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Oil shale deposits generate new buzz as energy source

Published May 31, 2005 1:16 am

Cautious optimism: An earlier miniboom went bust, but new technology may change things
This is an archived article that was published on sltrib.com in 2005, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

WASHINGTON - The massive oil shale deposits have been called Saudi Arabia in the Rocky Mountains, and billed as the solution to the nation's energy woes.

But those who lived through the oil shale boom in the 1970s and its collapse in the early 1980s are tempering their optimism with a dose of caution.

"This isn't our first rodeo," said Uintah County Commissioner Jim Abegglen. "We're excited about it, but we're realists."

The United States is consuming about 19 million barrels of oil daily and, with a growing dependence on imported oil and prices hovering at an economy-stunting $50, Congress is assembling an incentives package to try to resurrect interest in the industry that extracts oil from the rock.

"It's a different world today," said Sen. Orrin Hatch. "Last time we weren't as far along on the science and ability to develop the resource . . . and the costs were overwhelming."

In 1973, amid a growing oil crisis, some of the country's largest oil companies began paying millions of dollars in bonus bids to develop the shale on federal lands and the government offered up tax incentives and price guarantees to spur production.

But as oil prices dipped in the early 1980s and government subsidies were cut off, oil companies abandoned an estimated $5 billion investment and shuttered their operations.

Today, abandoned mines and empty administrative buildings built to house the anticipated shale explosion are reminders of the unfulfilled promise after the cash and the jobs disappeared.

"It used to be the saying: Last one out of Vernal turn out the lights," said Abegglen.

The Energy Department estimates that there are 1.8 trillion barrels trapped in the shale in the United States, more than half of it in the Green River formation of Eastern Utah, northwestern Colorado and southwestern Wyoming.

Hatch is sponsoring legislation aimed at spurring development of the Western shale. His bill would offer tax incentives for research and development, reduce royalty payments on shale to keep it economically feasible if oil prices dip, and provide federal funding for research and pilot projects.

The Energy Bill passed by the House would require the Interior Department to develop a program to lease federal lands for oil shale development and begin commercial leasing by mid-2007.

The Senate version of the bill, approved by the Energy Committee last week, mandates a more modest leasing program for research and development activities, directs the Interior Department to conduct a broad environmental impact study and requires the department to update information on available oil shale resources.

"I'm getting old enough that I've seen this before," said W. Cris Lewis, an economics professor at Utah State University, who studied the economic impacts of oil shale in the last boom. "My sense is we may be repeating some history, and I'm kind of pessimistic of the federal government putting money into it."

Rep. Chris Cannon, who in a recent column said that oil shale could be the key to solving the nation's energy problems, thinks the industry has learned from its past and is poised to make it work this time.

"I think if we get out of the way and maybe provide some incentives like Hatch's bill does I suspect we could see some enterprising developers and see some development over the next five years," Cannon said.

This summer, the Bureau of Land Management plans to sell as much as 60,000 tons of mined shale that was abandoned when the shale industry went bust. Abