Transfer Act.
We believe this type of funding is necessary to make sure the DOE
research and demonstration projects can proceed without interruptions
from fluctuations in the price of oil.
Attached to my testimony is an Oil Shale Policy Resolution from
Club 20, which is the coalition of individuals, businesses, and local
governments representing Western Colorado since 1953.
As indicated in the resolution, Club 20 supports the current R&D
leasing program underway to test various oil shale technologies. Three
of the leasing applicants are located in Rio Blanco County--Shell,
Chevron and EGL. Club 20 supports the conversion of these to commercial
scale if the technology proves out.
Club 20 also supports a prudently paced commercial scale leasing
program including the Environmental Impact process now being initiated
by BLM. We believe the carrying capacity provisions being considered in
the EIS will help protect our Western Colorado air quality, water
resources, wildlife, and socioeconomic values. Club 20 also supports
the establishment of a commercial scale royalty credit, proposed by
AGNC, to encourage companies to contribute to the mitigation of
socioeconomic and environmental impacts. These mitigation efforts are
very important to Rio Blanco County, where most of the development of
federal oil shale resources will occur.
Club 20 also appreciates the involvement and participation of local
governments in both the DOI Oil Shale leasing program (with affected
local governments designated cooperating agency status) and the DOE
Strategic Fuels Program (with a local government representative as a
member of the Task Force on Strategic Unconventional Fuels).
I would like to thank the Committee for coming holding this field
hearing here in Northwest Colorado. I would be happy to answer any
questions you may have.
______
Attachment--Club 20 Oil Shale Policy
oil shale, development and implementation of a national strategy
WHEREAS the U.S. Department of Energy estimates that 800 billion to
1 trillion barrels of recoverable oil may exist within the oil shale
deposits of the Green River Formation in Northwest Colorado, Southwest
Wyoming, and Northeast Utah (the bulk of which is located in
northwestern CO) and this is the largest known deposit of oil shale in
the world and one of the largest untapped hydrocarbon resources
available for development, and
WHEREAS CLUB 20 recognizes the potential value of this oil shale
resource, and we also recognize the need to realize this value while
sustaining the other existing social, economic and environmental values
that comprise the overall quality of life in western Colorado; and
WHEREAS oil shale development is important for our country's
national security to supplement our nation's growing energy demand, and
WHEREAS, without well-conceived research and development, this
region may someday be faced with another crisis-oriented, commercial-
scale oil shale program;
THEREFORE BE IT RESOLVED that CLUB 20 supports research and
development efforts leading to an environmentally sound, socially
responsible and economically viable oil shale program that will result
in the efficient recovery of the resource, and
BE IT FURTHER RESOLVED that CLUB 20 supports efforts by the U.S.
Departments of Energy, Interior and Defense, in cooperation with State
and Local governments, to continue to develop and implement a national
oil shale strategy and urges that this strategy include the following:
1) Incorporate a prudently-paced commercial scale leasing
program to allow time for adequate demonstration and testing of
experimental development technologies;
2) Provide an opportunity for ongoing participation of
directly impacted state agencies, specifically including the
Department of Natural Resources and the Department of Health,
and local governments by designating them as ``Cooperative
Agencies'' and, in so doing, provide them additional
opportunity to observe and comment on the development of oil
shale in their area in addition to continuing the opportunity
for public participation.
3) Update BLM's existing ``carrying capacity'' concept which
is included in current Resource Management Plans for a) air
quality, b) water quality and quantity, c) wildlife impacts,
and d) socioeconomic values to assure prudent development of
the oil shale resource in balance with these other values;
4) Utilize the Colorado Joint-Review Process to facilitate
and coordinate the federal, state and local permit process;
5) Support the existing BLM Research, Development &
Demonstration (RD&D) oil shale leasing program, and
specifically the conversion of successful technologies
(technologies which are environmentally sound, socially
responsible, economically viable, and which result in the
efficient recovery of the resource) to commercial scale leases;
and
6) Encourage tax & royalty structures that result in timely
mitigation of impacts from development, including incentives
for ``up front'' industry contributions to state agencies and
local governments through establishment of a federal royalty
credit for these contributions.
Adopted 4/1105
Amended 3/31/06
The Chairman. Thank you.
Please proceed.
STATEMENT OF MIKE MCKEE, CHAIRMAN, UINTAH COUNTY COMMISSION,
UINTAH COUNTY, UT
Mr. McKee. Good morning, Senator Domenici, Senator Salazar,
and Senator Hatch. I'll just begin by saying I have great
admiration for each of you personally and the tremendous work
that you're doing, and I appreciate the opportunity to be able
to take a few minutes and give a local perspective relating to
oil shale, tar sands, and the energy needs that we have.
The Chairman. Thank you.
Mr. McKee. I might just begin by stating, as you aptly
brought up this morning, the tremendous reserves found in the
Green River Formation. You've mentioned the two trillion
barrels, and Senator Domenici and Senator Salazar, you've
mentioned the 500 million barrels, on the low end, of
recoverable oil and up to 1.2 trillion barrels of oil in the
same reserve.
According to the Rand Report, at a mid-level range, at 800
billion barrels, that would be enough to--if \1/4\ of the
Nation's current energy needs were being--that would last the
United States for 400 years. And of course, that would be
coming from the Green River Formation of eastern Utah, western
Colorado, and southern Wyoming.
Uintah County, UT, generally is in support of this
development. Much of our economy is derived from energy
resources. I will say, though, we do have some reservations,
and that will be the majority of my testimony. Particularly,
most of that has to do with the financial implications.
Uintah County finds itself thrust into the heart of
national energy concerns. The fact that Uintah County contains
tremendous energy reserves will forever change the county's
economy and the lifestyles of its residents. The resources are
critical to national interest, the development of these
resources are inevitable, and the county's infrastructure and
ability to provide services will be greatly impacted.
Uintah County stands ready to assist the Nation in meeting
its energy needs and will be willing partners with industry and
government to do so. We recognize that oil shale development
will improve our Nation's energy and economic security and
benefit the country as a whole.
We believe that it is in the Nation's interest to assist
counties of origin with funding needs for planning
infrastructure development, community impact assistance, and
adequate services. Local communities must provide the public
infrastructure, education, community services, utilities and
roads at a level that exceeds its funding capabilities.
Our area has already been highly impacted because of the
number of oil and gas wells developed in our area. Nationwide,
the Vernal BLM Field Office has processed the second highest
number of application permits to drill--APDs--in the country.
In the past 2 years, it processed approximately 1,400 APDs. It
is estimated that this year there will be an additional 1,200
APDs, moving to 1,500 APDs the following year. In addition,
Uintah County has some of the richest tar sands in the United
States. We believe that commercial tar sand production may come
on line before oil shale production, thus adding to an already
overburdened system. To meet these needs, there must be up-
front funding assistance to the counties for the planning and
mitigation of impacts. Currently, there is no mechanism to
provide this up front funding.
Several key issues: Mechanisms for obtaining funding are
not automatic; local communities must justify--sometimes we
feel like we beg--to community impact boards on a project-to-
project basis; and costs are being incurred now, but receipts
don't arrive until after production.
The county is now facing the onset of oil shale and tar
sand development. Failure to fund such impacts will not only
prevent the county from meeting the needs of this expanding
development, but will also reduce our ability to fund ongoing
conventional oil and gas impact and production.
Businesses not directly involved in energy development
cannot hire an adequate work force, as they cannot compete with
wages paid in energy development. The current lack of housing,
particularly affordable and low income, is a factor in this
issue. Thus, energy development can have some negative impacts
to our communities in the sectors of our economy.
Currently, both the Forest Service and the BLM are in the
midst of new resource management planning. Management
prescriptions in these plans with respect to wild and scenic
rivers management will prevent future water development to meet
needs for domestic, agricultural, and energy development. Wild
and scenic river desigNation will have an immense negative
impact on energy development in our area.
One other thing that I would mention in connection with the
resource management plans, the resource management plan in our
area will--there should be a record of decision by toward the
1st of the new year and oil shale is not really being
considered in this resource management plan. I would suggest
that funding mechanisms begin now, to begin an amendment to the
plan already, so that oil shale can be developed in this
resource management plan.
Another key issue is payment in lieu of taxes. Currently,
PILT dollars are reduced proportionately to the amount of
discretionary funds received from mineral lease funds. In
effect, this penalizes counties when mineral impact funds are
received. Legislation should be enacted to resolve this
discrepancy. In other words, local governments do not have an
opportunity to use mineral lease funds, if we take direct
involvement in using PILT dollars, and that is a tremendous
disadvantage to local governments. If we could have some
legislation to help us with that, it would be immensely helpful
to us.
Congress must provide incentives to industry and to conduct
research and development activities in order to encourage
timely implementation of commercial production.
In summary then, just real quickly, there are four issues
we would like to see: Some up-front funding for
infrastructure--we feel like that's imperative; allow local
governments to have direct access to mineral lease money
without forfeiture of PILT with the resource management plans'
and wild and scenic river designations would be a disaster, if
we want to have tar sand and oil shale development.
Thank you for this opportunity, I appreciate the time.
Thank you very much.
[The prepared statement of Mr. McKee follows:]
Prepared Statement of Michael McKee, Chairman, County Commission,
Uintah County, UT
Chairman Domenici, members of the Committee, thank you for holding
this hearing and inviting me to testify.
With reservation, Uintah County finds itself thrust into the heart
of national energy concerns. The fact that the County contains
tremendous energy reserves will forever change the County's economy and
the lifestyles of its residents. One could argue the benefits or
negative impacts of such changes, but the fact remains that the
County's resources are critical to national interest, that the
development of these resources are inevitable, and the County's
infrastructure and ability to provide services will be greatly
impacted.
Uintah County stands ready to assist the Nation in meeting its
energy needs and will be willing partners with industry and government
to do so. We understand that oil shale development will improve our
Nation's energy and economic security and benefit the country as a
whole.
We believe that it is in the Nation's interest to assist counties
of origin with funding needs for planning infrastructure development,
community impact assistance, and adequate services. Local communities
must provide for public infrastructure, education, community services,
utilities and roads at levels that exceed its funding capabilities.
Our area has already been highly impacted because of the number of
oil and gas wells being developed in the area. Nationwide, the Vernal
BLM Field Office has processed the second highest number of
applications permit to drill (APDs) in the country. In the past two
years it processed approximately 1,400 APDs. It is estimated that there
will be approximately 1,200 applications this year and increasing to
1,500 next year. In addition, the County has some of the richest tar
sands in the United States. We believe that commercial tar sands
production may come on line before oil shale production, thus adding to
an already overburdened system.
To meet these needs, there must be upfront funding assistance to
the counties for planning, and mitigation of impacts. Currently, no
mechanism exists to provide this funding.
key issues
Mechanisms for obtaining funding are not automatic; local
communities have to justify (beg) requests on a project-to-project
basis.
Costs are being incurred now. Receipts don't arrive until after
production.
The county is now facing the onset of oil shale and tar sands
development. Failure to fund such impacts will not only prevent the
county from meeting the needs of this expanding development, but will
also reduce funding and impact ongoing conventional oil and gas impact
and production.
Businesses not directly involved in energy development cannot hire
adequate workforce as they cannot compete with wages paid in energy
development. The current lack of housing, particularly low income, is a
factor in this issue. Thus energy development is negatively impacting
other sectors of our economy.
Currently both the Forest Service and the BLM are in the midst of
resource planning. Management prescriptions proposed in these plans
with respect to wild and scenic river management will prevent future
water development to meet needs for domestic, agricultural and energy
development.
Congressional oversight is needed to insure that field offices are
adequately staffed and that their policies and procedures are
supportive of the provisions of the Energy Policy Act.
Currently PILT dollars are reduced proportionately to the amount of
discretionary funding received from Mineral Lease Funds. In effect,
this penalizes counties when mineral impact funds are received.
Legislation should be enacted to resolve this discrepancy.
local participation in planning
EPACT 2005 calls for the involvement of local communities in the
federal oil shale program planning process and for formal participation
on the Strategic Unconventional Fuels Task Force. We are participating
in the deliberations of the Task Force, and we commend the Committee,
and in particular our own Senator Hatch, for the foresight to formally
include the local communities in this process. We see this as the
beginning of formal mechanisms by which local communities will have a
strong voice in the planning and implementation process. We encourage
this Committee to continue engaging the local communities as we move
forward.
needs and concerns
There are many issues that local communities face during periods of
rapid and unrelenting growth. I could spend much of my time talking
about such issues as insufficient and affordable housing, overstretched
education and medical services, escalating public service costs, drug
problems, inadequate jail space, and infrastructure demands. For
example, Uintah County has approximately 1400 miles of maintained
roads. We have another 4,589 miles of unmaintained roads. But in the
end, it all comes down to a fairly simple matter; where do the revenues
come from to satisfy the public needs and when do they arrive?
The current lack of adequate mechanisms for providing revenues to
meet the public obligations concerns me. Current mechanisms and
formulas, revenue flows are insufficient to cope with impacts; and if
nothing is done to remedy this problem lack of funds will overwhelm our
local communities to cope in the future:
deficiencies in current mechanisms
Most of the processes by which rural communities receive funding
depend on the state or federal governments to first receive tax or
royalty revenues from production or other commerce. The federal and
state governments then return a portion of the revenues generated from
this production or commerce to the counties.
In times of rapid growth, distribution of these funds comes too
late to be of any use during the ramp-up period. Even in times of
steady economies, the process does not work very well. Some funds come
with restrictions on where the resources can be allocated, tying our
hands to addressing pressing issues that may not have been anticipated.
Even more problematic is that the portion of wealth that is returned is
insufficient to fully mitigate the impacts.
We currently have limited mechanisms to receive up-front funds,
ahead of the growth, that can be used for planning, infrastructure
development and impact mitigation. If I could leave the Committee with
one thought from this hearing, it would be that lack of early funds is
at the root of the vast majority of socioeconomic impact issues.
Solving this one issue will be the single biggest contribution this
Committee could make to the socioeconomic well-being of these sparsely
populated communities that find themselves squarely in the impact zone.
context of solution is national in scope
To put my suggestions in context, consider that we represent very
small communities in a region that will experience unprecedented
impacts. By fate of nature the single largest concentration of
hydrocarbons found on earth are found within a few hundred square miles
of the Green River geologic formation. This area is sparsely populated
wherein only about 3% of the US population lives in the tri-state area
of Utah, Colorado and Wyoming. The population in the direct impact area
is less than 0.1% (one tenth of one percent) of the US population. As a
consequence of this low population our states and local communities are
highly limited in their capacity to financially absorb impacts from
energy growth.
Because the benefits of oil shale development are National in
scope, we believe that it is in the broader National interest to help
with the extraordinary impact costs that will come with such
development. Oil shale development will improve our Nation's energy and
economic security and will benefit the country as a whole. Most heavy
equipment manufacturing and consumption of the energy will take place
outside of the region.
There is some urgency to addressing the issue of domestic energy
supply. But in responding to this pressing need our immediate concern
is the up-front funding needed for planning and impact mitigation, as
well as for major and minor infrastructure projects.
guiding principles for cost sharing impacts and infrastructure
1. Because the federal government owns much of the resource, pre-
investment of funds that will directly lead to future federal revenues
is consistent with good public policy.
2. To truly share in the extraordinary costs, funds provided should
not diminish future funds allocated to states and local communities.
3. States, and especially local communities, should not be asked to
take financial risks for the potential failure of projects.
Indebtedness of all kinds needs to be avoided.
4. Care needs to be taken that incentives provided to the industry
do not have the effect of diminishing revenues at the state and local
community level.
5. Mechanisms should be established that give local communities a
strong voice in the decision-making process, including program planning
and recommendations for administrative and legislative action.
suggestions for funding sources
For Counties to fulfill their responsibilities and more
formally begin the local planning process Congress needs to
provide an appropriation of funds to the Office of Petroleum
Reserves (OPR), the lead DOE office in the implementation of
the Strategic Unconventional Fuels Program. OPR would use a
portion of these funds as grants to facilitate the engagement
of communities in the Program Planning process. It is my
understanding that such a recommendation is being considered by
the Strategic Unconventional Fuels Task Force, and I am
encouraging this Task Force to adopt this recommendation.
We will soon be encountering the need for long-lead time
infrastructure development. Water projects, new and improved
road systems, upgraded airports, power utilities, and possibly
a regional rail spur are examples of big ticket items that we
must plan for. One possible source of funds for planning and
early implementation, suggested by our colleagues from
Colorado, would be to redirect royalty funds from NOSR 3, now
totaling nearly $40 million, to the three states on a
reasonable formula. These funds have accumulated from current
production royalties on oil shale property, for the purpose of
reimbursing DOE for property improvements enjoyed by the
lessee. These would be one-time funds, but would be substantial
enough to fully engage--the communities in the process and
initiate some meaningful infrastructure development.
In anticipation of the need for major infrastructure
requirements, we suggest creating an `investment bank' through
the federal Mineral Lease Fund, whereby roads, dams, utilities,
airports, possible financing for private railroads, and the
like could be funded. This approach would need to be properly
structured, but with increasing commodity prices creating
increased mineral lease royalties to the federal government, it
seems like good policy to use some of these funds to promote
development of additional royalty-bearing projects. This would
be truly an investment to provide future income.
We understand the desirability of reducing royalty costs in
the early years of development to assist industry with early
project payback. However, we need to caution the Committee that
passing those deductions to the States would impact the ability
to provide adequate revenues for impact mitigation. If
patterned after other such proposals the future federal
royalties could be escalated to make up for early royalty
forgiveness. But these swings in revenues should apply only to
the federal portion; States and local communities need to count
on a steady flow of revenues, not less in early years, and not
necessarily more in later years.
Coordinate with the US DOE to develop and implement an
integrated local and regional infrastructure plan that will
support efficient natural resource development, support
university and vocational training to provide a skilled
workforce, realize synergies among infrastructure requirements
for various conventional and unconventional fuels, and maximize
state and local employment opportunities.
recommendations
PILT payments compensate Counties for the loss of taxing authority
over surface acres and surface improvements. PILT does not address the
impacts of mineral development. To compensate for mineral development,
revenues from mineral lease funds are utilized. However, PILT
legislation provides that for every dollar of discretionary funding we
receive from Mineral Lease funds we must forfeit a dollar of PILT
monies. It is our view that such an offset does not recognize the
impacts of mineral development. Legislation should be enacted to
resolve this discrepancy.
When sharing of Mineral Lease Funds with the States was set up, it
was intent that all of the funds would go to the area directly impacted
by the mineral development. In Utah, it has been the policy that the
entire State is an impact area, and much of the mineral lease funds are
used for on-going expenses that bear little relationship to impacts
from mineral lease development.
We believe that the on-going impacts of energy development could be
substantially mitigated if Congress were to clarify the intent of these
Mineral lease funds, so that all, or a greater percentage of these
funds would flow to the Counties of Origin. Along with the removal of
restrictions in the PILT legislation these two actions would go far to
mitigating the long-term impacts of oil shale development.
There may be other legislative action needed at both the federal
and state levels to mitigate the extraordinary public costs for oil
shale development. I trust that as we move forward that we can offer
our suggestions and that the Task Force and this Committee will be
receptive to our suggested policy and legislative remedies.
America's unconventional fuels resources, if developed
expeditiously and in a sustainable manner that respects our environment
and protects the needs and interests of affected communities, can
contribute substantially to improving the nation's energy security,
stimulate economic activity and growth, and assure adequate and
affordable energy supplies for decades to come.
In order to insure timely development of oil shale and tar sands,
Congress must provide oversight to insure field offices are adequately
staffed and their policies and procedures are supportive of the
provisions of the Energy Policy Act.
The Chairman. Thank you very much.
Next, sir.
STATEMENT OF CRAIG MEIS, COUNTY COMMISSIONER,
MESA COUNTY, CO
Mr. Meis. Thank you very much, Mr. Chair. First of all,
welcome to Mesa County, Grand Junction, and northwest Colorado.
I hope you've learned much about oil shale, natural resources,
and natural resource development in our community during your
trip. And I certainly hope you understood now why it's so
special to us.
I was added to your agenda late yesterday, so I'll give you
a very quick bio of myself. My name is Craig Meis. I'm a Mesa
County commissioner, and currently, the chairman of the
Associate Governments of Northwest Colorado and a State-
appointed local representative of the Strategic Unconventional
Fuels Task Force. I'm also a professional engineer, a graduate
of the Colorado School of Mines in chemical engineering, and
have worked with the energy industry for the past 15 years.
I would like to submit for the record this brochure on Mesa
County, along with this Socioeconomic Baseline Conditions
Report that was commissioned by AGNC and dated November 29,
2005. The purpose of the report was to identify and present
socioeconomic indicators that may be used to evaluate the
changes that might occur as a result of the development of oil
shale resources in northwest Colorado.
The baseline conditions are a benchmark of existing
conditions within the geographic area studied. The geographic
area encompassed by this report are Garfield, Mesa, and Rio
Blanco Counties. Garfield and Rio Blanco Counties contain
significant oil shale resources, while Mesa County is the
regional trade center and is the location of many industrial
support companies that are currently servicing the natural gas
industry and will continue to support the oil shale industry.
You have heard from Commissioner Kim Cook from Rio Blanco
County about the direct impact concerns of oil shale
development such as--you've heard from Commissioner Cook about
the oil shale operations and those direct impacts. I want to
share with you, quickly, some information about the indirect
impacts, such as a potential population explosion of Mesa
County, based on my experience, from future commercial oil
shale development.
Mesa County has, currently, a population of about 135,000
people. We were one of the top 10 largest counties in the State
of Colorado and one of the fastest growing. We are also the
only county in the top 10 West of the Continental Divide in the
State of Colorado. Our unemployment is at 3.7 percent, a full
percentage point better than the national average, and for the
first time since the inception of our County Workforce Center,
we have been trying to recruit employees from outside our
county and even outside our State to fill hundreds of job
openings in northwest Colorado.
Anyone who wants a job and is willing to work has a job,
currently. Our local wages are increasing, along with housing
starts. In short, Mesa County and northwest Colorado are doing
very well, and in large part, due to the emerging natural gas
development.
This progress, however, has not come to Mesa County and
northwest Colorado without its difficulties. Any increased
development, whether it is a home, a cell tower, a gravel pit,
a gas well, et cetera, causes an impact. But we, in northwest
Colorado, have continued to try to address these impacts by
finding ways to mitigate them collaboratively with the various
industries, mainly through our State and Federal jurisdictional
agencies, and even through our own land use planning policy.
We are hopeful considering the development of tar sands in
places such as Fort McMurray, Alberta, Canada, that we might
learn from their experiences on how to plan for and operate
within a potential population boom, and sustain a thriving and
diversified economy.
We, in Mesa County, are limited in lands available for
private developments; 71 percent of our county is public lands.
This is a mixed blessing, but certainly points out the obvious
challenges moving forward with the potential population
explosion on the horizon. Supply and demand is going to have a
tremendous impact on our local economy.
It is of no surprise to this committee that in northwest
Colorado there are many skeptics with regard to oil shale
development, as we have been down this road before. However, we
do realize that the circumstances behind this journey are much
different and we will remain cautiously optimistic, as we
recognize that you understand the mistakes that were made in
the past, based upon the actions and comments of the Strategic
Unconventional Fuels Task Force in this Energy Subcommittee.
In closing, I would like to leave you with one final
thought, and one thing that I hope you'll take back to DC. We,
in northwest Colorado, are currently playing a key role in our
contribution of natural gas, coal, resources to the Nation. and
are certainly willing to increase our national contribution
with oil shale, presuming that it can be done in an
environmentally responsible and mutually beneficial manner. But
we must ask this subcommittee that you encourage our coastal
States, where drilling bans have been in place since 1981, and
our fellow Americans in Cape Cod that oppose wind turbines, to
put forth their energy contribution to our Nation. This energy
crisis is too big for any one energy resource and certainly too
big for any one area of our Nation to carry the burden.
We, in northwest Colorado, will not be a national sacrifice
zone for energy development, just so Representative Sam Farr of
California can make statements. And I quote, ``People don't go
to visit the coasts of Florida or the coast of California to
watch oil wells.'' Well, Representative Farr, they don't come
to Colorado for that either. Without energy, none of us will be
going anywhere.
I appreciate your time, thank you.
[The prepared statement of Mr. Meis follows:]
Prepared Statement of Craig Meis, County Commissioner, Mesa County, CO
First of all, welcome to Mesa County and Northwest Colorado. I hope
you have learned much about oil shale, natural resource development and
our community during your trip. I was added to your agenda this morning
late yesterday so I will give you a very quick bio of myself. My name
is Craig Meis, I'm a Mesa County Commissioner, currently the chairman
of Associated Governments of Northwest Colorado, and a State appointed
local representative of the Strategic Unconventional Fuels Task Force.
I also am a professional engineer and a graduate of the Colorado School
of Mines in Chemical Engineering with over 15 years experience in the
energy industry.
I would like to submit for the record this Socioeconomic Baseline
Conditions Report dated November 29, 2005 and commissioned by
Associated Governments of Northwest Colorado and suggest anyone else
wanting to obtain a copy of this report go to AGNC.ORG. The purpose of
this report was to identify and present socioeconomic indicators that
may be used to evaluate the changes that might occur as the result of
the development of oil shale resources in Northwest Colorado. The
baseline conditions are a benchmark of existing conditions within the
geographic area studied.
The geographic area encompassed by this report are Garfield, Mesa
and Rio Blanco Counties. Garfield and Rio Blanco Counties contain
significant oil shale resources while Mesa County is the regional trade
center and is the location of many industrial support companies that
are currently servicing the natural gas industry and that will support
an oil shale industry. You have heard (will hear) from Commissioner Kim
Cook with Rio Blanco County about the direct impact concerns of oil
shale operations but let me share with you quickly some information
about the indirect impacts such as a potential population explosion of
which Mesa County might experience from future commercial oil shale
development.
Mesa County is currently a population of about 135,000. We are one
of the top 10 largest counties and one of the fastest growing in
Colorado and the only County in the top 10 west of the continental
divide. Our unemployment is at 3.7%, a full percentage point better
than the national average and for the first time since the inception of
our County Workforce Center we have been trying to recruit employees
outside of our County and even our State to fill hundreds of current
job openings in Northwest Colorado. Anyone who wants a job and is
willing to work has a job. Our local wages are increasing along with
housing starts. In short, Mesa County and Northwest Colorado is doing
very well and in large part due to the emerging natural gas
development. This progress however has not come to Mesa County and
Northwest Colorado without its difficulties.
Any increased development whether it is a home, a cell tower, a
gravel pit, a gas well, etc causes an impact but we in Northwest
Colorado have continued to try and address these impacts by finding
ways to mitigate them collaboratively with the various industries
mainly through our State and Federal jurisdictional agencies and even
through our own land-use planning policy. We are hopeful considering
the development of tar sands in places such as Ft. McMurray in Alberta,
Canada that we might learn from their experiences on how to plan for
and operate within a potential population boom and sustain a thriving
and diversified economy. We in Mesa County are limited in lands
available for private development since 71% of our County is public
lands. This is a mixed blessing but certainly points out the obvious
challenges moving forward with a potential population explosion on the
horizon. Supply and demand is going to have a tremendous impact on our
local economy.
It is of no surprise to this committee, that in northwest Colorado
there are many skeptics with regard to oil shale development as we have
been down this road before however we do realize that the circumstances
behind this journey are much different and we will remain cautiously
optimistic as we recognize that you to understand the mistakes that
were made in the past based upon the actions and comments of the
Strategic Unconventional Fuels Task Force and this Energy Subcommittee.
In closing, I would like to leave you with one final thought and
the one thing that I hope you take with you back to DC. We in northwest
Colorado are currently playing a key role in our contribution of
natural gas and coal resources to the nation and we are certainly
willing to increase our national energy contribution with oil shale
presuming that it can be done in an environmentally responsible and
mutually beneficial manner but we must ask this subcommittee that you
encourage our coastal states were drilling bans have been in place
since 1981 and our fellow Americans in Cape Cod that oppose wind
turbines to put forth their energy contribution to our nation. This
energy crisis is too big for any one energy resource and certainly too
big for any one area of our nation to carry the burden. We in Northwest
Colorado will not be a national sacrifice zone for energy development
just so Rep Sam Farr of California can make statements and I quote,
``People don't go to visit the coasts of Florida or the coast of
California to watch oil wells'', well Rep. Fan they don't come to
Colorado for that either but without energy none of us will going
anywhere.
Thank you for your time and consideration. I would be happy to
answer any questions you might have.
The Chairman. Pretty good. That took a smart engineer to
come up with that.
[Laughter.]
The Chairman. We have another person with us that I failed
to introduce. We have Derek Wagner. Derek, could you put up
your hand? He represents Senator Allard and he's been with us
on the trip. Senator Allard was unable to join us. He had
committed himself prior to this trip, but he has genuine
interest in the work, and I thought it be appropriate to
introduce his representative to you and let you give him an
appropriate round of applause. Thank you for being with us.
Now, we're going to ask questions of the witnesses,
starting with you, Senator, if you have any questions.
Senator Salazar. Sure. Let me just ask a question of
Commissioner Cook and Commissioner Meis. Impacts to the
communities happen when you have natural resource development,
whether it's mining, whether it's oil and gas development. We
see a lot of that happening here in the West, here in Colorado.
Both of your counties are affected a lot by what's
happening with the development that is currently underway. Do
we have the legal framework in place, that provides the revenue
stream to your counties, and is able to deal with the impacts
that currently occur?
Let's start with you, Mr. Cook, because you come from one
of those very rural, very remote areas that sometimes just
doesn't have the kind of wherewithal other larger communities
have.
Mr. Cook. The current Colorado statutes in place do allow
for some funding to come back to our county. Our county
provides a huge percentage of the dollars, the Mineral Royalty
and Lease Dollars that flow state and Federal coffers, but we
are always making efforts to--we'd always like to see that
dollar amount increased, because we believe we have needs
significantly greater than the amount that does filter back to
us. Fifty percent goes to the Federal level, then it goes down
to the State, and by the time the State takes its share,
there's not that much, we believe, that filters down to the
local level. Where the true impact--the true, on-the-ground
impacts are failed.
Senator Salazar. So, you'd like to see a re-visitation of
how those funds are allocated, so they actually are more
connected to where the impacts are occurring; is that correct?
Mr. Cook. That's correct. It would be nice if it would come
straight from the Feds to the counties.
[Laughter.]
The Chairman. Start them there.
Senator Salazar. Yes. Commissioner Meis?
Mr. Meis. Thank you, Senator Salazar, for asking that
question. This year, in the legislature alone, there were over
12 attacks on severance tax with regard to special interests.
Of course, they're seeing the windfall, if you will, that the
State is seeing from the standpoint of Federal mineral leases,
as well as severance tax. And so, of course, every special
interest out there is trying to grab onto it. We of course, in
local governments, are concerned with regard to those moneys
being used for what they were intended for when those
legislations were adopted, which was for energy impacts. So, we
are concerned about that, but we are working diligently.
We're happy to work with our local Department of Local
Affairs, which is certainly helping in that cause. We've made
some major changes, even within the statute, to change the
process. So, hopefully, we will be able to get more of those
moneys back to those areas of impact. But we do, I think,
recognize that we're hoping to be more proactive in this next
legislative cycle to go after more of those dollars versus
continuing to fight the battle to defend them.
Senator Salazar. OK. For both Mr. Cook and Mr. Meis, just a
quick yes or no answer. Would it be fair to characterize that
in your position as elected--part of the elected leadership of
northwest Colorado and in your positions for the Northwest
Council of Governments as well, you are cautiously optimistic
with respect to the development of the oil shale resources and
we should move forward in the examination of potential with
caution, but move forward; is that an accurate position of Rio
Blanco County, Commissioner Cook?
Mr. Cook. Move forward with both eyes open.
Senator Salazar. OK. Mr. Meis.
Mr. Meis. Yes.
Senator Salazar. OK. Thank you.
The Chairman. All right. Nothing further. Commissioners,
you are----
Senator Hatch. Could I ask one question?
The Chairman. Yes, indeed, Senator Hatch.
Senator Hatch. I just have one for Mr. McKee that I'd like
to ask. The BLM is conducting a programmatic EIS on oil shale
and tar sands development. Part of that study is to consider to
socioeconomic impacts on local communities. Do you believe that
Uintah County, which you represent, will have sufficient input
on that?
Mr. McKee. Yes, we do. Thank you, Senator Hatch. We are at
the table. We have cooperating agency status and so we will
have definite input. Thank you.
Senator Hatch. Thank you, Mr. Chairman. That's all I wanted
to ask.
The Chairman. Very good. Thank you. Thank you,
Commissioners, it's good to have you here. Thank you.
Mr. Cook. Thank you.
The Chairman. Now we have four witnesses, and we're just
about on time, so let's proceed. The first member of the panel
is the CEO of unconventional resources at Shell Exploration and
Production Company, Denver, CO, Mr. Stephen Mut. Second is Mr.
Chris Treese, T-r-e-e-s-e, external affairs, Colorado River
Water Conservation District, Lynnwood Springs. Third, John
Baardson, B-a-a-r-d-s-o-n, chief executive officer, Baard
Energy, LLC, Vancouver, WA. And Mr. Steve Smith, assistant
regional director, The Wilderness Society, Denver, CO.
We're going to proceed, starting from the left, with Mr.
Stephen Mut. First of all, let me just state publicly, Mr. Mut,
you have a very high position with a very powerful American
energy company and are spending a great deal of your time on a
project here, in this part of the world. And it has been
imperative that we get to know you and we get to know your
project.
It is not one that is going unattended by many who are
observing energy development in the world. It is not possible
that you are doing what you are doing and that it not be known
and that it not be looked upon and observed from the outside
with astonishment at the idea, with the patents, and with the
overall approach to the evolution of a potential for tar sands
in this region. It is a commitment and a development that, if
it reaches maturity, will indeed--could indeed do what I said
in my opening remarks: shake the world.
I don't think there's any doubt that you know that, in the
depths of your analysis and in the depths of your
recommendations to the Corporate Shell, in what they are doing
in this area. We hope you will take a few moments to share what
you can with the people of this area and, in the future, that
on a regular basis you participate as publicly and as openly as
possible with local officials about what you are doing, so that
they, too, can share in what you perceive to be something very
exciting.
Having said that, we will start with you and proceed down
the table. The microphone is yours, sir.
STATEMENT OF STEPHEN MUT, PRESIDENT, SHELL UNCONVENTIONAL
RESOURCES ENERGY, DENVER, CO
Mr. Mut. Thank you, Mr. Chairman, Senator Hatch, Senator
Salazar, and everybody else who has taken the time to come and
listen today. I'm Stephen Mut with Shell Unconventional
Resources Energy. I'd like to thank you all for the opportunity
to update on our activities in oil shale, and particularly, for
holding this hearing in Grand Junction on what could only be
described as a spectacular day.
I think I need one of those t-shirts--it's floating around
the room--because Shell has been on a quarter-century journey
to slowly and thoroughly investigate a new technology in the
in-situ conversion process, a process that will turn oil shale
into clean transportation fuels, natural gas, and gas liquids.
We think it's the right technology, at right time, at the
right place. The right place, because around here, within 100
miles, is the most concentrated major resource for hydrocarbons
on the planet. We think it's the right time, because oil is
about $70 a barrel and partially responsible for some of the
political strife around the world. And it is the right
technology, because it's designed to capture and convert
resources. It really couldn't be done in any other method, or
using any other technology.
For those of you who are unfamiliar with ICP, oil shale is
a very immature precursor to oil and gas. It matures over
geologic time with the heat and pressure that's afforded by
burial. In a nutshell, what ICP does is advance the clock
hundreds of millions--or tens of millions of years by
inserting--we do that by inserting electric heaters into the
subsurface, and warming the subsurface for 3 to 4 years.
In the process, we crack apart very-long-chained complex-
carbon complexes into smaller molecules that can be vaporized
at those temperatures, and move them as a vapor through the
very small fissures and fractures that exist in the subsurface
to a conventional well that can be brought to the surface.
Because its material is lighter, it requires much less
processing on the surface and has a much smaller carbon dioxide
impact.
The material that we do leave in the ground is heavily
latent with metals. To bring it the surface would require
significant processing and would have a significant carbon
dioxide footprint. So we call this smart sequestration,
because, quite clearly, the easiest carbon to sequester is the
carbon you don't bring out of the ground in the first place.
Because it's under in-situ, or underneath the ground, we
have groundwater as an issue. We have to protect the process
from groundwater, because a boiling water robs heat. We have to
protect the groundwater from the hydrocarbons that are
produced. We do that by forming a freeze wall, whereby we pump
refrigerant into the subsurface, lowering the temperature, and
form a vessel in which we do this work.
For an update, you saw yesterday a significant project
designing a--and building, constructing a freeze wall today
that is of the size that can be easily scaled up to commercial
size. Our next project, the only one before we'd be able to
make a commercial decision, is the oil shale test, something we
hope to do on a 160-acre plot, afforded by an R&D lease coming
to us, hopefully, from the BLM leasing program sometime later
this year. That's where we'll test every part of the technology
together as an integrated unit. Again, it is sized to be scaled
up.
Senator Salazar talked about all three legs of something
that's dear to us: sustainable development--profits, planet,
and people. We've talked a little bit about the environmental
impact, and a lot of discussion today has had to do with
people. It'll be a huge impact on all the citizens of the
United States, if a meaningful energy development were able to
come from the oil shale.
The greatest impacts, however, would be on the residents of
Rio Blanco, Garfield, Mesa, and other parts of northwest
Colorado, and eastern Utah. For years, we've been meeting
neighbors, informing them of what our progress is on our
research, and though we're years from making a commercial
decision in the near-term, it's going to be time for us to
begin talking about and opening a dialog about what the impacts
of the commercial development could be.
It's early, but the reasons for doing that are simple. We
find that the best way to formulate a good answer is to work
together as partners to find the answer, as opposed to
presenting a solution and then working around the conflicts.
So, in any major project, we find the more energy, the more
time and the more money we spend up front, the better the
solutions and the more economic the answers.
I'm extremely proud to be part of a team that's working
very hard, with patriotism being a driving force from many of
the people that are working here. We want to do something
meaningful with our careers, to make a real difference for the
country. Many of us are making personal sacrifices to do so.
We're happy to be a leader and to take on the headwinds that
come with that sometimes. And we think that the Senate Energy
and Natural Resource Committee is being a leader, too.
I'd like to thank you, Mr. Chairman and Senator Salazar,
for your leadership in bringing forth the energy bill last
year, without which some of those key provisions we wouldn't
have the driving force or the funding to be continuing the
research that we have, at least at the pace that we are doing
so. We do need to continue to help find a way to streamline
permitting, as has been mentioned before, and quite
importantly, to work on innovative ways to bring forward the
cash-flow into the local communities, so that the
infrastructure that's needed before production begins can be
brought to the floor.
Again, thank you for the opportunity to update the
committee and the residents of this area. We're all partners in
this great challenge. I really loved to hear the term
partnership today, because that's what is needed. It's a
challenge that can change the Nation's energy supply and
balance, that can have a great impact on the trade deficit that
exists today and spur on economic growth well beyond this
three-State area.
I'd be willing to take questions at any time.
[The prepared statement of Mr. Mut follows:]
Prepared Statement of Stephen Mut, President, Shell Unconventional
Resources Energy
Good morning, Mr. Chairman, Senator Hatch, and Senator Salazar. My
name is Stephen Mut and I lead Shell Unconventional Resource Energy.
As you know, for about a quarter of a century, Shell has been
working to develop and to advance, hopefully to commercial success, an
innovative technology which we are increasingly optimistic can open up
the vast oil shale resources located in the Rocky Mountain area. This
technology, once thoroughly proven, will allow Shell to produce clean,
high quality transportation fuels such as gasoline, jet fuel and diesel
as well as clean burning natural gas from oil shale in an economically
viable and very environmentally sensitive fashion. Because the oil
shale resource in the United States represents the largest, most
concentrated onshore ``hydrocarbon'' resource on Earth, Shell's ICP
technology holds promise for significantly increasing U.S. domestic
energy production. When unlocked, this critical national asset will
help to provide an energy bridge to 22nd century clean energy. If these
resources are properly managed, there is the potential to reduce price
volatility and political turbulence caused in part by tight energy
supply-demand balances.
As a diversified energy and petrochemicals company, Shell is
investing heavily in a wide variety of energy sources, including
renewables such as wind, solar, and hydrogen. We are making progress
increasing the role those energy sources will play in the energy mix,
but in the meantime America and the world will continue to need oil and
natural gas to meet rapidly growing energy demand.
For decades, energy companies have been trying, without success, to
transform oil shale resources here in the West into affordable energy
products. Oil shale can be found in large parts of the Green River
Basin and is over 1,000 feet thick in many areas. According to DOE
estimates, the Basin contains in excess of 1 trillion recoverable
barrels of hydrocarbons locked up in the shale. It is thus easy to see
why this vast resource has remained a target.
In 1982 Shell commenced laboratory and field research on a
promising in ground conversion and recovery process. This technology is
called the In-situ Conversion Process, or ICP. In general terms the ICP
process accelerates the natural process of oil and gas maturation by
literally tens of millions of years. This is accomplished by slow sub-
surface heating of petroleum source rock containing kerogen, the
precursor to oil and gas. This acceleration of natural processes is
achieved by drilling many holes into the resource, inserting electric
resistance heaters into those heater holes and heating the subsurface
over a 3 to 4 year period. During this time very dense oil and gas is
expelled from the kerogen and undergoes a series of changes that allow
the lighter hydrocarbon products that are more mobile to move in the
subsurface through existing or induced fractures to conventional
producing wells from which they are brought to the surface. The process
has the potential to produce a significant proportion of the original
carbon in place in the subsurface--substantially more than the normal
recovery efficiency of conventional oil and gas production. The carbon
that remains in the subsurface resembles a char, is extremely hydrogen
deficient, and if brought to the surface, would require extensive
energy-intensive upgrading and saturation with hydrogen. We call this
process Smart Carbon Sequestration because the easiest carbon to
sequester is that which is not brought to the surface in the first
place.
Since 1996, Shell has successfully carried out five small field
tests on its privately owned Mahogany property in Rio Blanco County,
Colorado. In the most recent test conducted in 2004 and 2005, more than
1,500 barrels of light oil plus associated gas were produced from a
very small test plot using the ICP technology. We are pleased with
these results, not only because oil and gas was produced, but also
because it was produced in quantity, quality and on schedule as
predicted by our computer modeling.
As an update, Shell has commenced work on the first of two final
tests needed to prove the technology commercially viable. The first of
these is a purely environmental test of the capacity of our freeze wall
technology to protect the groundwater system from the ICP process and
the ICP process from the groundwater. We hope to replicate the results
from our initial freeze test performed in 2003, this time by building a
football field sized freeze wall that will extend down to commercial
depths. This larger size and greater depth will give us sufficient
information to allow us to confidently scale up to commercial size.
Once the freeze wall is created and found to properly contain, we plan
to stress test it to failure and then test various repair techniques.
Over the next 18-24 months, we will gain sufficient knowledge to
validate the adequacy of this technology in a commercial setting.
Secondly, once the BLM completes its ongoing oil shale R&D leasing
processes and issues the leases for which Shell has applied, we intend
to proceed with permitting and then development of a small oil shale
production test in which we would expect to produce 500-1500 barrels of
oil and gas per day to validate our 24 years of research again at a
size and in an area that would allow us to scale up to a commercial
development.
It is important to point out that the cost of all of these past and
presently projected field tests has been entirely on Shell's dime and
none of the projects have been underwritten by any governmental dollars
whatsoever.
When these two field tests have advanced sufficiently over the
course of the next several years, we will have gained sufficient
technical knowledge to validate the technology as an integrated unit.
It is important to remember though, that we are still in a research
mode and that any final decision on a commercial development would come
near the end of this decade.
Though the DOE estimates that this general part of the tri-state
area may contain in excess of 1 trillion barrels of potentially
recoverable hydrocarbon resources, or some four times the reserves
found in Saudi Arabia, we at Shell say that it contains somewhere
between zero and a huge amount of marketable energy barrels. On the
upside, it is important to remember that technology and its limits will
determine how much of this resource can be economically recovered. On
the downside, we remind ourselves that ``Zero'' barrels is a
possibility because no one has yet been able to develop oil shale on a
sustainable commercial basis. In order to meet this challenge Shell or
any other company must clear three distinct hurdles:
Demonstrate that its recovery technology would be viable on
a commercial basis at oil prices lower than today's levels
Demonstrate the capability for protecting the environment,
and
Minimize socioeconomic impacts to surrounding communities
and their citizens.
These criteria collectively translate into Sustainable
Development---one of Shell's core principles. Stated more simply it
means caring for People, the Planet, and Profits.
Relative to protection of the environment, the ICP process has a
number of positive attributes. Despite the fact that ICP requires
substantial amounts of electricity, the reduced processing required for
the lighter cleaner product mix when combined with sequestration of
concentrated CO2 streams may result in a carbon dioxide
footprint on par with and in some cases better than existing heavy oil
production on a life cycle basis. The concentration of the resource
leads to a smaller physical footprint and one that can be rather easily
reclaimed. The in-situ nature of the process eliminates tailings piles.
Process and cooling water needs are reduced relative to past efforts.
Though it may not be as economic, we would likely move to air-cooling
to reduce project water demand. Groundwater is protected by a robust
freeze-wall. We are working to achieve a combination of these
ingredients that will create an environmentally attractive package.
Equally importantly, Shell is committed to working closely with the
communities in this area first to identify issues and then to develop
plans to address, in advance, the potential socioeconomic impacts of a
commercial development. Even though Shell is still several years away
from making a commercial decision, we anticipate commencing very early
substantive discussions with a range of community stakeholders in this
area to begin to analyze potential community impacts and to partner
together to find solutions. We feel it is critically important to
commence this more specific dialogue long before we make any firm
decisions as to what a commercial oil shale project might look like. By
doing so, we can jointly identify potential infrastructure and
socioeconomic impacts that might arise from large-scale development and
then jointly move forward to arrive at responsible and practical
solutions to satisfy those identified needs. So later this year or
early next, we hope to begin this collaborative process with area
stakeholders. This will mean publicly identifying in nominal terms the
potential size, scope and impact of a commercial operation. It will not
mean that Shell has made any specific decisions because those are still
years away. But just as in any commercial project, we find that
spending more time, effort and money upfront with our stakeholder
partners almost always results in a better and more fiscally sound
development.
Finally, we feel strongly that government has a significant
leadership role to play in the development of oil shale. We feel that
the leadership role for government is best channeled in four specific
areas including:
Providing access to Federally owned oil shale bearing lands,
Removing unnecessary procedural obstacles that could delay
oil shale development by streamlining the permitting process
chain,
Working with industry to develop innovative ways to provide
front-end assistance to local communities to match their
infrastructure investment needs as opposed to the back-end
loading normally seen for royalty and tax revenue streams, and
Developing mechanisms as described in the DOE report on the
Strategic Significance of America's Oil Shale Resource to help
accelerate the establishment of an oil shale industry and to
stabilize its operation.
We believe that this type of leadership was clearly evident in the
development of last year's Energy Act that was largely authored by the
Energy and Natural Resource Committee. Section 369 of that Act, the Oil
Shale Section, contained many important provisions, three of which gave
much needed guidance and clarity to our efforts in oil shale including:
Elimination of the antiquated single lease limitation which
would potentially have kept companies from achieving critical
mass in their operations and which would have rewarded
technology followers rather than technology leaders in this
area.
Mandating collaboration by and among various Executive
Departments and State and local governments in the planning for
oil shale exploitation.
Establishing an orderly process for development of a
regulatory and fiscal regime under which oil shale developers
will need to operate.
Mr. Chairman, Senator Hatch and Senator Salazar, we commend you for
the bipartisan manner in which you all plus Senator Allard worked to
reach a balanced set of legislative provisions to encourage responsible
domestic oil shale development, as is included in the Energy Act.
We would also like to commend the Bureau of Land Management for its
creativity and leadership in developing the Oil Shale Research and
Development Leasing Program which is a small but vitally important step
in providing a driving force to companies like Shell to advance their
research and technology development efforts.
Mr. Chairman, Senator Salazar, and Senator Hatch, we at Shell thank
you for coming to Western Colorado to seek input from the area's
community leaders and residents. We are proud to be a partner with the
region and its residents in this great effort which has the potential
to change this Nation's indigenous energy supply/demand imbalance, to
reduce its significant trade deficit, and to spur on economic growth
well beyond the boundaries of the three State area.
I will be happy to address any questions you might have.
The Chairman. Thank you very much.
Mr. Chris Treese, Colorado River Water Commission.
STATEMENT OF CHRISTOPHER J. TREESE, MANAGER FOR
EXTERNAL AFFAIRS, COLORADO RIVER WATER CONSERVATION DISTRICT,
GLENWOOD SPRINGS, CO
Mr. Treese. Thank you, Mr. Chairman, Senator Hatch, Senator
Salazar. For the record, my name is Chris Treese, representing
the Colorado River Water Conservation District. It may be of
interest to the committee to know that prior to my involvement
in the water community, I spent 10 years with Unocal's oil
shale project in Parachute Creek. And I was reminded, as I was
driving down here today, that it was, in fact, 15 years ago
today that I ended that career and started a new one with the
Water District.
I do appreciate the opportunity to share the views,
concerns, and recommendations regarding the water needs and
water interests of western Colorado associated with an
emerging, but as yet uncertain, oil shale industry.
The Colorado River Water Conservation District is the
principal policy body for the Colorado River within the State
of Colorado. We represent all or parts of 15 counties in
northwest and west-central Colorado, including all of the oil
shale-rich lands in Colorado. We offer our testimony in the
spirit of cooperation and partnership with both the emerging
industry and the Federal Government to ensure that an adequate
and safe water supply is maintained and developed in a manner
that is timely and compatible with other water interests in the
arid West.
The best decisions will be made with the best and most
timely information. However, the ability to adequately assess,
today, the water supply requirements and the 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. We are dealing with new and emerging
technologies with yesterday's studies and information.
Irrespective, however, of the extraction technology
employed, significant quantities of water are going to be
required. This much we know. Notwithstanding the unknowns and
the uncertainties regarding oil shale development, there are
actions that can and must be considered by Congress and the
administration to ensure a well-planned and locally beneficial
oil shale industry that's compatible and sustainable with our
local communities.
First, for Federal actions, I would recommend assurance
that all environmental assessments include a thorough analysis
of the cumulative water-related requirements for oil shale
development. This, of course, includes the direct requirements
of the oil shale industry on-site, as well as the indirect
companion water requirements of the upstream and downstream
energy requirements of the industry itself. That would be the
electrical power generation and other energy demands, as well
as the municipal demands required by a population growth,
perhaps population boom, occasioned by the oil shale industry.
Recognizing the limited and changing characteristics of oil
shale technology and the related information, mitigation
requirements should have a sort of adaptive management policy,
such as those advanced in the environmental community on other
issues. I think we're going to need that on this socioeconomic
and water front, that as information is developed, we have
requirements that are flexible and yet responsive.
Congress should clarify that State and local permitting
authorities apply equally to activities on projects on Federal
land, as well as projects on non-Federal land.
Future oil shale leases should include specific allocations
of leased proceeds, including the bonus bid moneys, as you
heard Director George comment on, to assist local and regional
governments in addressing water shortage and developed storage,
and development needs required by the lease, as well as related
activities to oil shale development.
Congress and the administration must also please make long
term commitment to oil shale research. We expect the private
sector's interest in oil shale to largely follow world oil
prices. We look to the Federal Government to provide a baseline
of investment and research in oil shale, and the related
impacts and mitigation associated with those impacts for oil
shale.
The lessons learned from the last incarNation of the oil
shale industry are vivid in the minds of elected and planning
officials. We can and will, as Director George mentioned,
prepare for oil shale development in a manner that assures
mutual benefit to the industry and the local communities, so
long as there is not undue risk to local communities. We have
the institutional capacity and the human resources to
accomplish this with appropriate assistance from the Federal
Government. However, if the Congress or the administration
artificially accelerates our oil shale development before
technologies are sufficiently mature or without the sufficient
information of the impacts, you have doomed us to repeat the
impacts and the dislocations of the previous boom and bust
cycles.
I look forward to your questions and an opportunity to
discuss these further.
[The prepared statement of Mr. Treese follows:]
Prepared Statement of Christopher J. Treese, Manager for External
Affairs, Colorado River Water Conservation District, Glenwood Springs,
CO
water-related issues regarding oil shale development
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 and 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 1970's and 1980's 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 1970's, 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
socioeconomic 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 socioeconomic 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.
recommendations
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.
The Chairman. Thank you very much. Please proceed.
STATEMENT OF JOHN A. BAARDSON, CEO AND PRESIDENT, BAARD ENERGY,
LLC, VANCOUVER, WA
Mr. Baardson. Thank you, Mr. Chairman. Privileged to be
able to be here today, also with Senator Hatch and Senator
Salazar. Baard Energy is a privately held firm with offices in
Washington, Ohio, and Salt Lake City, Utah. I am John Baardson,
the President and CEO of Baard Energy.
Baard Energy is involved in the development of alternative
fuels from advanced technologies, including ethanol, biodiesel,
coal to liquids, and oil shales. We focus on building plants
that can produce ultra-clean fuels made from our own indigenous
resources here in the United States.
You know, we're here today to talk about section 369 of the
Energy Policy Act and some of the implementations of it. The
RD&D program, which was authorized in that bill, is off and
running. It's considered by many to be flawed in that it
arbitrarily and severely limited the number of developers and
technologies that had access to public lands and those
resources. The permanent leasing program and the problematic
environmental impact statements have begun and we logged the
initial developments that they have made. These are important
first steps, but they are not 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.
I recall that offshore drilling was once considered an
unconventional source, 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.
The same is true with the Alberta tar sands. They were once
considered too risky and too expensive, but now, Alberta is
producing huge quantities of oil--over a billion barrels a
year--from tar sand for less than $20 a barrel. This was
largely as a result of a government program that they
implemented.
If we are to be able to follow the successful Alberta
model, we must do more than we have enacted in the recently
passed Energy Policy Act. Senator Bunning from Kentucky
recently introduced legislation called the Coal to Liquid Fuel
Promotion Act of 2006. We helped draft some of that legislation
and we were involved in some of the thinking that went behind
it. Fortunately, it leaves oil shale off completely. We think a
suitable type of bill, either introduced along with this bill
or in conjunction with it, should be put forth that would do
the same thing that they are trying to do for coal liquids, for
oil shale.
In particular, Senator Bunning had a six-point plan. The
first one was, he was--and if we were to modify this to apply
to oil shale, what we would propose is there would be an
authorization to underwrite Federal loan guarantees for up to
ten oil shale plants. These plants should have a minimum
capacity of 5,000 barrels per day and a maximum of 10,000
barrels per day.
We also believe an authorization to be put forth for a $100
million, to help fund the--cover front-end engineering and
design costs for these initial ten plants--and as Senator
Bunning had--these would be in the form of grants or non-
recourse loans.
The third item was the authorization of a 20 percent oil
shale fuel investment tax credit to be made available for those
ten plants. Now, a number of these items are already in the
existing bill, but we seem to be now getting ready to carve
these things for the various technologies.
One thing that coal to liquid has that oil shale does not
have was a fifty-cent per gallon excise tax credit, which is
being proposed to be extended to December 31, 2020.
We also ask that oil shale fuel be included in the
strategic petroleum reserve and that the strategic petroleum
reserve units be authorized to be built in either Colorado,
Utah or Wyoming and that oil shale-type fuels be stored in
those strategic petroleum reserve facilities.
The final act is that they wanted to clarify the authority
given in the Act, that the Department of Defense had the right
to enter into long-term contracts, such as 25 years. However,
in that program, I think they only want to clarify that for
coal to liquids.
These programs will help support many important emerging
technologies involved with oil shale. Those are: new oil shale
retorts are available; they can produce oil with minimal or no
water usage; we have upgrading technologies that can directly
convert kerogen into a usable, low-sulfur fuel oil; and also,
there are many new uses for spent oil shale, which could allow
spent oil shale to be used to reduce sulfur emissions from
coal-fired plants across the United States and we could largely
eliminate the need for disposal on the local level.
For the project we are designing, we have need for a
railroad to go to Vernal, UT, to help us to efficiently get
this product to market.
I thank you for your time and appreciate this opportunity.
[The prepared statement of Mr. Baardson follows:]
Prepared Statement of John A. Baardson, CEO and President,
Baard Energy, LLC
Thank you, Mr. Chairman. Distinguished Members of the Senate and
guests, I am John Baardson, the President and CEO of Baard Energy, LLC.
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.
The Chairman. We thank you very much for your time. We are
fully aware of the legislation introduced by the distinguished
Senator from Kentucky and it is being reviewed by the Committee
for a number of suggestions that he has put forth.
And we're right back, close to being on time with our last
witness, from The Wilderness Society of Denver, CO, Mr. Steven
Smith, Assistant Regional Director. We welcome you and look
forward to your testimony, sir.
STATEMENT OF STEVE SMITH, ASSISTANT REGIONAL DIRECTOR, THE
WILDERNESS SOCIETY, DENVER, CO
Mr. Smith. Thank you, Mr. Chairman, and thank you, Senator
Salazar and Senator Hatch, for providing 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. I especially appreciate the
opportunity of going last, because each of you three Senators
have touched on several of the points that are included in my
comments. So it's a nice head start.
My name is Steve Smith. I am assistant regional director
for The Wilderness Society, but my testimony today reflects the
contributions and expertise from an array of conservation and
citizen organizations working in coalition on this issue.
I live in Glenwood Springs, CO, 30 miles from one of
America's richer deposits of oil shale. Over the past 17 years
living there, I have watched the local people, communities and
economies slowly recover from what was the disaster of the last
oil shale experiment in our country. 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 from the mistakes of that past and act cautiously, from
the innovations of the present, when crafting oil shale policy
and activities. As you know, the Energy Policy Act of 2005
directed the Secretary of the Interior to promptly make
available public lands for oil shale research, to analyze, by
February 20, 2007, through a programmatic environmental impact
statement, the environmental, economic and social impacts of
potential commercial oil shale development in three Western
States and to consider possible leasing of public lands for
commercial oil shale production some time after that. This is a
very ambitious schedule, especially considering that attempts
to develop oil shale have been initiated and have essentially
failed in each case, many times over the past century and that
no energy company has yet indicated that it is close to being
ready for commercial production. That is why it makes sense, as
each of you have described in various ways, to take the time
needed for a thoughtful review of the research results from the
preliminary leasing program and to take that review and to
pursue that review of the research program before considering
any public lands for leasing for commercial oil shale
production.
This will allow Federal managers, local citizens and their
leaders and the industry itself to evaluate not only how well
the technologies work, but also how those technologies could
affect local economies and communities and the natural
environment so key to both.
The public lands in question in northwest Colorado and
northeast Utah and southwest Wyoming certainly have energy
potential and already are producing unprecedented volumes of
oil, natural gas and coal. Those same public lands also include
integrated and critical wildlife habitat, popular hunting,
fishing and recreation opportunities, water supplies for local
agriculture and for communities and astounding scenic wonder.
For all its energy potential, the oil shale country must be
considered in the larger context of those of natural and public
values.
Specific areas of concern include the direct impacts to the
land, energy input needs, and water and air quality. I'll touch
on each of those very briefly with more detail in my written
statement.
Both the research leasing and the EIS analysis of potential
commercial leasing should include protection for the more
sensitive, ecologically important and scenic portions of the
lands involved, including lands with wilderness potential, key
habitat for imperiled species and other wildlife, productive
agricultural land and important watersheds and streams. These
concerns are especially important in the context of the 100
percent surface disturbance that results from the new in-situ
production techniques. The analysis of potential impacts to the
land itself must also consider and avoid the auxiliary effects
from new roads, traffic, worker camps and the general influx of
dramatically increased industrial and recreational activity on
lands that now enjoy a relative state of solitude and minimal
disturbance.
The amount of energy needed to make oil shale production
work is immense, as you have heard. The Rand Corporation's oil
shale report notes that production of 100,000 barrels per day,
using the in-situ technique, would require 1.2 gigawatts of
dedicated electric energy capacity. That equates to
construction of a power plant equal in size to the largest
coal-fired powered plant now operating in Colorado. A 500,000
barrels per day industry would need 6 gigawatts of new electric
power, an amount equal to that generated from all of Colorado's
existing coal-fired powered plants.
The region underlain by oil shale is notably arid, with
relatively low annual rainfall, and an existing over-commitment
of water supplies and facilities. The Rand report notes that
traditional oil shale techniques require between two and five
barrels of water to produce one barrel of shale oil product and
that the in-situ process may also require considerable volumes
of water. How we get that water for oil shale without drying up
productive ranch land or compromising the health of our streams
is a key question.
The Rand report also noted that no studies of the immediate
or cumulative impacts of oil shale development on air quality,
let alone the potential impact from additional electric
generation for that production, have been reported since the
1980's. Additional air quality study and modeling focused
especially on sulfur dioxide, greenhouse emissions and
particulates, both from the oil shale production itself and
from the power plants, must be completed before making
decisions about commercial oil shale production.
Oil shale may some day make a contribution to meeting the
Nation's energy needs. Researched carefully, developed
methodically and considered in the important context 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 managers should, in careful concentration 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 review, a copy of comprehensive comments we
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 we
may have to help with your work and consideration. Thank you
again for this opportunity.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Steve Smith, Assistant Regional Director,
The Wilderness Society
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 1970's and
1980's.
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 a 70% 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 1980's. 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.*
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* The attached report has been retained in committee records.
The Chairman. Thank you very much, Mr. Smith. We greatly
appreciate your remarks. The attached document will be reviewed
carefully.
Mr. Smith. Thank you.
The Chairman. I have no questions. I have reviewed your
testimony, yours will be reviewed and I thank you for yours.
Yours needs a lot of review before I can understand it, so it
will get reviewed.
Senator, we now yield to you before we close, and then
Senator Hatch, and then I will close. Please proceed. Questions
and closing, please.
Senator Salazar. Let me just make a comment and then move
to the closing. First, with respect to Shell Oil and Mr. Mut
and what Shell Oil has been doing at the Mahogany Project, let
me just reiterate what I have communicated to you and other
officials of Shell, and that is, the great urgency of assuring
that there is community involvement as you move forward with
the research and development project and on to hopefully what
will be the next steps. As I indicated to you yesterday, I
visited an oil and gas company, which was drilling out in
Garfield County. I was very pleased with the kind of
collaboration that they had with the community, because mayors
and council members and others were very supportive of that
kind of a collaboration and I would encourage you to move
forward with that process as your development moves forward.
Let me just make a concluding comment here, briefly. First,
in terms of acknowledgement, let me just say once again that I
appreciate Senator Domenici holding this hearing here in
Colorado today. He has contributed greatly to our country for
many years in the U.S. Senate and I think the U.S. Senate was
at its best last year when Senator Domenici and Senator
Bingaman led an effort to bring Democrats and Republicans
together so we could pass the first comprehensive National
Energy Policy Act in more than a decade. I know there are some
people who have criticized that National Energy Policy Act. It
wasn't perfect. It didn't answer everybody's questions or
everybody's concerns, but at the end of the day, it was a
comprehensive statement that said that a national energy policy
for the United States was no longer something that we were
simply going to disregard. I think all of us who were on that
committee felt that what had happened is that the long neglect
of a national energy policy had left the United States in a
very dangerous national security situation. So I again applaud
Senator Domenici and Senator Bingaman for their leadership on
that effort, as well as on so many other issues.
I want to also thank Senator Hatch, our neighbor to the
West, for having attended this hearing and for watching and
participating in oil shale development, not only in his State,
but in our State.
Let me just give you my conclusion on this. I think it
would be wrong for us, as a Nation, to just say no to oil
shale, to look at what has happened historically and say, we
tried it before and we ought not to look at it again. I think
that the amount of oil that is estimated to be locked up in oil
shale tells us that we need to seriously examine the potential
of developing oil shale in a strategic manner as part of the
national agenda. I think, equally, it would be wrong for us to
say that we have all of the answers to some of the questions
that have been raised here today, in terms of impacts to the
community or how we will address the impacts to water or to the
environment. I think it is important that all of those
questions are questions that we address as we move forward.
So, as we move forward with looking at the potential for
oil shale development, I think that the agenda that was crafted
by this Energy Committee last year is a thoughtful agenda and
one that we ought to pursue. When I look at that agenda, it
requires three sequential steps. Most of you in this audience
may be familiar with those steps, but just to remind you what
those steps are, No. 1, we are engaged in a research and
development phase. That is exactly what Shell Oil is doing,
spending millions and millions of dollars looking at whether or
not the technology that they are exploring can, in fact, work.
And there are other companies, both in Utah and in Colorado,
that are in this phase. It is a research and development phase
and I think it would have been a mistake for us, as a Congress,
not to move forward in that direction.
Second, section 369 says we will conduct a programmatic
environmental impact statement. That programmatic environmental
impact statement is underway and it will continue to
conclusion. That is a very important part of this sequential
program that we are undertaking.
Then, finally, assuming that we go through those first two
steps, then you get to the third step, and that is then the
commercial leasing of public lands for oil shale development. I
think the way that we set it out in that legislation is a
thoughtful and orderly process. I think it allows us to move
forward, as Commissioner Cook says, in a manner that we move
forward with cautious optimism, but with our eyes open.
And with that, Mr. Chairman, I once again thank you very
much. I respect you very much for who you are and what you've
done and for holding this hearing here in Colorado today.
The Chairman. Senator Hatch.
Senator Hatch. Well, thank you, Mr. Chairman. The Nation is
in your debt for the leadership you've provided in getting that
bill through. As somebody who has been there almost as long as
you have, I've watched people flail around trying to get a
comprehensive energy bill through for years and you're the one
who's done it. So I really appreciate being here with you and
being invited to talk with you on where we stand, but if you--
back to the comments of the--and I can only speak in the
ranges, as well. The range supplied by the Rand Report, I
believe the in-situ conversion process, complete with all the
bells and whistles, the power generation, the upgrading, et
cetera, will be at the low end of that scale.
One of the reasons that it's not below the low end of that
scale is the fact that most of the very concentrated resource
that we'll be going after is located below the water table. So,
eventually, water will take its place to fill the void spaces
of the hydrocarbons that are removed, about half of what we
think our total water usage will be. So the--you know, I'd say
a range of probably more than two barrels of oil and less than
three--two barrels of water per--let me start again. A range of
between two and three barrels of water per barrel of oil, over
one of which is used to fill the void space.
And the importance of that last comment is that the timing
of the filling of voidage is discretionary, so we can bring in
that water in times of plenty and don't have to fill the void
in the times of sparse oil.
Senator Salazar. OK, OK. Mr. Baardson?
Mr. Baardson. The retort--the oil tag retort, which me and
Senator Domenici are going to visit with later this afternoon,
uses no water at all. It actually creates water. There's water
inherent in oil shale and as you go through the process, we
extract water.
The secondary process, though, does use water and we
believe between the amount of water that we can get from the
mine--the actual mining operation--and from the water that we
extract from the oil shale itself, it will be completely self
sufficient in water, and we'll need no outside source of water
at all.
Senator Hatch. That's great. Mr. Chairman, thank you so
much for inviting me. I appreciate being with you. I have such
admiration for you. And Senator Salazar, it's great to be in
your State. I appreciate all the work you did.
The Chairman. We're just about on time. Friends, it's been
my pleasure to come to your State, although I'm very close at
hand, and some of you see me frequently on television, because
you can't avoid it.
[Laughter.]
The Chairman. It isn't that you enjoy it, but one of your
channels covers me and so many of you think that I'm your
Senator, but I'm really not. I'm representing New Mexico as
best I can and sometimes I have trouble even doing that, much
less spilling over onto you.
In any event, I want to tell all of you the honest truth. I
am a technology man. I borrowed that slogan and I wear it
proudly. I am a technology man. The United States of America is
built on technology and if there's anything I can wish as a
legacy, it is that I participated and contributed a little bit
to an environment that genuinely created innovativeness, that
permitted people and institutions to apply technology, so that
they became technology institutions or technology men.
In addition, we live in a very strange, and difficult, and
different times when, every now and then, it is nice to add to
that that I am also a patriot. My kids think I'm a patriot and
that's nice. They always give me things that remind me that I'm
a patriot. They like to give me a shirt that has an American
flag on it. You know, even at this age, they give me a white
shirt for the Memorial Day recess with an American flag on it.
We're caught in a bind in the world today, when it's kind
of good, it seems, to be both a patriot and a technology man.
That's kind of exciting. And whether you all like it or think
it, what's happening right now, up here in your part of the
world, is you going through a great technology evolution. Along
with a lot of other things, this fantastic resource, which may
not be enough for America's energy needs, but may carry us
through and change our relationship to the countries that sort
of have us by the throat, that resource that's up here may be
sufficient to do that over the next 10 to 15 years. And what's
going to be involved is patriotism and technology. And I'm
beginning to sort of see that in the evolution of events here.
You want to be sure that all these new breakthroughs are
measured properly, so that the outcomes will be known. I'm
hopeful that we have a model in place, by coincidence, that the
companies who are developing the technology are also going to
be motivated by whether or not the marketplace dictates its
worth to them. If it isn't worth it, they're not going to do
it. If it's not working, they're not going to proceed. And I am
seeing it, as I get to learn. Sorry, sir, I don't know about
yours. I hope I learn. I hope I learn. But I am learning about
shales and there's a lot written about the old-fashioned on-
site retort process, which is not a lot of new technology, but
a lot of intuition and people wanting to succeed.
So, in any event, you are part of something big happening
and you just want to make sure that it goes slow enough that we
don't get carried away. I don't think we're going to get
carried away this time. There are too many doubters and there
are too many who don't want us to do it at all.
And you are over there, maybe I don't know it well enough
to say that, but the pressure will be kind of right. But what
will come out of it will be what's good, it seems to me and
from what I can tell, and I hope that's the case. And I hope
that in about 10 years, you've got a big mark from on high on
this part of the geography saying it's a very important part of
this great United States.
With that, we're in recess. Thank you for being here.
[Whereupon, at 11:57 a.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of Lieutenant Governor Gary Herbert to Questions From Senator
Domenici
The Energy Policy Act of 2005 directed the Department of Energy and
the Department of the Interior to establish a task force to make
recommendations on oil shale and tar sands development.
Question 1. What has been the State's involvement in this process?
Question 2. Has the State been satisfied with its opportunities to
be involved in BLM's research leasing process and the programmatic EIS?
In your testimony you described having 13 applications on file for
tar sands development.
Question 3. Can you expand on what types of tar sands activity are
anticipated?
Question 4. Are these on State lands or Federal lands?
Answer. Thank you for affording me the opportunity to represent the
State of Utah at a recent field hearing in Grand Junction, Colorado. It
was a pleasure to visit with you and a wonderful opportunity for me to
express the views of my state to the United States Senate.
As a supplement to my testimony, I would like to add that Utah is
generally encouraged with our integral involvement as a member of the
Oil Shale Task Force mandated by the Energy Policy Act of 2005. Thus
far, the state's involvement in the Research Development and
Demonstration (RD&D) Leasing and Environmental Assessment (EA) as
guided by the Bureau of Land Management has also been acceptable.
However, as with the Programmatic Environmental Impact Statement
(PEIS), the EA is an ongoing work in progress. There are a number of
future steps in the PEIS preparation to accomplish until there exists a
smoothly functioning and integrated process that utilizes the best of
state and federal resources.
One of the most critical steps to be taken will be the development
of a Memorandum of Understanding (MOU) so that Utah can accomplish
``cooperating agency'' status in working on the preparation of the
PEIS. In essence, we are hopeful on the workings of the leasing process
for oil shale. The next few months will be critical in determining that
all concerns are accounted for in the preparation of the document.
Current tar sand operations in the State of Utah consist mostly of
small test (pilot) and exploration projects recently permitted. There
are also a couple of County road departments that use the material for
road building. The Division expects to see several of the small tar
sands pilot mining operations (< 5 acres) currently permitted, expand
to large mines (> 5 acres). In fact, one application currently under
review is for an 80-acre mining operation. We also expect to continue
to receive additional mining notices with fee (private) and Utah State
School and Institutional Trust Lands Administration (SITLA) mineral
ownership. Although state mine permitting notice is required on federal
lands, OGM does not expect to see any applications for tar sands
operations on federal lands until the Oil Shale and Tar Sands Leasing
PEIS is completed by the BLM.
The table below shows the distribution of activity by land
ownership (surface/mineral). The majority of the projects are located
on SITLA (state) lands.
Ownership of surface/mineral estate of current (June 12, 2006) tar
sands operations.
------------------------------------------------------------------------
SITLA/ Federal/
Fee/Fee SITLA Federal Total
------------------------------------------------------------------------
Large Mine...................... 2 \1\1 0 3
Small Mine...................... 1 7 0 8
Exploration..................... 0 2 0 2
---------------------------------------
13
------------------------------------------------------------------------
\1\ One current small mine has an application for a large mine.
Again, I thank you for time and willingness to accept my testimony
on behalf of the Great State of Utah. If you have any questions or if
there is anything further information you or the committee requires,
please do not hesitate to contact me.
______
Responses of Russell George to Questions From Senator Domenici
Question 1. The Energy Policy Act of 2005 directed the Department
of Energy and the Department of the Interior to establish a task force
to make recommendations on oil shale and tar sand development.
What has been the State's involvement in this process?
Answer. The State of Colorado has been represented on the Strategic
and Unconventional Fuels Task Force as required by the Energy Policy
Act.
The Task Force has held three meetings, to date, including a kick-
off meeting on March 22, 2006 in Denver, Colorado, a conference call on
April 7, 2006, and a formal meeting held in Salt Lake City, Utah on May
11, 2006. A fourth meeting to finalize the interim report to Congress
will be held the third week of June in Lexington, Kentucky.
Colorado representatives have attended all of the Task Force
meetings and have participated fully in the drafting of the report.
Question 2. Has the State been satisfied with its opportunities to
be involved in BLM's research leasing process and the programmatic EIS?
Answer. The state has been active in both the Research, Development
and Demonstration project as well as a cooperating agency in the
Programmatic Environmental Impact Statement. The BLM has shown a
sincere desire to involve us in these two processes and we will look
forward to continued cooperation and participation in the future
development and implementation of these programs.
The timeframes established in the Energy Policy Act of 2005 have
resulted in immediate additional demands on Department of Natural
Resource staff. We are committed to providing our expertise and
technical resources to the BLM as we cooperatively move forward with
these programs. We will have to continue to make adjustments as we
evaluate the requests from BLM in the coming years. Undoubtedly there
will be increased human resources needed to participate at the level we
believe to be appropriate but BLM has shown that they are willing to
include us at every step and we are confident that this approach will
continue in the future. The state's ability to competently perform its
committed obligations will inevitably be affect by budget timing and
funding constraints.
Question 3. In your testimony you spoke of Colorado's Coordinating
Council.
Please explain what this council does and how it will help the
permitting process.
Answer. To fully understand the socioeconomic and environmental
impacts of oil shale development, a coordinated and integrated
permitting process is essential. The environmental and land use
permitting process can be complex and time-consuming when all the
local, state and federal requirements are considered. For the permit
requirements in place 20 years ago, the average timeframe to permit an
oil shale project was about 42 months. Some processes have become more
complex since then--and certainly public interest is more organized and
focused.
As a reminder, the Colorado Joint Review Process--the predecessor
to the Colorado Coordination Council--grew out of the concerns raised
over the 1970's concept of an Energy Mobilization Board. That Board
would have had the power to preempt local and state regulatory
requirements in the national interest. The reaction in the West was to
coordinate and streamline, not dismantle, the existing process.
Attempts in recent years to truncate the process have been met with
public criticism and lawsuits. Such efforts have proven to be
counterproductive to the goal of developing these important resources.
Today's Colorado Coordination Council is an option that the federal
government should consider fully funding, or partially funding along
with industry, to assure a rigorous regulatory and environmental review
process with adequate public input and consultation. A coordinated
permitting process will reduce uncertainties by clarifying technical
requirements, timeframes, lead regulatory agencies and public input.
The overall coordination of the effort could allow for the application
of several permits for an individual project to occur simultaneously.
The Colorado Coordination Council, located in the Department of
Natural Resources, statutorily incorporates the Joint Review Process.
There are numerous governmental requirements and approvals that must be
complied with and obtained by the sponsor of a natural resources
development project. The jurisdictional integrity of each entity of
local, state, and federal government must be maintained. The role of
the Council is to coordinate relations between sponsors of natural
resource development projects, the public, and local, state, and
federal government entities, to make the permitting process more
efficient while insuring maximum public, governmental, and sponsor
input. Effective coordination should reduce costs for state and local
governmental entities and project sponsors and minimize the delay for
sponsors of projects that comply with the terms and conditions of
participating local, state, and governmental entities. Participation is
voluntary.
Upon receipt of a written request from a project sponsor, the
Council would initiate project coordination procedures that would
result in a commitment by the sponsor to pay for the specified costs of
the governmental participants prior to the commencement of the process.
The Council would transmit such fee to the State Treasurer for deposit
in the Coordination Council cash fund. Moneys in the fund would be
appropriated solely to the Council to pay for its costs in providing
project coordination procedures.
Project coordination procedures require the sponsor to provide a
project statement; develop a list of all local, state, and federal
governmental entities that the sponsor reasonably expects to be
involved in a process requiring public input; and provide the project
statement to those identified parties.
The Council shall outline to the extent possible a list of all
applicable requirements identified by the sponsor that will be the
subject of the agreement between the sponsor and the Council; establish
a timetable for completion of the public input, permit compliance, and
approval requirements in coordination with the governmental entities
involved; organize and manage meetings involving the sponsor and all
involved governmental entities; and take any other action that will
facilitate the timely approval or denial of permits, approvals, or
licenses required of the sponsor for the commencement of the project.
Community acceptance is the only way to avoid what could be well
organized and sophisticated opposition to oil shale development.
Seeking, tracking and addressing stakeholder concerns and encouraging
participation are essential for project implementation in the timeframe
contemplated by Congress.
Responses of Russell George to Questions From Senator Salazar
Question 1. Has the state evaluated the likely social and economic
impacts of oil shale development in northwestern Colorado? In your
judgment, how can we avoid the ``boom and bust'' cycle that has
accompanied oil shale development efforts in the past?
Answer. A procedure must be established to evaluate economic
impacts at the local level. The federal government should fund, or
require to be funded, a process to analyze the cumulative financial
impacts of multiple and simultaneous resource development. This
analysis will guide the timing of needed permanent and temporary
community services and infrastructure and provide critical planning
information for those impacted communities.
To assess the fiscal impact to individual communities and counties
in high development areas, it is essential to model the budgets,
revenues and expenditures of affected jurisdictions in Northwest
Colorado. The key task would be to determine what projects would cause
what economic impacts to what jurisdictions in what years based on
different population and development scenarios.
Given the scope of this effort, and based on our experience in the
early 1980's with the Cumulative Impacts Task Force, we believe that
such an analysis should be funded by federal or industry funds as it
was then.
Another component of socioeconomic impacts is the financial burden
to local economies to mitigate those impacts. Along with an oil shale
lease process that generates production royalties for the federal
government, the 1970's concept of front-end bonus bids should be
applied to any oil shale leases.
The federal government leased two tracts in each state--Colorado,
Utah, and Wyoming--in the early 1970's. Bonus payments accompanied each
of these leases--that determined the winning bid for the lease. Half of
those bonus payments were distributed back to the state. The Colorado
General Assembly established the State Oil Shale Trust Fund and Program
which developed planning and coordination mechanisms for federal,
state, and local governments and provided funding for designated local
government services and projects ($100+ million). This economic cushion
was essential to community stability, and the ability to withstand the
economic shock of a project termination.
The federal leasing program should include front-end financing for
infrastructure needs and impact mitigation with a goal to mitigate the
``boom town'' syndrome. It should not subsidize private investment by
foregoing revenues that would mitigate financial impacts at the state
and local level. If favorable tax and royalty terms in the early years
are necessary, the federal government must identify the alternative
source of state and local impact mitigation funds. The cumulative
economic assessment will determine the necessary amount.
This analysis would identify major infrastructure requirements,
including roads, sewer, water supply and storage, schools and key
government services--like planning and permitting requirements. The
investment of industry funds to mitigate these impacts should coincide
with the project development schedule. Such funds should also include
the financial reserves necessary to maintain the services, facilities
and infrastructure before industry-generated revenues are available.
Question 2. Has the state analyzed the potential impacts to air,
land and water as a result of oil shale development? If so, please
describe.
Answer. The state of Colorado is in the process of participating as
a cooperating agency in the development of the
Programmatic Environmental Impact Statement in coordination with
the BLM. During this process we expect the issues of air, land and
water impacts to be fully addressed and for those agencies (federal,
state and local) with expertise and jurisdiction over these subjects to
be fully involved in this evaluation. The state will evaluate each of
these elements during this process. The state does have some background
and baseline information relating to oil shale relating to the
development that took place in the 1970's and early 1980's. This
information is dated and somewhat obsolete because of the new
technology that is being utilized in the current era of development.
It should be noted that the streamlined time frame for commercial
leasing availability could result in a less than comprehensive
evaluation of these impacts. This issue is further complicated by the
fact that industry has not completed and presented their evaluation as
to which extraction methods will be utilized during the commercial
development. It is imperative, therefore, that the Programmatic
Environmental Impact Assessment be a high level overview of potential
impacts and that the site specific Environmental Impact Statements
fully evaluate the specific impacts each commercial lease will have
based on its ultimate location and method of operation. The state
expects that at the completion of these two critical steps, impacts to
air, land and water will be comprehensively addressed prior to
development.
Question 3. What additional policies, if any, do you think the
federal government should pursue with respect to potential development
of Colorado's oil shale resource?
Answer. The cumulative fiscal impact analysis should identify both
on-site and offsite impacts by a development project. Mitigation funds
paid by industry or the federal government for these impacts should be
a condition of the lease. Such funds could be held by the State
Treasurer for distribution to specific entities as expenses are
incurred for specific projects.
If an upfront payment is made in one unrestricted lump sum, the
cumulative fiscal impact analysis and the project specific EIS could be
used to prioritize the allocation of the funds to mitigate financial
and environmental off site impacts. Such allocation should be driven by
a public process.
To the extent possible, mitigation of on-site impacts should be a
condition or stipulation of the permit by the appropriate oversight
agency.
Question 4. How has the State of Colorado participated in the Oil
Shale Task Force?
Answer. The State of Colorado has been represented on the Strategic
and Unconventional Fuels Task Force as required by the Energy Policy
Act.
The Task Force has held three meetings, to date, including a kick-
off meeting on March 22, 2006 in Denver, Colorado, a conference call on
April 7, 2006, and a formal meeting held in Salt Lake City, Utah on May
11, 2006. A fourth meeting to finalize the interim report to Congress
will be held the third week of June in Lexington, Kentucky.
Colorado representatives have attended all of the Task Force
meetings and have participated fully in the drafting of the report.
______
Responses of Kim Cook to Questions From Senator Domenici
Question 1. You testified primarily to the need for ``up front
funding assistance'' to counties.
How well has the State shared it mineral receipts to counties?
Answer. I can't speak to how other states such as Utah and/or
Wyoming share such receipts as compared to how Colorado structures its
distribution to counties. There are problems which have surfaced as the
total value of the receipts have increased and the Colorado Department
of Local Affairs (DOLA) has seen the need to alter the manner in which
receipts are distributed. Based on a 2005 opinion by the Colorado
Attorney General's office, Colorado's so-called 3rd Tier distribution
dollars have been redirected from the county of origin of the Federal
Mineral Lease (FML) operations to the counties in which the FML workers
reside. While there are significant impacts associated with the place
of residence there are still significant impacts in adjoining low
population counties such as Rio Blanco County. Further, this
redirection of FML dollars to counties-of-residence results in many
counties receiving significantly more FML dollars than were ever
generated within those counties while other counties, such as Rio
Blanco County, receive less than 10% of the FML dollars generated
within their jurisdictions. Rio Blanco County strongly objects to
Colorado moving away from the ``County-of-origin'' concept in the
distribution of FML dollars. Rio Blanco County would need more than
double our current share of the FML dollars generated within our county
to be able to mitigate the impacts which are currently occurring. The
attached document describes the distribution of Colorado's share of FML
dollars.
Question 2. What do you think is needed for impact mitigation
planning?
Answer. For impacts to the tri-state region (Colorado, Utah, &
Wyoming), the scope of such planning needs to include the geographical
extent of the Green River Formation.
Planning efforts tend to focus on specific features, such as
socioeconomics, and be focused within a specific state. I think that
regional infrastructure needs to be studied from a perspective which
transcends state boundaries, especially in terms of the transportation,
water, and electrical power grid. A regional transportation plan
linking the Green River Basin of Wyoming with the Piceance Basin of
Colorado and the Uinta Basin of Utah as well as the links from them to
the outside national transportation network. Adequate water storage
doesn't exist and needs to be developed on a similar scale. Finally,
the electrical power grid of the region needs to be developed, perhaps
utilizing unconventional technologies, to the point that adequate power
to develop the oil shale resources can be provided while maintaining
air quality standards. Such study and the funding can only come from
the federal level and FML dollars from oil shale lands could, now that
the DOE oil shale funding requirements from the last boom are met, be
accrued for such studies and the mitigation of the anticipated impacts.
It is hoped that the current PEIS will provide an adequate start toward
identifying needs and possible mitigation strategies.
Question 3. There is no question that local governments should not
be forced to pay for these costs alone. But States have been receiving
significant amounts of new federal royalty receipts generated from
increased energy production and higher energy prices.
Do you see a need for States to step up as well in providing
funding for these needs?
Answer. Rio Blanco County does see such a need. We are deeply
concerned that the state's share of FML and mineral severance tax
dollars will be diverted toward more populous and politically powerful
areas of the state. As you may well know, Colorado, as a result of
rapid growth along its I-25 and I-70 corridors, has many needed but
unfunded projects. As it struggles to find adequate funds for these
projects the leasing and severance revenues being generated in the more
rural parts of the state are tempting targets for misappropriation.
Responses of Kim Cook to Questions From Senator Salazar
Question 1. How can we avoid the ``boom and bust'' cycle that has
accompanied oil shale development efforts in the past?
Answer. Possibly we could model the effort on the manner in which
the immediate past Federal Reserve Chairman, Mr. Greenspan, has managed
to avoid the worst of the inflation-recession impacts during his
tenure. Such an effort would require careful monitoring of the amount
of federal dollars available for the research and development phase of
our unconventional energy resources. Making more dollars available, in
the manner of the Fed lowering interest rates, can accelerate R&D
projects but at the danger of local economic growth so large that local
government cannot manage its impacts even with significant mitigation
funding. While the current rate of R&D is probably too low to meet our
current and future energy needs, federal funding for R&D and impact
mitigation could be limited to only a few promising technologies in
each of several forms of unconventional energy and spread over a wider
geographic region than has occurred in the past. We favor this ``go
slow'' approach seen from this perspective as compared to the massive
influx of federal dollars in a very limited geographic region which
sparked the last oil shale boom.
Question 2. How are efforts on the programmatic environmental
impact statement being received locally?
Answer. The PEIS has a pretty low profile in western Rio Blanco
County. There are concerns that this locality will have an adequate
hearing of its concerns and that, in the broad scope of this effort,
local concerns will bear much weight.
Question 3. From your point of view, are any of the proposed
development technologies preferable for local governments in Colorado?
Are there advantages to in-situ processes as compared to surface
retorting in the eyes of local governments, or vice versa?
Answer. An in-situ process has a couple of real advantages. The
extraction of petroleum from the shale via an in-situ process looks
like it will take less water per produced barrel than mining
techniques. With water in short supply in the west, this is important.
In-situ seems like it will be easier to meet air quality standards,
especially if a clean coal technology is used to generate electricity
for the heaters. In-situ processes avoid the need to dispose of spent
shale which now occupies a larger volume than the cavity from which it
was extracted.
In-situ will, however, eventually disturb the surface of the entire
oil-bearing region. This means that special care will need to be taken
to protect the unique species which occupy the surface exposures of the
Green River Formation. Since several of these plant species exist
nowhere else in the world, a special effort will need to be made to re-
establish them in areas which are reclaimed after extraction of the
petroleum is complete.
Question 4. How would you describe Shell's working relationship
with Rio Blanco County?
Answer. Rio Blanco County feels it has an excellent working
relationship with Shell Frontier Oil & Gas. Shell has worked hard at
establishing and maintaining strong, open communications with the
county. We have negotiated on mitigating potential problems based on
each other's activities and actions. Shell has been forthcoming with
impact assistance, information, and their plans for the future. They
rank among the best, if not the best, of the energy extraction industry
operators in our county.
Question 5. What kinds of federal assistance are necessary, from
the point of view of Rio Blanco County, before oil shale can be
developed commercially?
Answer. As mentioned in our response to Senator Domenici's
questions, Rio Blanco County sees a need for federal assistance in the
area of regional infrastructure planning. As we move closer to the
commercial extraction of shale oil, funding assistance for the
infrastructure needs will become necessary. It is to be hoped that oil
shale leasing revenues and severance taxes can be retained in a fund to
assist local governments with these impacts. We see little or no need
for major incentives to industry now that we are again in an era of
high oil prices.
______
Responses of Mike McKee to Questions From Senator Domenici
Question 1. You testified primarily to the need for ``up front
funding assistance'' to counties.
How well has the State shared it mineral receipts to counties?
Answer. Out of the State's mineral receipts 40% return to the
county of origin. This 40% must be receipted into county established
Special Service Districts, not into the impacted county coffers. If the
money were to come directly to the county, Payment in Lieu of Taxes
(PILT) money would be forfeited. Some of the mineral receipts are
allocated to the State's Permanent Community Impact Fund Board (PCIFB).
The state's mineral producing counties make application to the PCIFB to
fund various county projects. PCIFB awards are in the form of grants or
low interest loans.
The only improvement to this system desired by this County would be
to allow the mineral receipts to come back directly to the county of
origin, by passing the Special Service Districts, without forfeiture of
PILT funding. If the purpose of the mineral receipts is to assist the
county of origin in reducing those impacts resulting from oil and gas
production, the State has created an unnecessarily burdensome process.
Question 2. What do you think is needed for impact mitigation
planning?
Answer. Mitigation planning is difficult, at best, for an industry
that is here today and could be gone tomorrow. A mechanism must be
established for working with industry to do future forecasting. Uintah
County has previously been a victim of the volatile oil and gas ``boom/
bust'' cycle. We need a survey or study to collect information from
industry and establish their plans for the next ten years. In addition,
we need to bolster our economic studies to track community needs and
impacts. The County needs the assistance of a planning professional,
possibly brought in on a consulting basis, to do this forecasting. The
County needs funding, in addition to the mineral receipts it already
receives, to pay for this planning.
The County is a willing participant in energy production. Some of
this country's premiere oil and gas fields are right here in Uintah
County. This production is helping to alleviate a national shortage and
the County should not be called upon to bear the impact burdens alone.
Question 3. There is no question that local governments should not
be forced to pay for these costs alone. But States have been receiving
significant amounts of new federal royalty receipts generated from
increased energy production and higher energy prices.
Do you see a need for States to step up as well in providing
funding for these needs?
Answer. Yes. The State of Utah's position has been that even though
a large portion of the production (68%) is in the Northeastern portion
of the State, the whole State is being impacted. Consequently, the
other non-mineral producing portions of the State wish to benefit from
those mineral receipts. The State prefers not to acknowledge that the
mineral receipt money is being generated in predominately one area of
the State and, accordingly, receipts should be returned to mitigate the
impact.
The non-mineral producing portions of the State are not dealing
with over 400 miles of unpaved roads, providing access to the
production fields, in desperate need of repair. Nor, do they have an
abysmal lack of low income and temporary stay housing as a result of
transient workers moving into the area. This County is in desperate
need of a new jail due to the increased population and number of
workers abusing alcohol and methamphetamines. The number of law
enforcement officers must be quickly increased to handle the extra
burden. Housing construction has increased, along with the need for
building inspectors and planning personnel. The areas workers are
flocking to the high paying oil and gas production jobs leaving behind
minimum wage jobs that cannot be filled. An area that reported 150
available jobs a year ago now is reporting over 400 available jobs. The
impacts that result from an unanticipated time of prosperity are
innumerous.
In addition to the mineral receipts, the State of Utah collects a
severance tax. Outside of a small percentage that goes to a
revitalization fund, the State does not share any of the severance tax
collected with the counties of origin. We believe that since the
minerals are severed from the County's natural resources the County
should receive a portion of the severance tax returned to the State.
Federal statute directs the State to give ``priority to those
subdivisions of the state socially or economically impacted by
development of minerals.'' Unless the federal government steps in and
provides additional direction, the counties of impact will not get the
help they need.
______
Responses of Craig Meis to Questions From Senator Domenici
Question 1. You testified primarily to the need for ``up front
funding assistance'' to counties.
How well has the State shared it mineral receipts to counties?
Answer. The State of Colorado receives revenues from energy
development via Federal Mineral Lease and Severance Tax. The largest
beneficiary of Federal Mineral Lease is the State School Fund with 52%
of all revenues going to the State's School Districts with only 14% of
all revenues going back to local counties or cities of origin via
direct payments. Some additional dollars do make it back to local
governments via energy impact grants through the Colorado Department of
Local Affairs however these grants have historically required
significant local matching dollars and have had caps on grant limits
therefore the use of them in energy impacted regions has not been as
great without these limitations.
Severance Tax is the primary source of energy related revenues that
the State receives outside of property taxes. Severance Tax dollars
have been increasing very rapidly over the past three years due to
significantly increased natural gas production and rising energy
commodity costs. The distribution of severance tax in Colorado is also
a very complicated formula of which 7.5% of total severance tax
revenues are paid to local governments via a direct payment based on
energy employee residency reports and 40% of total severance tax
revenues is used to fund the State's Energy Impact Assistance Fund. I
stated earlier the limitations that currently preclude local
governments from taking full advantage of these energy impact grant
funds. The remaining 52.5% of severance tax collected by the State is
used to fund State operations such as Department of Natural Resources
and Department of Local Affairs.
The formulas that allocate these dollars for both Federal Mineral
Lease and Severance Tax within the State of Colorado are very
complicated so rather than try to explain these I will submit for the
record the Colorado Department of Local Affairs presentation attached
that outlines specifically the revenues paid and the distributions made
throughout the State. This presentation also illustrates the formulas
used to allocate the distributions.
Question 2. What do you think is needed for impact mitigation
planning?
Answer. An allowance for a prepayment on royalties or equivalent
that flows in large part directly to the cities and counties were the
impact of energy development will be the greatest. These revenues would
allow for planning and capital improvements to be made in these areas
prior to impacts taking place. All the counties in Northwest Colorado
are experiencing major impacts on our roads, law enforcement, human
services and other public services and infrastructure currently due to
the rapidly growing natural gas industry in our region. Should we add
oil shale to the already fragile services and infrastructure in place
in the region we are destined for failure. While we are certainly up
for the additional challenge in providing additional reliable and
affordable energy to our nation, we would respectfully request that
assistance be given to help plan for and pay for the impacts associated
with any future development.
Question 3. There is no question that local governments should not
be forced to pay for these costs alone. But States have been receiving
significant amounts of new federal royalty receipts generated from
increased energy production and higher energy prices.
Do you see a need for States to step up as well in providing
funding for these needs?
Answer. While I will certainly not argue that I think the State of
Colorado should allocate a higher percentage of funding to areas of the
State impacted by energy development based upon the figures I presented
earlier. I will point out that it is certainly the perception of
Northwest Colorado that a much smaller percent of Federal revenues
received from energy development are returned back to the States or
Counties of origin. A greater emphasis by this Committee would be to
review whether Federal revenues received by energy development are
actually being used to support and enhance future energy development in
these impacted regions for the benefit of the nation. Colorful Colorado
certainly does not want energy development in our back yard no more
than the California Coast does but we are certainly willing to do our
part if the Federal assistance is available to do it with and do it
right.
Responses of Craig Meis to Questions From Senator Salazar
Question 1. In April 2005, Jim Evans of Associated Governments of
Northwest Colorado testified in front of this committee that the best
advice from local governments to industry was: ``communicate,
communicate, communicate.'' Have the finalists for BLM R&D leases in
Colorado (Chevron, EGL Resources, and Shell) heeded this advice?
Answer. Certainly some more than others. If I were to place them in
order it would be very easy. Shell the best with Chevron second and EGL
last. Shell has certainly set the standard but they have also been
working on their Mahogany Project for quite sometime and been very good
about advising local government all along on their progress. All three
have been a part of the public presentations held throughout NW
Colorado by the BLM as part of the information sharing aspect of the
upcoming RD&D leases being issued.
Question 2. What level of participation have the local communities
had in the Oil Shale Task Force established by section 369 of the
Energy Policy Act of 2005?
Answer. Since I am the designated local representative for the
State of Colorado, the participation and the involvement in the task
force has been very good. I have certainly been sharing any and all
information from the task force meetings with my fellow electeds in
Northwest Colorado to make sure that I am representing their questions
and concerns as the member of the task force. I have been pleased with
the outcomes of the task force to date and with all the participants of
the task force. The members of the task force are very engaged and
productive. We are all saying very similar things and have like
concerns. Everyone on the task force wants any activity that comes from
future oil shale development to be successful and mutual beneficial.
Question 3. As a representative for Colorado communities on the Oil
Shale Task Force, how have you sought to best represent Colorado's
local communities on the task force?
Answer. I have been providing updates and sharing any of the
information received as part of the task force activities with
Associated Governments of Northwest Colorado which is made up of the
five Counties and their respective Municipalities of Northwest
Colorado. Any feedback received from the members of AGNC is relayed to
the subcommittee.
Question 4. Are there any barriers preventing meaningful
participation by local communities in the task force?
Answer. Not to my knowledge at this point. Both the applicable
State and Federal agencies associated with the oil shale proposals have
been very receptive and proactive about local input. I am unaware of
any negative comments or feedback at this point with regard to any
local community feeling like they are not being listened to or heard.
Question 5. From your point of view, are any of the proposed
development technologies preferable for local governments in Colorado?
Are there advantages to in-situ processes as compared to surface
retorting in the eyes of local governments, or vice versa?
Answer. At this early stage, I feel most in local government and
the surrounding communities are simply waiting in anticipation for the
outcome of the RD&D activities. We are all very aware of energy
development in this region and the ever changing technology associated
with energy development. We are certainly hopeful that oil shale
development technology will also be something that is exponentially
increased to minimize any adverse environmental impacts while
maximizing resource recovery. Whether surface retort, in-situ or
another as of yet undiscovered technology may be found for developing
and processing oil shale, all certainly have their challenges and all
very much have significant impacts. I would hope that we as policy
makers will let the scientists do their jobs to let us know about the
feasibility of oil shale production before we condemn anything based
solely on the emotion of the issue. This should be an issue based on
science rather than politics and emotion.
______
Responses of Stephen Mut to Questions From Senator Domenici
Question 1. I understand from the Department of Energy that, if any
technology becomes commercially viable, it is conceivable that the
state area of Colorado, Utah, and Wyoming could produce around three
million barrels per day from oil shale.
What would this mean for the nation and American consumers?
Answer. In the case where oil shale were to produce a 3 million
barrel per day increase in both US and world oil and gas supply, there
would be significant changes that would be readily felt by both the
economy and the average consumer. Among those impacts would be a
lowering of world oil and gas prices (assuming that no offsetting
reduction was applied elsewhere), a reduction in gasoline prices at the
pump, and a reasonable increase in the US economic growth as a result
of those lower energy prices and a simultaneous reduction in the trade
deficit. Different macroeconomists would calculate these precise
impacts differently of course. But directionally, there is little doubt
that these specific impacts would be seen, along with the difficult to
calculate geopolitical value of reducing US dependence on foreign
producing nations while at the same time showing them that alternatives
to their products were readily available.
With approximately two-thirds of our nation's current energy demand
coming from imports, and estimates that our energy demand will double
or more by 2050, developing our domestic oil shale resources is an
important and perhaps critical step in bolstering domestic energy
security. Meeting our future energy needs will involve a diversity of
energy sources including: conservation, conventional, unconventional,
alternate and renewable energy sources. Additionally, changes in
consumer habits and improvements in technology can further reduce our
national energy demands.
Question 2. What about the pace of oil shale development? Are we
going about this along the right time frame?
Answer. There are no quick fixes to our nation's energy supply and
demand problem. If the U.S.'s unconventional energy resources,
including oil shale, can be prudently developed in an economically,
environmentally and socially sound manner, companies should be
encouraged to proceed at a pace to allow for commercial production to
commence by the early-to-middle part of the next decade.
Question 3. What are you doing to ensure that the environment is
protected as you plan for oil shale development?
Answer. Developing oil shale in an environmentally responsible
manner is a foundational element of Shell's sustainable development
policy. Throughout our ten-year history of field-testing (that was
preceded by almost 15 years of laboratory research), we have been
studying the environment extensively to understand how best to develop
the resources in a responsible manner. Environmentally related studies
performed to date, and ongoing, include: groundwater, surface water and
aquatic resources; plants and noxious weeds; wildlife, wild horses and
threatened & endangered species; meteorology and air emissions
modeling; cultural resources; and soil, reclamation and remediation.
Additionally, we are cooperating with the BLM as it prepares the
Environmental Assessments that are needed to evaluate and support
implementation of the RD&D leasing program. Shell will also support a
comprehensive site specific Environmental Impact Statement as a pre-
condition to any commercial-scale project development.
Responses of Stephen Mut to Questions From Senator Salazar
Question 1. How well do you think the R&D leasing program is
working?
Answer. BLM's RD&D leasing program will open the door to prudent
demonstration of viable oil shale recovery technologies. Shell is
supportive of the process and is anxious to receive issuance of the
three leases with which to initiate the next, and hopefully last, stage
in our 24-year R&D efforts leading to commercial development. So far
BLM's process seems to be working well, as it was thoughtfully
developed to assure that only applicants providing adequate proposals
would be given the opportunity to demonstrate their research. Shell
feels that it is important to develop oil shale resources in a
cautious, methodical manner to assure economic viability, environmental
responsibility and social sustainability.
Question 2. When will Shell make a determination whether to
commercialize production?
Answer. Shell hopes to make the decision whether to commercialize
oil shale production around the end of this decade. However, we
anticipate proceeding with long-term preliminary activities over the
next several years such as: NEPA compliance, permitting and
comprehensive impact assessment in partnership with potentially
impacted communities in order to have those steps completed in advance
of a commercial development decision.
Question 3. What would be the likely consequences of a commercial
leasing program if BLM offers commercial leases before the technology
can be proven?
Answer. A regulatory program needs to be put in place as part of
the regulatory segment of a commercial leasing program to assure that
operators' projects are environmentally and socially responsible and
that also provide specific criteria to define maximum economic
recovery, require diligent development, adequate bonding and other
environmental protections plus a multitude of other operational
criteria before commercial leasing commences. These regulatory
provisions are an important step that need to be completed before
commercial leases are actually issued. So long as these regulatory
safeguards are installed at the front to protect the land and the
environment, the question of whether or not a technology is yet
``proven'' is more a function of a company's decision-making process.
Question 4. Would speculative oil shale leasing be
counterproductive to the potential development of the resource?
Answer. Any commercial oil shale program should provide specific
diligent development requirement to discourage speculative oil shale
lease acquisitions.
Question 5. Please describe the total life-cycle energy inputs for
your in-situ conversion process. Given these inputs, what net energy
production can we anticipate?
Answer. Shell is still very much in a research and development mode
and will continue to be in such a mode for several years. Our first
fully integrated, commercial-depth test is still ahead of us on an RD&D
lease we anticipate receiving this summer from the BLM. So in this very
preliminary stage, our energy balance predictions are still only best-
calculated estimates. Our preliminary modeling calculations indicate
that in a commercial operation each unit of energy going into the
ground will yield approximately 7 units of energy from produced shale
hydrocarbons. However our analysis of the energy balance from more of a
full life cycle perspective, considering the energy required for
electricity generation and transmission, should result in a net energy
balance more on the order of 3 to 3.5 units realized per unit input.
Although this is an important parameter, one must put it in
perspective, considering that the entire oil shale industry is in its
fetal stages. If one considers the advancement of airplanes, computers
or telephones from their inception to today, vanguard industries
inevitably drive themselves toward improvements, efficiencies and cost
reductions. Oil shale development should be no different. Shell is
strongly driven to advance our process toward being more efficient and
less cost and resource intensive. An example is our third RD&D lease
application, in which we are proposing to test an advanced-generation
heater, which if successful, will significantly reduce the energy and
capital demands of the ICP process.
Question 6. Have you estimated the amount of electric power that
will be required to produce and refine oil from shale?
Answer. As stated in Response #5 above, our power consumptive
numbers at this point are order-of-magnitude-type calculated estimates,
which we believe will improve over time. After we have obtained initial
results from the Oil Shale Test on the RD&D lease, we should know more
specifically. At this point, we have not performed a full-scale
integrated test from which we can scale-up our data to answer this
question with greater precision.
Question 6a. How much electric power is required per barrel of
recovered oil?
Answer. Per the previous response, this information is not yet
developed.
Question 6b. Have you identified a source for that electric power?
Answer. We are considering several power supply scenarios and have
not yet finalized our plan. There are many factors involved in this
decision, including fuel type, location, construction costs and timing,
air emissions increment availability, project permitability,
CO2 emissions, transmission issues, and land availability,
among others. Also, as the answer to our nation's energy security will
involve a diversity of energy sources, the supply to our project may
also involve a mix of sources.
Question 7. How much water is required to produce oil from shale
using your ICP technology?
Answer. Again, considering that we have not yet performed an
integrated Oil Shale Test, we do not have accurate estimates that we
could scale-up to answer this question. Our current calculated
estimates are in the range of one barrel of water used for processing
plus another barrel of water which will merely be displaced in the
subsurface to ``refill'' the area from which shale oil and gas were
produced, per barrel of oil produced--a number less than half of the
demand of the prior retort technologies.
Question 7a. Have you estimated the quantity of water that would be
required to reclaim the property after completion of Shell's in-situ
conversion process?
Answer. We are working on such a determination, along with the
broader answers regarding water balance. We plan to optimize the
conservation of water resources by treating, storing and reusing water
whenever possible. Recognizing the sensitivity of water supply in the
region, we have already decided to use air rather than water cooling in
our surface facilities. Although this decision will add significantly
costs to a commercial project, it will correspondingly reduce the
amount of water consumption needed.
Question 7b. Have you estimated the quantity of water that would be
required to support commercial development of oil from shale, including
municipal and other consumptive uses associated with growth in the
communities of northwest Colorado required by that development?
Answer. Please refer to the prior two responses. Additionally, we
are already beginning to assess socioeconomic baseline conditions and
anticipated project impacts on the region's communities. Our community
development planning process will identify such impacts, and we will
work in partnership with affected communities to address and
appropriately mitigate project-related impacts on their infrastructure.
Question 8. Does your company have water rights to support oil
shale commercial production in Colorado? What is the quantity of water
to which you have currently have rights?
Answer. Answering this would reveal, and perhaps jeopardize ongoing
commercial and proprietary negotiations. Once we are able to respond,
we will reveal such information publicly.
Question 9. Have you or anyone acting on your behalf filed
applications which are now pending for additional water rights in
Colorado?
Answer. Please refer to the previous response.
______
Responses of Chris Treese to Questions From Senator Domenici
Your testimony spoke to the need for conducting new research. I
assume much of this research would need to be funded by industry.
Question 1. Who is best suited to conduct this research?
Question 2. Can this research be completed in a timely manner?
Answer. My recommendation regarding the need for a long-term
commitment to oil shale research recognized that the industry has a
vested interest in this research. But I also intended to recognize that
private industry's commitment to and investment in oil shale research
will inevitably wax and wane with world energy prices. I intended to
stress the need for a long-term federal commitment to research that
ideally would run counter-cyclical to the industry's research thereby
providing a steady level of combined public and private research into
the oil shale resource. Or, at a minimum, the federal government should
provide a steady, baseline level of research that the industry could
augment as energy prices and related business plans dictate.
Regarding the timing of this research, again I would like to stress
the need for a long-term commitment to this resource. If, in fact, a
viable and sustainable industry emerges from this most recent round of
interest in oil shale, then this research could be discontinued.
However, as a, former member of the oil shale industry and student of
the boom-and-bust cycles occasioned by past interest in oil shale, I
caution against premature cessation of this research. Very few would
have predicted the sudden collapse of oil shale development in the late
70's and early 80's. World energy prices were rising faster than ever
before in history. Proven supplies of traditional oil reserves were
declining world-wide and domestic reserves shrinking even faster. The
world's largest energy companies were investing in oil shale
development in sums that no one could imagine they could walk away
from. Yet on May 2, 1982 they did just that. Accordingly, some
mechanism to ensure on-going research into safe and sustainable
technologies to develop this vast, domestic hydrocarbon resource is
vital.
Question 3. You spoke to the need for new water storage. Is there
potential for new storage in this region?
Question 4. Are there any projects currently in the works?
Answer. There are no water projects currently in development or in
planning that either intend to supply a future oil shale industry or
rely on a future industry for financing. Indeed, as you heard from
industry representatives at the hearing, commercial development of oil
shale remains a future and uncertain decision. Oil shale is simply too
speculative, especially given the most recent experience of the would-
be industry's incarnation, to be a viable source of water project
financing. Therefore, the industry must assume the responsibility of
developing its own water supply requirements, both that directly
required by the industry as well as water requirements of ancillary
services (e.g., electrical supply) and municipal demands created by
energy-related in-migrants. I believe local water districts, including
ours, and state water agencies are willing to partner with the industry
to develop necessary water resources but only under terms and
conditions that do not place financial risk on local constituencies.
Additional water storage will be required. The amount, timing, and
location obviously will be dictated largely by location of the oil
shale development. Generally, there is water storage potential in the
greater Colorado River basin. Again, location will be a key
consideration.
Dating back to the 1950's, the energy industry has invested in
water rights in the Colorado River basin. Most of these rights are
``conditional rights'' under Colorado water law and remain undeveloped
to date. New filings for junior water rights are also possible in many
areas, but water availability for such rights are correspondingly less
certain.
As the Chairman knows, the upper basin states of the Colorado River
face considerable uncertainties concerning the exact amount of
developable water under the 1922 Colorado River Compact. Under current
hydrological assumptions, Colorado has not fully developed its
allocation of Colorado River water under the 1922 and 1948 Compacts.
However, Colorado, like New Mexico, is nearing full development along
with the attendant risks and uncertainties that accompany full
development. For this reason and others, I suggested in my written and
oral testimony to the Committee that
``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).
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
(federal) 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.
______
Responses of Steve Smith to Questions From Senator Domenici
Question 1. What impacts do you anticipate to air, land, and water
resources from oil shale development?
Answer. 100% surface disturbance--Most recent emphasis in recent
oil shale research has been on in situ techniques that heat the ore
underground--in place. These techniques, while avoiding mining and
hauling of mined material, result in complete surface disturbance in
the production area.
With wells drilled for inserting heaters, for water monitoring and
removal, for extraction of gas and oil shale product, and, in at least
one version, for establishing and monitoring freeze walls to contain
ground water, the land surface is perforated with wells every 10 to 12
feet. The accompanying equipment and the drilling activity itself
completely alters the surface, removing all vegetation and grading the
land to an unnatural flatness.
Certainly, such techniques will necessitate elaborate surface
reclamation, including storage and reuse of topsoil, replanting of
vegetation, and recontouring the land and waterways. Reclamation of
such scale has seldom been completely effective in the type of arid
landscape under which oil shale is found.
With or without effective reclamation, the period of surface
disturbance--four years or more, and the extent of surface
disturbance--640 acres to 1,920 acres at a time, severely alter
wildlife habitat and migration areas (particularly that for mule deer,
pronghorn, and sage grouse), disturb scenic values, and threaten
streams with siltation.
In particular, such disturbance to such an extent would destroy
essential values in Areas of Critical Environmental Concern, areas with
wilderness characteristics, and delicate habitat for rare or imperiled
plant and animal species.
Water supplies--The best current estimates of water needed for in
situ oil shale production project a ratio of about 4 units of water
needed for each unit of oil shale fuel product produced. Commercial
scale development, as contemplated by the departments of Energy and the
Interior, this would require construction of new water diversion and
storage capacity rivaling that of all the reservoirs already existing
in northwest Colorado.
Even if such water facilities can be built for oil shale, the
competition for actual water supplies would intensify, putting new
expense and burdens on ranches and community water supplies in the
area.
Water quality--Virtually nothing is known about the impacts of the
in situ process on groundwater and surface streams. The basic
components of this approach--heating strata to very high temperatures
for several years--suggests that threats to groundwater quality would
be significant.
Air quality--According to the Rand report on oil shale potential,
very little is known about the potential impacts of oil shale
development on air quality. With the region already experiencing
significant air quality damage from natural gas production operations,
the potential impacts from oil shale will be a key topic for additional
research and modeling before commercial leasing is considered.
The necessity of constructing and operating new coal-fired power
plants for electrical power for oil shale operations (see below), and
the concomitant impacts on air quality in the region from new power
plant emissions, also need to be taken into account.
Those power plant emissions and emissions oil shale operations
themselves are likely to add significant and unhealthy levels of sulfur
dioxide (SO2), carbon monoxide (CO), ozone (O3),
nitrous oxides (NOX), and lead, as well as greenhouse gas
carbon dioxide (CO2), to the air in the region.
Electric power plants--The best current calculations anticipate
very large electric power needs for oil shale production, primarily for
operating underground electric heaters in the in situ method. At
projected commercial scale production (500,000 barrels per day), new
electric power generation equal to that from all existing coal-fired
power plants in Colorado.
Even if such new capacity could be built and exclusively dedicated
to oil shale use, the impacts on fuel supplies, generation and
transmission capacity, and air and water quality would be tremendous,
both adding direct environmental damage, adding to global warming
emissions, and competing with public and municipal energy suppliers,
Question 2. What is your impression of how well the PETS process
[environmental review, mandated in the Energy Policy Act of 2005, of
potential for commercial production of oil shale] is proceeding?
Answer. The federal agencies' approach (led by the Department of
the Interior) has, so far, been conducted in an open and accessible
manner. The only public aspect of that approach has been the issues
scoping phase, in which citizens had opportunity to outline the issues
that should be reviewed in the PETS,
Once a draft PEIS is issued, we will be better able to evaluate
whether the scoping phase was effective, that is, whether the agencies
have prepared an thorough and fair analysis of the range of issues that
must be evaluated, and the impacts that must be avoided or mitigated,
prior to any public lands leasing for commercial production,
One key flaw is the PETS schedule, especially when considered in
combination with other provisions in the oil shale section of the
Energy Policy Act. It may be possible to complete an accurate and
effective PETS by the due date 18 months after enactment (approximately
the end of 2006), but that is a highly accelerated pace for an analysis
of such magnitude. Congress should anticipate the need to extend the
PEIS study period lest the document end up incomplete or inaccurate.
This sense of undue haste is compounded by the Act's requirement
that the Department of the Interior issue, within six months after
completion of the PSIS, regulations for leasing federal public lands
for commercial scale oil shale production. Regulations issues on such a
hasty schedule will be carefully scrutinized and may well fall short of
the level of protection needed for other, more enduring public lands
values.
Meanwhile, the Research, Development, and Demonstration oil shale
leasing program (as mandated in the Act and as previously initiated by
Interior) proceeds. Once the research leases are issued, experimental
and demonstration work on those lease tracts will continue for up to 15
years. Contemplation of a commercial leasing program before results,
conclusions, and mitigation techniques are provided from those research
leases is unwise and premature. No commercial leases should be issued
on public lands before that research is completed. Certainly, no
commercial leases should be issued in mid-2007, even if commercial
leasing regulations are in place by then.
[Responses to the following questions were not received at
the time the hearing went to press:]
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC, June 6, 2006.
John Baardson,
Chief Executive Officer, Baard Energy, LLC, Vancouver, WA.
Dear Mr. Baardson: I would like to take this opportunity to thank
you for appearing before the Seante Committee on Energy and Natural
Resources on June 1, 2006 in Grand Junction, Colorado to give testimony
regarding the implementation of the oil shale provisions of the Energy
Policy Act of 2005.
Enclosed herewith please find a list of questions that have been
submitted for the record. If possible, I would like to have your
response to these questions by June 20, 2006.
Thank you in advance for your prompt consideration.
Sincerely,
Pete V. Domenici,
Chairman.
[Enclosure.]
Questions From Senator Domenici
Question 1. You spoke of technologies for converting oil shale to
commercial grade transportation fuels and super low sulfur fuels.
What are these technologies and how do they benefit the oil shale
industry?
Question 2. Many of your proposals for loan guarantees and tax
credits fall outside the jurisdiction of this Committee, but it's been
my impression that there is a considerable amount of private investment
being made in these proposals.
With the large profits that the energy industry is benefiting from
today, why should Congress be putting tax payer dollars into this
process?
Appendix II
Additional Material Submitted for the Record
----------
[Due to the large amount of material received, only a
representative sample of statements follows. Additional
documents have been retained in committee files.]
June 1, 2006.
Hon. Pete Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Senator Pete Domenici, Senator Ken Salazar and the Senate
Energy and Natural Resources Committee: We, Northwestern Colorado
elected officials, want to sincerely thank-you for coming to the
Western Slope of Colorado to discuss the issues that local communities
have concerning the Federal oil shale program. Unfortunately, many of
us will not be able to attend in person. We have drafted this letter to
give you a sense of the common concerns of many of the elected
officials in Northwestern Colorado. We do hope this is the beginning of
a long and thorough dialogue.
The Bureau of Land Management's oil shale Research and Development
Demonstration program is an important first step towards determining
the potential for developing oil shale commercially. There are some
basic questions that we simply cannot answer without the R&D program.
1) Is there a method to extract oil shale that is commercially
viable?
2) Are there new technologies (such as the in-situ process)
that can bring shale oil to market without the many
environmental impacts associated with mining and retort?
3) What is the maximum amount of oil shale production that can
be allowed before air quality, water quality and quantity,
social impacts and our infrastructure meet their limits?
These questions should be answered before public land is leased for
commercial oil shale production.
The local Bureau of Land Management (BLM) has stated that the 2005
Energy Policy Act requires commercial leasing of our public lands at
the conclusion of the Programmatic Environmental Impact Statement
scheduled for completion by February 8, 2007. That is not how we read
the Act. The Act states (at 15927(e)) that following adoption of
final regulations, the Interior Department must consult with the
Governors of Colorado, Utah, and Wyoming, representatives of local
governments, interested Indian Tribes, and the public to determine the
level of support in the development of oil shale and tar sands
resources. If ``sufficient support and interest'' is found in a state,
then the Department may conduct a lease sale. We believe that
commercial leasing should not occur until. the success of the Research
and Development Demonstration program has been measured.
Additionally, we believe it is a mistake to direct the BLM to
complete the oil shale Programmatic Environmental Impact Statement
before the Research and Development Demonstration program is complete.
Because of the timeline placed on the completion of the oil shale PEIS,
the BLM has been--placed in the impossible position of having to
estimate the environmental effects of technology still being developed.
This analysis also must consider all the possible social and economic
effects of oil shale development for a large part of Utah, Colorado and
Wyoming. This analysis would better serve the region if conducted in
tandem with the R&D Demonstration program.
The R&D demonstration program should be allowed to run its course
before commercial leasing of public land is allowed. There are
thousands of acres that are privately owned by oil and gas industry
that can and will be developed for oil shale if a feasible technology
is discovered. Our public lands provide many of our communities with
our most important and sustainable industry--hunting and tourism. We
believe that the Federal government has the responsibility to answer
our very basic questions before allowing wholesale leasing of our
public lands.
When oil shale is mentioned on the Western Slope of Colorado it is
discussed as an industry that brought our economy and communities to
their knees. In the earliest part of the boom lack of housing and
infrastructure had communities reeling and left people sleeping under
bridges and in tent cities. Then, just as towns and counties were able
to provide the needed infrastructure for the industry we experienced
the bust. May 2, 1982, the day Exxon closed down its oil shale
operations and sent home over 2,000 workers, is still referred to as
``Black Sunday'' in our communities. Local governments had created
housing and infrastructure that was no longer needed. People walked
away from their homes and mortgages. There was even a bank closing by
FDIC. These are not the experiences of past generations. This is the
experience of community leaders and people who hold elected office
today.
Colorado is already playing a large role in supplying energy to
meet the needs of our country. Western Colorado is a national leader in
natural gas production. But this boom has certainly created its own
problems. Housing is at critical levels and worker's ``man-camps'' are
being set up. Many of our communities are stretching to meet current
needs.
Imposing the additional environmental and social impacts of oil
shale development should only be done in a slow, systematic manner such
that the needs of our communities are fully met. We hope that you will
not allow mistakes of the recent past to be repeated. We urge you to
not rush into oil shale leasing until more is known about the
technology and the impacts a new oil shale industry will bring to our
state.
Sincerely,
Tresi Houpt, Garfield County Commissioner, James R.
Bennett, Ph.D., Trustee, Town of Palisade,
Keith Lambert, Mayor of Rifle, CO, Townsend
H. Anderson, City Councilor, City of
Steamboat Springs, Tod Tibbetts, Mayor Pro-
tem, Town of Silt, Michael Hassig, Mayor,
Town of Carbondale, Frank Breslin, Mayor,
Town of New Castle, Alice Hubbard-Laird,
Trustee, Town of Carbondale, Judy Beasley,
Trustee, Town of Parachute, Patricia S.
Hanna, Trustee, Town of Palisade, Mick
Ireland, Chair, Pitkin County Board of
County Commissioners on behalf of the
entire BOCC, Ken Brenner, City Councilor,
City of Steamboat Springs, Dr. Teresa
Coons, City Council, City of Grand
Junction, Scott Chaplin, Trustee, Town of
Carbondale, Doug Edwards, Mayor, Town of
Palisade, Bruce Christensen, Mayor,
Glenwood Springs, J. Russell Criswell,
Trustee, Town of Carbondale, Roy McClung,
Mayor, Town of Parachute.
Note: Unless otherwise stated, elected office is noted for
identification purposes only.
______
Statement of Oil Shale Alliance, Inc.
Chairman Domenici, Senator Salazar, and Senator Hatch: We would
like to remind you of the American entrepreneurial spirit, and smaller
companies, which seem to have been somewhat forgotten in the news over
a very large company like Shell being involved in oil shale R&D.
It was not a large corporation that led the pioneers across the
prairies in covered wagons. And no large corporation was present in the
bicycle shop of Orville and Wilbur Wright or in the garage of Bill
Hewlett and Dave Packard. Many, many world-changing innovations come
from small companies.
It was a major oil company, Exxon, which pulled the plug on Black
Sunday, and caused economic devastation throughout the Rocky Mountain
Region. You see, major companies have difficulty doing small things
efficiently. It has to be a very large project, or it has virtually no
impact on their annual financial statements, and therefore is not worth
the trouble. When people suggest ``Go Slow on Oil Shale'' they are
really protesting against giant company mega-projects with their
associated environmental impact.
Most of the remaining undiscovered oilfields in the U.S. are now
smaller in size. The giant oil companies have pulled up stakes, and
taken their very large projects elsewhere. As a matter of fact, at
present, all of the major oil companies combined, have very little role
in exploring for, and producing oil in the United States. The majors
are off looking for greater profits in places like Kazakhstan and
Nigeria, or are simply looking for oil on Wall Street
Small, independent oil companies are presently the backbone of the
U.S. oil industry. Independent producers develop 90 percent of domestic
oil and gas wells, produce 68 percent of domestic oil and produce 82
percent of domestic natural gas. Most independents have fewer than 20
employees. Yet, collectively, independent producers are the key to
future domestic energy exploration and production. (Source
www.ipaa.org).
In this same spirit, three small, entrepreneurial companies have
banded together to form Oil Shale Alliance, Inc. and intend to
commercially develop oil shale quickly and efficiently. The three
companies are Independent Energy Partners Inc., Phoenix Wyoming Inc.
and Petro Probe Inc. The three companies will be using three different
in situ technologies: solid oxide fuel cells, borehole microwave, and
hot gas injection. All three technologies have significant advantages
in oil shale development.
Petro Probe Inc. plans to field test their hot gas injection
process in six months. Since their patented technology injects and
produces from the same well, they will be producing hydrocarbons within
days, or even minutes, of their first field tests.
Phoenix Wyoming plans to field test their borehole microwave
technology in 12 months. In prior, smaller scale, field tests, their
borehole microwave approach (radiation) heated the ground 50 times more
quickly than electric heating rods (conduction).
Independent Energy Partners Inc. plans to field test their patented
solid oxide fuel cell process in 18 months. Since electricity is
produced from the fuel cells, and all the (normally waste) heat is used
to usefully heat the ground, their approach results in an outstanding
Net-Energy-Ratio of 7.0, which is twice as good as the 3.5 NER of other
proposed processes.
Smaller companies, like those in the alliance, do not have the
capital to initiate mega-projects that may have a large environmental
impact or whip-saw the economic future of thousands of western Colorado
residents. Our approach is much more environmentally benign. We plan to
get small plants working commercially, and then build additional small
plants. It will be a slow and gradual ramp-up, with plenty of
opportunity to improve, and make innovations, in the first few small
plants.
Smaller companies seem to have been forgotten in the oil shale RD&D
process put in place by President Bush to make BLM leases available.
Among the winners were three Shell companies, Exxon and Chevron. There
was only one company who won a test area in Colorado who did not have
revenues in excess of $10 billion per year.
The companies who could really have used test areas were members of
the Oil Shale Alliance, whose technology passed BLM scrutiny, but who
were denied test areas because they did not have all of their funding
in place, and they did not have their BLM bonds in place. It would have
been good to actually have a test area, before having to put up a bond,
and it would have been good to actually have a place to test before
having to raise all of the necessary investment capital. Instead, the
winners of test sites in Colorado were all extremely large
corporations, with just one exception.
Do remember us in BLM leasing processes or in any other pending
legislation. Many exceptional innovators prefer a small company, or
entrepreneurial environment, over that of a very large corporation.
Small companies innovate, make Herculean efforts, burn the midnight
oil, and get the job done.
Yours very sincerely,
William H. Pelton, Ph.D.,
President, Phoenix Wyoming,
Inc.,
Robert T Leisen,
Chairman, Phoenix Wyoming,
Inc.,
Alan Forbes,
President, Independent
Energy Partners, Inc.,
Larry Vance,
Chairman, Petro Probe, Inc.
______
ExxonMobil Corporation,
Public Affairs,
Washington, DC, May 26, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Senator Domenici: I am pleased to forward to you the written
testimony of Stephen Cassiani, who is President of ExxonMobil Upstream
Research Company. We would ask that this testimony be incorporated into
the record for the proceedings for the June 1, 2006 hearing on U.S. Oil
Shale Resource and Research, which is to be held in Grand Junction,
Colorado.
ExxonMobil has a strong interest in the development of the
Department of Interior's Research, Development and Demonstration
program. As yet we have not been selected to participate in this
program. As Mr. Cassiani's written testimony states, ExxonMobil's oil
shale development technology has several favorable differentiating
attributes--and, as the leading American energy company, we very much
hope to be able to play an active role in the RD&D initiative.
Thank you for your ongoing leadership on energy issues and best
wishes for a successful hearing in Colorado.
Sincerely,
R.D. Nelson,
Vice President.
______
Statement of Stephen M. Cassiani, President, ExxonMobil Upstream
Research Company
Chairman Domenici, Senators Hatch and Salazar. My name is Stephen
Cassiani and I am the President of ExxonMobil Upstream Research
Company, located in Houston, Texas. I am pleased to submit for the
record, these prepared remarks on what we at ExxonMobil believe to be a
very important issue for the long-term energy security of this country.
It is a pleasure to have the opportunity to submit these comments
regarding shale oil research and development.
Let me also thank you, the Senate Energy and Natural Resources
Committee and the Department of the Interior more broadly for ongoing
efforts to promote environmentally-responsible shale oil development.
The technology development goals of the Energy Policy Act of 2005 are
clear with respect to the need to improve access to additional domestic
energy supplies. Your efforts are and will continue to be important so
that we can stay on this path and that promising technologies are
developed and applied to recover shale oil from areas of high resource
density.
The scale of this resource is too large to be ignored. Commercial
and environmentally responsible development will provide a significant
very long-term direct benefit to the American economy and consumers by
diversifying our nation's sources of energy supply and increasing
energy security. This is also consistent with DOE's mission of
advancing U.S. energy security, including promoting scientific and
technological innovation.
In order to achieve this vision, companies that have promising
technologies must be allowed access to high-grade oil shale deposits in
the United States in order to optimally test oil shale extraction
technologies and realize potential large-scale oil production for the
country. For our part, ExxonMobil has been working on shale ail
recovery technology at the research company. We and others are now
prepared to move into a field research phase, so the current DOI
Research, Development and Demonstration (RD&D) lease program is very
timely. It is premature to ascertain which technology or technologies
will ultimately prove commercial and which will maximize environmental
protection and resource recovery. But it is time for us to get out of
the lab and into the field. We believe that ExxonMobil is one of a very
few companies that has the world-class technology and the financial
strength to effectively pursue this significant yet challenging
resource.
As you may be aware, ExxonMobil applied for a Research, Development
and Demonstration lease in September 2005 to test our oil shale
development concepts under the Bureau of Land Management's Oil Shale
Leasing Program as announced in the Federal Register dated June 9,
2005.
Our technology, which we have been testing in our labs, is
potentially more efficient, effective and low impact than other
proposed approaches. This can be explained by four differentiating
attributes of our approach.
First, our technology would deliver heat to the in situ oil shale
more effectively than other approaches by creating a planar heat
source, maximizing the heat transfer contact area. The importance of
more effective heat delivery is that we expect to be able to accomplish
the necessary oil shale heating with far fewer wells, leaving a
significantly smaller footprint than other techniques.
Second, with respect to multi-mineral development which would occur
in this area, our researchers believe our approach should make it
possible to develop oil shale first and in the process, increase sodium
mineral recovery. We have applied for a patent on a technology to
maximize sodium mineral production and allow nahcolite to be produced
as soda ash subsequent to oil shale production. This concept would
advance the nation's interests in speeding production of shale oil and
is consistent with the BLM/DOI requirement as a steward for the
nation's resources to maximize protection and production of important
minerals.
The third point is the subsurface environmental benefit of
producing the shale oil first. The solution mining process of the
subsequent sodium mineral recovery phase entails flushing the recovery
zone with water. This will sweep residual free oil out of the formation
mitigating any future aquifer contamination concerns.
Fourth, we can do some of the necessary field work at our privately
owned acreage at Colony, which will reduce surface disturbance to the
newly leased federal lands. Initial work at Colony outcrops would
afford us the opportunity to test and observe our subsurface
development technologies in a more controlled and accessible
environment. This recovery technology is not commercially applicable to
Colony resources, but it provides an ideal technology development
opportunity.
We strongly suggest that it is in the best interest of the country
to test all potentially viable shale oil recovery technologies. We are
disappointed that our oil shale development proposal was not accepted
by the DOI, but we are continuing to work to become part of this
important domestic initiative. We believe ExxonMobil has the
technological and financial strength to further the country's interests
for energy security and independence and remain committed to that
objective. We look forward to participating in the United States' oil
shale resource challenge and appreciate your continued leadership and
support for technology development to help this country find a way to
exploit this important resource for the benefit of the American people.
______
Statement of Gary D. Aho, Sage Geotech Inc., Rifle, CO
Dear Chairman Domenici:
My name is Gary D. Aho and I have an office in Rifle, Colorado,
long referred to as the ``Oil Shale Capital of the World''.
my background
I've spent my entire 37-year career in the mining and mineral
processing industry. I spent the first 34 years with The Cleveland-
Cliffs Iron Company (CCI), one of the pioneers in oil shale and
essentially the only mining company in the business. Though initially
stationed in the Michigan iron mining operations, I began assisting the
CCI Rifle, Colorado office on oil shale projects in 1975. I then moved
to Rifle in 1979 as Chief Engineer of the Western Division and became
responsible for CCI's oil shale activities. The company is an owner of
oil shale lands and has cost-shared in many of the retort pilot plant
projects. The company also completed mine designs and feasibility
studies for other oil shale projects and clients. We worked on both
western and eastern oil shale projects. I became VP and General Manager
of Cliffs Engineering Inc., a subsidiary organized to conduct the
consulting work. I worked closely with many of the major energy
companies and served on advisory committees to government groups and
trade associations. I eventually became President of Cliffs Oil Shale
Corp. and Cliffs Synfuels Corp., two CCI subsidiaries.
Since October 2003, I've been President of Sage Geotech Inc., a
privately-owned company that provides oil shale consulting services to
industry and government clients. I am currently Chairman of the Oil
Shale Association. I also serve as an advisor to DOE's Office of Naval
Petroleum and Oil Shale Reserves, which is part of DOE's Office of
Petroleum Reserves. This office serves as support to the Task Force on
Strategic Unconventional Fuels, which was established by the Energy
Policy Act of 2005.
I lived through the Colorado and Utah oil shale boom and bust of
the 1970's and 1980's and learned many lessons first hand along the
way. Besides being involved with engineering, construction and
operations for many of the projects, I lived, and still do, in the
region impacted by the rapid startup and then termination of oil shale
projects. I personally had to reduce the Cliffs Engineering staff of
fifty-five to just one after the bust in the 1980's and know exactly
how people and communities were hurt by the rapid shutdown of projects.
There were plenty of mistakes made during those days that led to
the shelving of oil shale at that time. I feel oil shale a very
important domestic resource that can be developed to meet the needs of
our nation. However, we must not repeat the same mistakes this time
around. I believe there is a right way to develop oil shale and I
believe we can do it commercially today. I'd like to share some of my
thoughts on how it can be done.
what is oil shale?
Oil shale is a fine-grained sedimentary rock that contains a solid
organic material known as kerogen. When heated to a pyrolysis
temperature (700-900 F), kerogen decomposes to produce hydrocarbon
vapor and residual carbon. The vapor is then partially condensed in
secondary treatment to produce shale oil. The liquid shale oil can be
treated and refined to produce premium transportation fuels.
how is oil shale processed?
The heating of the oil shale, referred to as retorting or
pyrolysis, can either be done in a surface vessel (a retort) after the
shale is mined or the heating can be done underground with the shale
left in place (in situ). In either case, the shale oil liquid product
needs to be upgraded and then refined to produce marketable
transportation fuels.
why isn't shale oil being produced in the united states today?
The United States has made a number of attempts to develop oil
shale, some dating back to the early 1800's in the eastern U.S. In the
early 1900's the vast oil shale resources of Colorado, Utah and Wyoming
were discovered and there was a period of excitement over the
prospects, especially since conventional oil production in the eastern
U.S. was declining. However, huge discoveries in Texas flooded the
country with oil and shale activities were halted. This start and stop
process occurred a number of times in the decades to follow when new
oil discoveries thwarted oil shale projects. So, plentiful oil at
reasonable prices has always been a major hurdle for oil shale. Why
develop this expensive, less attractive resource when the world had
plenty of oil and international relations fostered trade?
But, times are changing and oil shale needs to be reconsidered as a
strategic fuel for the United States. The DOE's Office of Naval
Petroleum and Oil Shale Reserves published two key reports that point
to the need to develop U.S. oil shale resources and that make
recommendations on how the nation might go about developing an oil
shale industry:
1. ``Strategic Significance of America's Oil Shale
Resource'', two volumes, March 2004.
2. ``America's Oil Shale, Findings and Recommendations of the
Steering Committee'', Final Report, June 2005.
In my opinion, there are a number of reasons we don't have a shale
oil industry in U.S. today. First, this is a capital intensive, high
risk business. Developing a commercial project will take a long lead
time, perhaps 10 years, to design, permit, construct and startup the
mine and plant. A 50,000 BPD plant will cost at least $2.0 billion. A
conventional oil shale project entails a mine and process plant and in
most aspects resembles a very large mining operation, not a petroleum
project. Mining projects typically require long lead times, are capital
intensive, and have long payback periods over a life of operations that
often exceeds 30 years. Oil companies have not done well in their
previous efforts at entering the mining business; the two cultures are
extremely different. I frequently refer to oil shale as a mining,
pyroprocessing and material handling problem; then, the product, crude
shale oil, is something the oil companies know how to handle.
Second, the retorting technology is a big question in the minds of
many. Many retort designs have been developed but only a few have been
tested at a pilot plant scale and even fewer at a near commercial
scale. It is crucial that we build and demonstrate a number of
retorting technologies, both surface and in situ. It is this research,
development and demonstration (RD&D) work that will answer critical
questions related to (1) project capital and operating costs and
potential return on investments, (2) which first generation retorts,
both surface and in situ, perform best and what needs to be modified on
each to enhance that performance, (3) what the environmental emissions
and how can they be mitigated, (4) what are the infrastructure
requirements, including power, water, pipelines, etc, (5) what are the
shale oil properties and what needs to be done to upgrade, refine and
market the product, and (6) what are the requirements for skilled
labor, local infrastructure, and related project needs, and (7) can we
mine the shale or process the shale in situ without damaging ground
water or other natural resources.
A mistake of the 1970's and 1980's was that commercial projects
were initiated and construction was started well before retorts were
even tested at a pilot or demonstration scale. The technology issue had
not been adequately addressed. We need to go slow and be sure the
technology works this time.
While the technical issues listed above need to be answered before
huge capital investments will be made with confidence, my third crucial
question relates to the project economics. No one is able to forecast
what the price of oil will be in 10 years when the first commercials
project might come on line. It is extremely risky making a multi-
billion dollar investment when the cash flow projections are so
uncertain. It so important that industry and government participate
together in developing a program to reduce the investment risk in first
generation oil shale plants and, by so doing, accelerate the
construction of these initial plants.
what should the government be doing?
I concur with the recommendations presented in the two DOE studies
I referenced above. Most specifically, I recommend the following as
being crucial Federal actions to accelerate the development of oil
shale in the United States.
1. The Federal government should foster construction and operation
of many surface and in situ pilot plants and demonstration plants.
Actual sustained operations at this scale are imperative for answering
crucial technical, environmental, social and economic questions. This
program will identify the most promising technologies for initial
commercial ventures.
2. The Federal government should promote leasing of Federal
resources so worthwhile projects, both large and small, have a place to
test and then commercialize their plans. The federal government
controls about 80% of the western oil shale and access to these lands
is key to industry's long term planning and investment decisions. Along
these lines, the Anvil Points Mine near Rifle, Colorado should be
considered as a research center to provide shale to pilot plants in a
nearby research park. A separate oil shale and tar sand research center
could be tied to the Utah State University campus in Vernal, Utah. By
centralizing research facilities, common infrastructure can be employed
by many pilot plant projects, resulting in less expense and waste for
everyone working on oil shale.
3. Establish a Federal cost-sharing program that puts the
government in a position to partner and share the risks with the
industry. This program should entail numerous incentive options. Some
of the most obvious ones for consideration are the following:
a) Provide outright grants or 50% cost share in pilot and
demonstration plants
b) Allow R&D tax credits for pre-commercial research, pilot
and demonstration programs
c) Allow accelerated depreciation and/or expensing of capital
in the year spent
d) Provide price guarantees or price floors for first
generation plants
e) Provide loan guarantees for qualified applicants
f) Establish a shale oil purchase program to assure a market
for first generation projects
g) Provide royalty relief for projects on public lands
in closing
The United States has the richest oil shale deposits in the world
and we should be taking a lead role in the research and development
activities required to bring this resource to commercialization. We
lost the past 20 years without a domestic oil shale program; we don't
have the leisure to wait now. We need to immediately begin pilot and
demonstration programs to prove up the technologies and answer the
numerous questions related to economics, environment, socioeconomics,
infrastructure, marketing, and transportation. The Federal government
must make the commitment to develop this resource and then design the
programs needed to foster industry involvement and investment. These
programs must be a joint effort of government and industry if oil shale
is to be developed in the foreseeable future. I believe we can do it
and I believe we must.
I am optimistic that the Task Force on Strategic Unconventional
Fuels, with the assistance of DOE's Office of Petroleum Reserves, will
present strong recommendations along these lines in their future
reports to Congress.
______
Statement of EnShale, Inc.
EnShale, Inc is one of several businesses pursuing the significant
opportunity represented by the resource that is available in oil shale
in the Western U.S. We are concerned that a number of misconceptions
are being perpetuated by the press and some government representatives.
We'd like to briefly address them here and suggest that additional work
be engaged to make sure the public is fully aware of the facts of the
current state of the art for extracting oil from oil shale:
The RAND report states that processing oil shale requires
about 3 barrels of water for each barrel of oil extracted.
EnShale has been reviewing a number of the processes being
proposed and does not see any evidence that this amount of
water will be required. Certainly any process development needs
to take water consumption into account and minimize the
consumption in order to be economically viable.
A Deseret News editorial from Sunday, May 28, 2006 refers to
the RAND report and a reference to the mines being as large as
the largest open pit mines in operation. The suggestion is that
the mines will be open pit and visible from space. With
hundreds of feet of overburden, these mines will not be open
pit. The mines will be underground and will require the use of
known technologies to develop. The disposal of the spent shale
will require careful evaluation of disposal sites. When the oil
has been extracted, the spent shale is not toxic. Tests have
shown that natural regional flora are compatible with the
disposed material. EnShale is also investigating the
possibility of using the spent shale in cement operations.
Much publicity has been given to Ethanol as a means of
freeing the country from foreign sources of oil. We have seen
quotes of production costs between $1.00 and $1.50 per gallon
or between $42 and $66 per barrel. Those production costs will
only be acceptable with price supports like the federal
government created with the SynFuels Corp. in the 70's and
80's. We hope the government will not repeat those mistakes and
cause the economic and community hardships experienced by this
area when those price supports were removed. Several of the
processes being considered for oil shale are quoting production
costs in the $30 per barrel range. We think it will be much
better for the country to use oil shale as an energy resource
than ethanol.
The emissions of toxic vapors has been suggested as a draw
back to processing of oil shale. EnShale's experience has shown
that the vapors created during the heating of the kerogen are
valuable and must be captured in order to have an economic
model that will work. The successful oil shale process will
find ways to capture all valuable byproducts and turn them into
useful materials.
Some have suggested that the BTU content of oil shale is too
low to be a profitable source of energy. The weight by percent
of kerogen in oil shale is typically 10%. While this is much
lower than other sources of petroleum like coal, it is still
plenty of energy content to pursue profitably. EnShale's parent
company, Bullion Monarch Mining, has experience in the mining
of precious metals where the measure of valuable material in a
ton of ore is one one-thousandth of a percent. In dollar terms,
the value in a ton of oil shale is between $47 and $70. For
various precious metals like gold, silver, and copper, it is
common for the value per ton to be in the same range or less.
EnShale believes that the efforts of many different groups will be
needed to realize the potential in the resource that is available to
the United States and looks forward to being part of that effort.
EnShale represented by Merrill Fisher and Wayne Pearce
______
Statement of Larry F. Vance, Chairman, Earth Search Sciences, Inc.,
Kalispell, MT
a new oil shale processing technology establishes oil shale as a hedge
for long term oil & gas supply
The Prospects of Oil Shale
Petro Probe, Inc. (PPI) is a Nevada corporation with its current
business address at #6-306 Stoner Loop Rd., Lakeside, MT, 59922 , phone
number (406) 751-5200. PPI is a private company, majority owned by
Earth Search Sciences, Inc.
PPI is a development stage company, ready to implement a patented
technology for the recovery of hydrocarbonaceous products (oil, natural
gas, specialty gases and hydrogen) from oil shale. Oil shale deposits
exist in proven domestic basins within the U.S.A. and from many world-
wide locations. The Company is responding to the market's demand and
the strong energy message coming from the U.S. Government, for more
innovative exploration strategies and new domestic hydrocarbon
supplies. It has an unrestricted license to develop a patented system
for the recovery of commercial products from oil shale.
The technology is focused on an ``in situ'' (meaning in its
original place or form, i.e. not disturbed) process using super heated
air to gasify the oil shale in its original state underground, followed
by a condensation process to recover the products.
The target is oil shale, a 40-50 million-year-old sedimentary rock,
which contains a solid hydrocarbon, Kerogen, within its structure of
clay minerals. Kerogen is basically ``fossilized algae'' which has been
formed during the deposit of sediments in ancient lake environments.
The effects of time, pressure and temperature have transformed these
sediments into a hydrocarbon-bearing rock, known as oil shale. In its
natural state oil shale contains no liquid hydrocarbons. The
hydrocarbon component is an organic solid which can only be liberated
by the application of heat, in the order of 350 C or more. The
extraction of the hydrocarbon component is carried out by the heat
under a physics law known as ``black-body radiation'' which forces the
decomposition of the Kerogen and release of hydrocarbons as a vapor.
The vapor has no escape except through the exits provided by drilling
and when cooled, becomes liquid oil and gas.
The organic matter in oil shale has been studied extensively and
most deposits in the world are well classified. It is estimated that
nearly 62% of the world's potentially recoverable oil shale resources
are concentrated in the U.S.A. The largest of the deposits is found in
the 42,000 km2 Green River formation in north-western
Colorado, north-eastern Utah and south-western Wyoming. The richest and
most easily recoverable deposits are located in the Piceance Creek
Basin in western Colorado followed by the Uinta Basin in eastern Utah
and San Juan Basin in New Mexico.
Although oil shale represents a significant source of fossil
energy, the most predominant reason extraction has not been generally
successful is that most approaches focused on rubilization and above
ground retorting. Where surface bound deposits have been rich on the
average, there is not enough of that easily attainable resource to
economically mine; and there is too much overburden to use the
technique of lifting the overburden by blasting to produce permeability
and rubilization. All rubilization methods tend to do considerable
damage to the environment and have now been generally regulated and
avoided.
PPI's technology avoids all these problems and can still bring oil
and gas in at reasonable cost levels in the $8 to $10 per barrel range.
The invention provides a process and system for recovering
hydrocarbonaceous products from an in-situ oil shale formation at
potentially any depth to which a hole can be drilled in the oil shale
formation. Thus, oil shale as deep as 3,000 feet or deeper may be
treated using the present invention. The initial test results indicate
the process will be economical for recovering these products from all
regions of an oil shale formation.
Further, by eliminating the need for rubilization, expensive and
time-consuming procedures are avoided, and the structural integrity of
the ground and surrounding terrain are preserved. The shale formation
itself retains 94%--99% of its original structural integrity once the
Kerogen has been altered. All surface support structures are built and
installed in such a manner that they are easily moved from one location
to another without leaving permanent scars on the landscape. The--
process is compact and self-sustaining.
The highly marketable and value-added products are: Natural Gas
(scrubbed and pipeline ready); Crude Oil of high specific gravity;
Specialty gases, Methane, Butane, Propane, Ethane, Hydrogen and a
Mineral water as a by-product of the process.
Key Features
Self-perpetuating feedstock--A major cost saving feature of the PPI
process is its self-perpetuating burner feedstock. After the warm-up
phase, enough combustible gas product is collected to not only feed the
system but also produce commercial quantities of a high BTU gas. This
is unique in the oil industry where traditionally one method of
extraction is used for gas and another for oil.
Relatively low risk exploration--Oil shale bearing regions of the
world are well known. Exploration is a matter of choosing areas where
oil shale averaging 25 gallons per ton has a specific gravity of around
2.15, and a density of 134 pounds per cubic foot. The final selection
is determined by test drilling a small core sampling to find oil
content about 1.675 gallons per cubic foot over a pay zone depth of 500
feet or more. The PPI planned well field is drilled on 50 foot spacing.
Each processing hole will have a 20 diameter and work an area of 5261
square feet (based on the ``black body radiation'' law of physics) for
effective thermal conductivity. The volume of such a hole, given a 500-
foot pay zone, will be on the order of 2.6 million cubic feet with an
oil content of 4.4 million gallons. This will yield 3.5 million gallons
(approx. 80%), or 83,000 barrels of recovered oil. The end design
sixteen holes in the prototype plant is calculated to yield 1,328,000
barrels of recovered oil over the life of the field.
Multiple products are produced--Based on a 500 long pay zone the
heat input of each input hole would be sufficient to gasify 2300 pounds
of oil shale per hour. According to studies, oil shale heated in situ
to appropriate temperatures will produce a substantial volume of high
quality combustible gas as a co-product with the oil. For oil shale
averaging 25 gallons per ton, tests show the non-condensable gas
available to range from a minimum of 575 cubic feet per barrel of oil
to a maximum 1,370 cubic feet per barrel (dependent on circumstances,
ambient BTU, kerogen qualities, etc.) At a minimum the prototype plant
will have the capacity to produce (575 83,000 16) 763,600,000 cu
ft. of gas although the actual operating results may exceed this
figure.
Expectation
This overview uses recent public data produced on the oil shale
recovery process. PP1 must stress that it presents this data and the
overview with the understanding that the actual prototype plant will
undertake to establish clear and specific results that will show and
support substantial improvements of cost and production over those
presented.
It is also expected that there will be additional sources of
revenue through utilization of the steam produced by the PPI process
(production of co-generated kilowatts). The gas composition tables also
represent that hydrogen and other specialty gases will be available for
commercial production.
The expectation is that the new gasification technology will
produce oil, gas and associated valuable products in a simple, cost
effective manner. The capital costs to construct fields and plants are
minimal compared to other hydrocarbon recovery methods. The process is
environmentally safe and acceptable.
The potential is as great as the tar sands have proven to be in
northern Alberta.
An opportunity exists to be an entry level investor in the
technology and a series of plants in North America.
U.S. Oil Shale Resources
Nearly 60 percent of the world's potentially recoverable
shale oil resource. is concentrated in the United States
The minable western and eastern oil shales of the United
States have been estimated to contain an in-place oil resource
of some 1,670,000,000,000 barrels.
Using a 50% allowance for unrecoverable shale and a 25%
allowance for conversion to synthetic fuel, the production
potential for shale oil in the United States is estimated to be
626,000,000,000 barrels.
THE RECOVERABLE SHALE OIL RESOURCES OF THE UNITED STATES \1\
------------------------------------------------------------------------
Recoverable
Deposits Resources \2\
------------------------------------------------------------------------
Piceance Basin (Colorado)
Mahogany Zone........................................ 59
Shales above Mahogany Zone........................... 90
Shales above Mahogany Zone........................... 231
Uinta Basin (Utah)....................................... 51
Other western basins..................................... 131
Eastern oil shales (Kentucky, Indiana, Ohio)............. 64
--------------
Total................................................ 626
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\1\ Recovery factor = 37.5 percent of estimated in-place resource.
\2\ In billion barrels
Figures adapted from Oil & Gas Journal, U.S. Geological Survey, and
American Association of Petroleum Geologists.
______
High Power Microwave Extraction of Oil from Shale Deposits in Colorado,
Wyoming and Utah
a white paper
submitted by peter m. kearl, geoscience services, grand junction, co;
george caryotakis, stanford linear accelerator; and cpi inc., palo
alto, california
Abstract: Current and past experiments for producing oil from shale
have employed low radio frequency (RF) that resulting in an inefficient
heating mechanism, potential negative environmental impacts, and
unacceptable delays in the production of oil. Recent theoretical and
experimental research strongly indicate that microwave heating results
in an controlled expansion of the area heated by a microwave source
placed in a bore hole yielding oil and gas in a fraction of the time
required by low frequency heating. A proposed field demonstration will
prove that the use of microwave heating for-shale oil production is
feasible, economical, environmentally sound, and will open the way for
the construction of a demonstration production facility financed by an
interested oil company.
High Power Microwave Technology: As project manager for the High
Power Microwave (HPM) program developed in cooperation with Oak Ridge
National Laboratory and private industry, Peter Kearl oversaw the
development of theoretical, experimental, and laboratory testing of an
innovative method for the in-situ removal of hydrocarbons combining
technology developed during the Star Wars program and recently
available Russian radar technology. Theoretical and modeling studies
proved the viability of the HPM technology and large-scale laboratory
tests demonstrated the concept.
The HPM technology involves a phased array antenna placed into a
bore hole via wave guides and connected to a surface power source that
includes a 500 KW klystron tube that generates 2.45 GHz microwave
energy. From the phase array antenna, a phase boundary is launched into
the subsurface material selectively heating oil and water in the shale
to pyrolysis. The phase boundary gradually expands into the surface
creating a bubble in permittivity space that controls the movement of
hydrocarbon migration. Gas and oil migrate to the same bore hole
containing the antenna and are recovered at the surface. Impacts to
potential groundwater resources and the surface environment are
minimized.
Application of HPM Technology to Oil Shale Deposits: The Green
River Formation covering parts of Colorado, Wyoming, and Utah are
estimated to contain over 2 trillion barrels of oil--enough oil to
allow the United States to become energy independent. A major problem
with extracting oil from shale deposits is the energy required to
remove the oil. However, the location of the oil shale deposits
provides a unique opportunity to transform a clean renewable energy
source into valuable petroleum and gas products. Colorado is rank 11th
in the nation in the ability to produce electricity using wind power.
The area of the oil shale deposits has the highest wind index rating in
the state and allows wind generated power for as little as 3.6 cents a
kilowatt hour. Wind generators can be used to power the HPM system to
produce oil with minimal impact to the environment. Basic thermodynamic
calculations indicate that 500 kilowatts delivered to subsurface oils--
shale deposits will yield 4 barrels of oil per hour. At a price of $70
per barrel, a single HPM installation will produce approximately $2.5
million of oil per year. This means that capital costs for the HPM
system will be paid off within two years of initial operations. The
problem of transmitting wind energy from remote areas where wind is a
viable resource to distant consumers via transmission lines is overcome
by the simple fact that the wind turbines will be located adjacent to
the oil producing sites.
Comparison of HPM with Existing Low Frequency Heating: A simply
comparison of HPM heating and low frequency heating can be illustrated
by comparing the efficiencies of microwave and conventional ovens. A
sample of oil shale placed in a 700 watt microwave oven can be heated
to an internal temperature of 103 degrees C in three minutes. The same
oil shale sample placed in a conventional oven where 10,000 watts of
energy are applied requires 22 minutes to achieve the same temperature.
While there are several losses in a conventional oven, this simple
experiment shows that at one-tenth of the power, microwaves heat oil
shale seven times faster than a conventional oven. This difference in
heating efficiencies can be explained by fundamental differences in the
physics of power delivery to the oil shale. Low frequency heating
utilizes charge carriers, ions in the groundwater, to transmit energy
from the source into the rock. Once the temperature reaches 100 degrees
centigrade, water evaporates and the charge carrier pathway is broken.
From this point on, low-frequency RF heating relies on inefficient heat
conduction to propagate energy in the subsurface. This is why it
requires three years of heating before any oil can be produced.
Microwaves, on the other hand, provide rapid efficient heating where
oil will be produced immediately upon application of power to the
subsurface. Because microwave frequency heating (above 1 GHz) relies on
the turning of polar molecules in an alternating electrical field
(dielectric heating), the limitation of ionic heating are eliminated.
Most soils and rocks are composed of aluminum silicates similar in
composition to a ceramic dish used to heat food in a microwave oven.
Microwave power passes through the ceramic dish and preferentially
heating water in the food. Using this analogy for subsurface microwave
heating, the rock will attenuate only a minor portion of the microwave
power while coupling energy to the oil and water in the rock. As oil
and water are removed from the rock, microwave energy efficiently
passes through the dry oil-free rock and continues to heat and remove
oil at greater distances from the antenna. Another significant
advantage of microwave heating is the enhanced permeability created in
the rock by microwave heating. Rapid microwave heating will fracture
the rock creating a preferential pathway--in the region between the
phase boundary and the borehole resulting in the rapid egress of oil
from the subsurface to the bore hole. Permeability enhancement has
important implications in increasing oil production from existing wells
in the United States. The Rand Corporation predicts a 2 to 1 ratio of
energy extracted compared to energy usage. For the HPM system, this
energy ratio exceeds 8 to 1 over a ten-year period.
Scientific and Economic Viability: The HPM microwave program funded
by the DOE was peer reviewed by the Robert Haupt of the Lincoln
Laboratory at MIT, Harold Olsen at the Colorado School of Mines, Thomas
Rabson of Rice University, and R. Claude Woods at the University of
Wisconsin, Madison. The principle conclusion of the panel was that the
concept of the HPM system is based on sound scientific principles. A
government funded field demonstration of the HPM system provides the
opportunity to develop a viable, economic, and environmentally sound
technology that combined with sensible conservation methods will allow
the United States to become energy independent within the foreseeable
future. In addition, royalties paid to state and federal governments
would provide a substantial revenue stream allowing state governments
to mitigate local economic impacts and the federal government to
mitigate impacts of rising energy prices for all Americans.
______
Statement of Oil Shale Exploration Company, LLC, Mobile, AL
What the Oil Shale Industry Needs from the Federal Government
to Succeed
i. background
OSEC and other experts estimate that 2 trillion barrels of shale
oil occur within the Green River Formation in portions of Utah, Wyoming
and Colorado.\1\ This domestic oil source represents more than triple
the known oil reserves of Saudi Arabia. Once commercial production
levels are achieved, it is estimated that the direct domestic benefits
derived from development of this energy source would be several hundred
billion dollars annually, which would accrue, in part, to federal,
state and local governments in the form of leases, royalties and income
taxes. In addition, it is estimated that the industry and its by-
products will create more than a hundred thousand new jobs, enhance
national security, and depress global oil prices.\2\
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\1\ Strategic Significance of America's Oil Shale Resource, Vol. I,
Assessment of Strategic Issues, Office of Naval Petroleum and Oil Shale
Reserves, DOE, March 2004 (the ``2004 DOE Report''). For purposes of
this discussion, the geological formation will be referred to as ``oil
shale'' and the oil extracted from the formation will be referred to as
``shale oil.''
\2\ The 2004 DOE Report
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Currently, several promising oil shale technologies are being
investigated and field-tested both in the United States and abroad.
OSEC is among those companies that possess the technical and project
management experience necessary to develop one of the more promising
technological options, and was recently selected as the nominee for a
BLM lease for Research, Development and Demonstration of Oil Shale
Recovery Technology at the White River Mine site in Uintah County,
Utah.\3\
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\3\ OSEC will be demonstrating technology known as the Alberta
Taciuk Processor, which was recently used in a semi-commercial scale
demonstration facility in Australia to successfully extract
approximately 1.5 million barrels of shale oil between 1999 and 2004.
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The costs and risks involved, and the long development and start-up
period (up to eight years) prior to commercial production, present
significant barriers for industry pioneers. For these reasons,
government participation and meaningful government incentives are
needed to induce research, promote technology demonstration, and
attract the necessary capital investment. OSEC proposes several
incentives that promote front end investment in technology
demonstration, as well as other cost offsets that will help assure a
minimum return and thereby encourage the private sector to make
critical upfront investments.
ii. proposed incentives for development of oil shale production
capabilities
Below is OSEC's preliminary list of incentives that would help
mitigate risks and encourage companies to accelerate oil shale research
and development activities in the United States.
A. Price Floor for Domestically Produced Shale Oil
Oil prices rise and fall quickly. As recently as 1998, the average
world crude price was less than $13 per barrel; in recent weeks the
price of crude exceeded $75 per barrel. The amount of investment needed
to produce and refine shale oil is significant: approximately $1-2
billion for a plant to produce 20,000 to 30,000 barrels per day and
approximately $100-200 million for modifications to an existing
refinery to process an equivalent amount of shale oil into refined
petroleum products.
We believe that banks, investors and energy companies will not put
their money behind commercial shale oil production facilities and
refinery modifications based on today's high crude prices. Rather, the
private sector bases its investment decisions on conservative
assumptions about how far the price of crude could fall during the
period needed to repay such large capital outlays.
To enhance domestic energy security and to facilitate the
development, financing, and construction of a core group of initial
shale oil production facilities and to make refinery modifications
necessary to process domestic shale oil resources, the government
should set a floor price for domestically produced shale oil. This
floor should be initially set at $55 per barrel (adjusted for
inflation); it should cover at least ten years of production (to
provide comfort to banks and investors that initial investments would
be repaid); and it should cover an initial number of plants sufficient
to establish this new domestic energy source (e.g., the floor could be
provided to all shale oil plants and associated refinery modifications
constructed until total industry capacity reaches at least 1 million
barrels per day).
B. Production Tax Credit
OSEC proposes a production tax credit of $6 per barrel of shale oil
produced.\4\ In combination with the price floor incentive described in
Part A above, this production tax credit would provide the incentive
needed to develop and demonstrate oil shale technologies and invest in
extraction and processing facilities by assuring a minimum return on
the sale of shale oil when oil falls below a certain price. It would
provide important protection for investors against production costs
that exceed those for producing oil from conventional sources. The
credit would go to the owner of the facility (which does not have to be
the operator). The credit could phase out when oil reaches a certain
price and it also could sunset.
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\4\ Oil shale was included in the production tax credit found in
section 29 (now section 45K) of the Internal Revenue Code, but the
credit, as applied to oil shale, expired at the end of 1992 (it applied
to oil sold before 2003 from wells drilled from 1980 through 1992).
Prior to its expiration it provided a set credit per barrel of oil
produced and was phased out when oil hit a certain price (it is at or
near the phase out point now).
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C. Other Proposed Incentives
In addition to the tax and pricing incentives described above,
additional financial assistance should be provided in support of
pioneers of oil shale technology, to enhance scientific understanding
for the benefit of multiple parties, and to assist local communities in
responding to opportunities presented by first generation pilot,
demonstration, and commercial oil shale plants.
1. Grant Program and/or Direct Assistance for RD&D Projects
In order to offset costs for initial site deployment and for
development of technologies beneficial to multiple parties on a
broad scale, a federal program of direct financial assistance
and grants should be provided, and include (a) federal grant
assistance of up to $10 million for opening and re-opening oil
shale mines on public lands; (b) $50 million in direct grants
for development of methods and technology for carbon dioxide
capture and sequestration; and (c) up to $25 million in other
direct financial assistance and/or competitive grants for
eligible commercial enterprises.
These funds would be used to offset research, development and
demonstration (``RD&D'') costs for pilot and demonstration
plants. Such programs could be modeled on the existing
demonstration grant program for enhanced oil and natural gas
production described in Section 354 of the Energy Policy Act of
2005, and/or modeled on the financial assistance program under
the Clean Coal Initiative of the Energy Policy Act of 2005.
2. Government Funding for Research Related to Extraction
Processes
In order to promote applied research in relevant oil shale
processes, there should be a federal program of research grants
for public and private universities and institutions
(preferably in Colorado, Utah and Wyoming), as well as for
federal agencies to study extraction processes, shale formation
characteristics, surface impact mitigation techniques, spent
shale use and disposal, and air quality modeling. Such research
would assist the industry in optimizing its production
facilities, and minimizing environmental impact, and could help
reduce production costs and/or promote earlier commercial
production. This program could dovetail with the ``State
Technologies Advancement Collaborative'' envisioned in Section
127 of the Energy Act of 2005.
3. Training Assistance for Oil Shale States
The U.S. Secretary of Labor could make grants to relevant
state labor departments for programs focused on training the
affected populations in the skills necessary to construct and
operate oil shale extraction and processing facilities.
4. Loan Guarantees
In order to attract the necessary level of investment in oil
shale extraction and development technologies federal loan
guarantees are required. Such guarantees provide a critical
incentive for early capital investments.
______
Prepared Statement of Stephen Colby, Colorado Department of
Local Affairs
colorado distribution of federal mineral lease revenue
Federal Mineral Lease revenues are collected by the federal
Minerals Management Service in the U.S. Department of Interior. These
revenues come from the leases of federal lands for mineral production.
Roughly 50% of the revenues collected on federal leases in Colorado,
are transferred by the U.S. Government to the Colorado State Treasurer.
These receipts at the State Treasurer have ranged from $30 to $60
million annually.
From the State Treasurer, the distribution of these funds is
conducted under state legislative statute C.R.S. 34-63. This statute
operates on a formula basis to distribute funds to the counties,
cities, and school districts through a number of different programs.
The largest share of the funds goes to the State School Fund for
distribution to school districts throughout the state under the School
Finance Act. Counties, cities and school districts in counties with
federal mineral leases receive significant direct payments from the
State Treasurer on a quarterly basis. A like share gets to local
governments through the Department of Local Affairs grants program.
Finally, 10% goes to the Colorado Water Conservation Board for funding
of local water supply development.
The formula for these distributions is complex, as the chart
attached below demonstrates. It was crafted by the legislature in a
cascade format, which provides a first cut share to the parties and
then allocates any residuals in a second and third cut. This approach
was crafted over the years as the amount of money distributed by the
statute varied widely from $30 to $60 million. The cascade method was
used to hold harmless the existing recipient amounts while allocating
the increased totals.
The third table shows the actual calculation of payments for
Calendar Year 2003 by county. The percent distributed to school
districts and towns is set by statute at a minimum which can be
increased by the county commissioners and therefore varies from county-
to-county and year-to-year. The payments to school districts are then
split among school districts in a county on the basis of reported
enrollment. The payments to towns within a county are distributed
proportional to population within towns. Specific local government
payments are listed on the State Treasurer web site at: http://
www.treasurer.state.co.us/transfers/fed_funds.html.
Federal Mineral Lease Distribution
Federal Mineral Leasing Act
Net of administrative charges, returns 50% of rentals and
royalties from federal lands in the state of origin.
Directs that such funds be used by the states for planning,
construction and maintenance of public facilities and services
in areas of the state socially and economically impacted by
mineral development.
Colorado Mineral Leasing Fund
Colorado statute (C.R.S. 34-63-102) directs that in the
distribution of these funds priority shall be given to school
districts and political sub-divisions socially or economically
impacted by the development or processing of the federal
minerals.
Distributes the amounts originating in each county as
reported by the Federal government under the following
``cascade'' type of formula:
First Cut
10%
To the Water Conservation Board
15%
To the Department of Local Affairs
25%
To the State School Fund
50%
To the county area of origin up to $200,000
Spillover
All funds from counties whose 50% share went over
$200,000
$10.7M Fill-In
State School Fund gets all the spillover up to $10.7
million
Balance
Funds in the spillover in excess of $10.7 million
Second Cut
All county areas who contribute to the SPILLOVER get what
remains of their 50% in the BALANCE up to a total limit of $1.2
million per county area. To avoid PILT deductions the county
can elect to have all these receipts given to school districts
and towns in a 50/50 split or share the funds as follows
School Districts
Get at least 25% of each county's total distribution
Towns
Get at least 37.5% of each county area total distribution
above $250,000
County
Gets the residual
Overflow
All funds from counties whose 50% share went over $1,200,000
The Overflow Split
50% of the overflow goes to the State School Fund
50% of the 1overflow goes to the Department of Local
Affairs
Direct Distribution
25% of the DLA 50% is distributed to cities and
counties on the basis of employee residence reports.
description of the calculation of the federal mineral lease cascade
distribution under c.r.s. 34-63.
First Cut
Every quarter the State Treasurer totals up the receipts from the
federal government, including interest earnings, which have been
identified by county of origin.
25 percent of these receipts are transferred to the State School
Fund in the state's Department of Education, 10 percent to the Colorado
Water Conservation Board in the state's Department of Natural
Resources, and 25% to the Local Government Mineral Lease Fund in the
state's Department of Local Affairs. The remaining 50% is then
calculated for each county and an amount up to $200,000 is prepared for
distribution.
Spillover
Any amounts over $200,000 in each county is pooled in a
``spillover'' calculation which is distributed to the State School Fund
until the total in this ``spillover'' calculation reached $10.7
million.
Second Cut
Once the $10.7 million spillover requirement is fulfilled, any
funds left in those counties which had reached the $200,000 threshold
on their distributions in the first cut are set aside for the county up
to a second threshold of $1.2 million.
This county allocation is then divided up into three portions: one
for the school districts in the county, one for towns in the county and
the remainder for the county government. The percent distributed to
school districts and towns is set by statute at a minimum of 25% and
can be increased by the county commissioners out of the portion that
would have otherwise gone to them. Similarly, the portion to towns is
set as at least 37.5% of the amount of the county allocation above
$250,000. Again, this percent can be increased by the county
commissioners out of the share that would have otherwise gone to them.
The resulting payments to school districts are then split among
school districts in a county on the basis of reported enrollment. The
resulting payments to towns within a county are distributed
proportional to population within towns.
PILT Offset (obsolete)
A provision is made in the statute C.R.S. 34-63-102(3)(c)(II) for
the diversion of the county commissioners share of the federal mineral
lease payment to school districts and towns in order, it was assumed,
to increase in like amount the payments of the federal BLM PILT
(Payments In Lieu of Taxes) program to the county. Experience has shown
that the increase in BLM PILT payments falls short of the amount
diverted. As a result, this option is no longer being used.
Overflow
After the county allocations in the Second Cut have been fulfilled,
there can remain funds above $1.2 million in some counties, which funds
are allocated to the ``Overflow''. The Overflow is split evenly between
the State School Fund and the local government grant fund in the
Department of Local Affairs.
Direct Distribution
Finally, statute instructs that 25% pf the Overflow distributed to
the local government grant program in the Department of Local Affairs
shall be distributed to the towns and counties on the basis of the
taxpayer employee residence reports. In practice the reports provided
under the severance tax statute C.R.S. 39-29-110(1)(d)(1) are used for
this distribution.
DISTRIBUTION OF FEDERAL MINERAL LEASE RECEIPTS TO THE STATE OF COLORADO
[in $]
----------------------------------------------------------------------------------------------------------------
Calendar Year 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
Total Colorado Receipts........................ 64,583,766 41,797,845 62,841,190 89,860,158 114,791,773
from Oil and Gas........................... 29,046,563 15,074,411 29,805,841 46,106,713 68,203,036
from Coal.................................. 17,770,850 16,459,014 11,038,6801 20,642,753 18,222,512
from other Production...................... 6,195,7972 2,743,600 7,772,371 8,178,139 10,46,931
from Bonus & Rents......................... 11,570,557 7,520,819 14,224,297 14,932,553 17,902,294
----------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF FEDERAL MINERAL LEASE RECEIPTS TO THE STATE OF COLORADO--Continued
[in $]
----------------------------------------------------------------------------------------------------------------
Calendar Year 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
Distribution
Counties................................... 5,378,931 4,005,099 5,246,746 5,595,223 6,158,485
School Districts........................... 3,095,017 2,103,826 3,044,457 3,391,473 3,724,617
Towns...................................... 3,053,696 1,959,186 2,914,985 3,401,548 3,815,160
Colo Water Cons Bd......................... 6,458,434 4,156,885 6,307,167 11,479,169 8,986,021
State School Fund.......................... 31,878,061 22,214,867 31,167,501 44,085,957 55,896,755
DoLA Grant Program......................... 13,461,633 7,077,318 12,985,438 21,669,710 29,592,878
DoLA Direct Distribution................... 1,257,994 280,663 1,174,896 2,730,2261 4,124,708
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Statement of Dan McClendon, General Manager, Delta-Montrose Electric
Association, Montrose, CO
Dear Senator Pete Domenici, Senator Ken Salazar and the Senate
Energy and Natural Resources Committee:
Delta-Montrose Electric Association (DMEA) represents over 30,000
members on the western slope of Colorado. Our mission is to energize
and serve our community. DMEA is a leader in promoting innovative
technologies to our members, which are designed to reduce our member's
energy consumption. We promote efficient lighting through such programs
as the ``Brightening Our Communities Campaign'' and high efficient
heating and cool systems through our award winning ``Co-Z Program''.
DMEA's commitments to our member's energy needs are summed up in our
corporate goal of reducing our member's overall energy consumption by
25% by 2025.
This letter has been drafted to inform you about our collective
concerns over the potential growth in population and hence demand for
our product, electric power.
Delta-Montrose Electric Association is fully aware of the potential
growth in demand and consumption of electric power associated with the
development of our oil shale resources in western Colorado. With a
potential extraction process such as the in-situ method, which requires
heating the ground to 700 degrees Fahrenheit for several years, the
demand for our product associated with this extraction process could
seriously impact our existing members and our community.
Equally centered in the collective memory of our members is the
collapse of the oil shale programs of the 1980's. The sudden loss of
jobs in neighboring communities caused many locals and their businesses
to become bankrupt. It took almost 18 years for our communities to
fully rebound from the economic devastation associated with the oil
shale industry bust.
An equally difficult problem is the demand for our product imposed
by the natural gas industry. The natural gas industry is requiring the
electric industry to provide electric power in remote areas. This will
require a substantial investment in infrastructure by our association
and hence our existing members. The natural gas industry's demand for
our product is typically shorter than the traditional life of electric
power infrastructure. This can and likely will result in stranded
investment that existing members will be required to pay.
All this growth comes at a time when our energy provider (Tri-State
Generation and Transmission Cooperative) is faced with exponential
growth. Capital requirements to construct new power plants and
associated infrastructure is projected to be $5 billion over the next
15 years. These projections do not include potential increases in
electric power demand imposed by both the oil shale industry and the
natural gas industry.
Based on the potential impacts associated with the fossil fuel
energy industry, Delta-Montrose Electric Association requests your
legislative support protecting our desire to creatively implement
tariffs that will place the economic burden for electric power on the
corporate shoulders of the energy industry.
______
Statement of Robert A. Loucks, Grand Junction, CO
Thank you for scheduling a hearing on oil shale in Grand Junction.
Your foresight and determination are greatly appreciated
The campaign to reduce our dependence on unstable foreign oil
supplies leading to an oil free economy should include shale oil
development along with encouragement of conservation and development of
renewable resources. The use of the extensive shale oil energy supply
will be an important component of the process to get us through the
coming transition from non-renewable hydrocarbons to other resources.
However, we must not repeat the mistake of prior energy crises and
assume that shale oil is ready for commercial development. Despite all
the attempts to develop a shale oil industry in the U.S. over the past
100 years, the fact remains that no proven method exists for
efficiently removing the oil from the rock. There are a number of
candidate processes possible, but none has demonstrated a practical
capability to produce oil.
For this reason, it is imperative that the next step in shale oil
development be a demonstration and test phase. It is possible that the
BLM RD&D leasing program may serve this purpose, but I am unconvinced
because it seems to be essentially a duplication of the failed 1970-80
prototype leasing program. Another possibility is a government center
to provide the proper conditions for test activities. There have been
previous efforts in this direction in the past, e.g., the Bureau of
Mines and Colorado School of Mines work at Anvil Points. Also, a
thorough analysis of the merits of government and industry partnerships
is available in the report DOE/EIS-0068 dated September 1980. Other
proposals include a ``Proof of Concept'' facility at the federal Cb
site by Occidental Oil Shale in 1990 as discussed by Russell George of
the Colorado Department of Natural Resources at your recent hearings on
shale oil. Additionally, Federal legislation was passed in 1992. See
U.S. Code: Title 42, Section 13412.
An attractive alternative was outlined 30 years ago. Little has
changed in the past 3 decades.
June 1976 ``Robert McClements, Jr., president of Sunoco
Energy Development Co., a subsidiary of Sun Co., Inc., said his
firm advocated a jointly-funded government-industry program to
support oil-shale efforts through the stage of technology
development. Mr. McClements expressed concern about several
things:
First, technology, which has been demonstrated only
at the pilot plant or semi-works level; thus the scale-
up to commercial-size units carries with it a high
technological risk.
Second, the operational risk involved with a
commercial oil-shale facility. For a large-scale plant
to successfully maintain design production levels, it
has to be on-stream--working as a unit--a high
percentage of the time. Another operations concern
relates to labor. Oil-shale plants will be built in
areas where there is presently no reservoir of people
to operate and maintain them.
Third, the environmental aspects. Since we don't know
what the final environmental regulations will be for
oil-shale plants, we simply don't have a good grasp on
how to design a plant.
Fourth, the highly uncertain public policy climate
that exists today and which restrict the operation of
market forces.
Fifth, timing. Enormously long lead times are
involved in synfuels facilities and when you are
talking about an expenditure of $1 billion (as assumed
in 1976) per plant, the orderly, coordinated timing of
capital investment is essential. But that's impossible
with the present uncertainties.
Sixth, economics. Even under the most optimistic
assumptions for capital investment and operating
performance, the required selling price for synthetic
oil may still exceed the market price for conventional
oil. A loan-guarantee program does not deal with the
basic difficulty. That is, the size of the investment
required, coupled with existing policy, technical and
financial uncertainties, effectively forecloses the
initiation of commercial oil-shale undertakings. An
alternative approach can be a program that will assure
the demonstration of a wide range of existing infant
technologies on a broad scale. Such a program should
provide for the construction of a number of modest-
sized operating modules. But, since each module would
cost about $100-$200 million (in 1976 $) on which no
return can be expected this program could not be
initiated solely by private industry. The most
realistic approach could be to pattern it on a joint
government-industry demonstration plant concept. Such a
program could be initiated by a clearly identified
governmental sponsor, which would solicit specific
proposals from private companies for a variety of joint
efforts. Government financing would then carry the
projects through the stage of demonstrated technology.
Thus, if a module(s) successfully demonstrates a
technology, and if economic conditions permit, the
government's interest could be acquired by the
program's industry partner under previously agreed-upon
terms.''
Irrespective of the outcome of the debate on the real status of
`peaking' oil, shale oil process testing must happen. I have no doubts
of our ability to make the transition.
Our country has proven time and again that we can meet enormous
challenges and succeed.
Please let me know if you would like any of the above referenced
materials or if I may be of assistance to you.
______
Statement of Peggy Rector, past Mayor and Rio Blanco County
Commissioner, Rangely, CO
I am Peggy Rector. I am a resident of Rangely, past Mayor and Rio
Blanco County Commissioner. A member of the Rio Blanco Water District,
member of Club 20 and a Rangely Chamber member. I was unable to attend
the sessions provided by Associated Governments and Club 20 in Grand
Junction with our Congressional Delegation.
I would like to request the region look at how we might disperse
the population influx that has and will come, with the energy this area
will provide for our county. I think it important we all begin to work
together. I read today that Grand Junction Housing Authority is going
to help provide housing in different ways for people moving to Grand
Junction. My comment would be for the region to truly look at trying to
move the people to different areas on the western slope so no one
community is truly overcome with population explosion. There are
smaller communities needing growth. However, due to not having larger
population base, they lack the retail amenities that most people
desire. However, if we could get the companies to request their
employee's live in certain areas this would begin to help. Our
community of Rangely has dealt with energy. Unfortunately, we have
recently had to close one of our schools because of lack of students.
We have the infrastructure, water, sewer, gas, electricity to deal with
an influx of people plus the schools to accommodate. We also have a
Community College for training needs etc. The interesting part to me
about Grand Junction encouraging more people to come there is that the
roadways in Grand Junction presently cannot truly accommodate the
people they have. I would, in light of this, suggest the total region
have the discussion with the companies about location of their
employees and how this would best work. I think if we plan this in a
proper way, all will benefit and be able to handle the influx in a very
good way.
If small communities such as Rangely know they have people coming
in, we will then have contractors ready to come and build houses for
their needs, manufactured housing people will also be on the doorstep.
I further desire discussion on the assessment of the water needs
for the total energy together with what the local communities needs are
going to be in conjunction. I believe this is something the Water Basin
Roundtables can accomplish with the help of the State Legislature. I
also believe the Federal Government needs to play a role in helping in
whatever way is possible since the Western Slope of Colorado and
Eastern Utah will be providing the necessary energy needs for our
nation. We need water storage for the dry years. This storage needs to
be in the overall planning process. We need to plan to grow our
communities in a positive way with the help of the Locals, State and
Federal agencies.
In the smaller communities we need retail services for the people
coming, it is the chicken and the egg situation. The people will come,
then the retail services. We need to also think about recreational
needs for the citizens of the area. They will need parks, walkways,
bike paths etc.
Once the infrastructure for the energy is completed the workforce
will dwindle down. The need will be to leave these rural communities
whole. We should have learned over the years with boom and bust how to
address the situations in a positive way for all. We need a forum that
brings communities, counties, energy companies, big and small together
to truly discuss the true impacts gas, oil, coal gasification, electric
energy, oil shale collectively are having and will continue to have on
this area. Roadways are critical to getting people to work and home in
a safe manner. Travel time to and from work. Where new roads can cut
time and direct population we need to take a very serious look.
In conclusion we need to truly be aware of the overall impacts to
the areas and try to make those impacts positive in nature. I believe
by directing that population through employer location is an ideal way
to do this.
Thanks so much for being able to present my views on the total
energy package.
______
Statement of Glen A. Miller, Grand Junction, CO
Re: U.S. Senate Energy Committee meeting on Oil Shale, Grand Junction,
Co, June 1, 2006
Thank you for holding this meeting and taking the opportunity to
learn more about this truly huge resource.
My concern with the current efforts come in part from spending more
then a decade in Interior's Prototype Oil Shale Lease Program office
(1978-1986) here in Grand Junction.
My brief comments in general refer to Piceance Basin, Colorado.
1. BLM has no criteria for ``qualifying'' an R&D lessee to obtain a
``Commercial Lease'' on 5000+ acres. Note that each proposed Commercial
Lease would contain about the equivalent of a ``Prudhoe Bay'' in
resources (10-14 Billion BBL's ). The give-away aspects of this makes
``Teapot Dome'' look teeny by comparison. All proposed leases are where
shale is very deep and hundreds of feet below the water table, thus
making R&D more expensive.
2. Of most importance, I am not aware of any requirement of a
``Minimal Percentage'' recovery so long as the ``Economical Viable''
and ``Environmentally Acceptable'' goals are met. Thus, a lessee
presumably could meet these goals at 10% recovery, produce 1-2 billion
barrels, but greatly increase the difficulty of recovering the
remainder by our future generations (who will be in a true oil-short
era). This 10% assumption may be low, but wasting huge amounts of
resources is not acceptable.
3. Sodium-Aluminum resources in the oil shale. There is some
recognition by BLM of the value of Sodium (Nahcolite, 29 million tons),
but nothing I've seen addresses the conservation or recovery of the 3.5
billion tons of Aluminum (Dawsonite). This is 20 times the metal in our
Bauxite resources, and research suggests that Aluminum can be recovered
from Dawnsonite with a fraction of the energy required to process
Bauxite.
These resources are unusually large and unique, and recovery is
complex, but they are of critical importance to our Nations future, and
must not be wasted merely because much R&D is needed to achieve near-
100% recovery.
An academic researcher during the 1970-1980 period remarked that
``This oil shale resource is our Nation's perfect `bridge' fuel. It can
fill in for centuries when conventional oil is near-depleted and buy
time to develop other energy sources.'' Think about it.
Thank you.
______
Statement of Penny and Jim Creasy, Grand Junction, CO
We have watched the administrations wholesale giveaway. Instead of
opening up more lands to energy exploration and development, it would
seem better to find alternatives.
We would like to see much better stewardship of our national
treasures. It is my understanding that good stewardship should be the
BLM's mission. I also understand that agency takes orders right from
the top. We are now in a land grab and abuse that is unequaled in the
history of this country. The ``liquidation sale'' mentality should come
to an end.
I believe government should come FROM the people to the
politicians, not the other way around. It is my belief that there is
hope there if we are listened to. Please do a lot more studying and
preparation--that will take at least 3 years. The oil shale project
could turn out to be a huge boondoggle.
______
Statement of Art Goodtimes, County Commissioner, San Miguel County, CO
Although San Miguel County is not directly affected by the oil
shale proposals currently being developed for Western Colorado, the
previous oil shale bust had significant negative effects on the
economies of the entire Western Slope.
I urge you to take careful precautions before moving towards the
kind of boom climate that pushed many citizens into overextending, only
to be caught when the boom went bust.
Oil shale also needs to be developed with careful environmental
controls, particularly regarding our precious water resources. To that
end, I strongly support the kind of efforts that Sen. Ken Salazar has
been making to balance our economic needs around developing our own
energy resources in this country with the long-term needs of the
environment--upon which San Miguel County's booming tourist economy so
completely depends.
Thanks for the opportunity to comment.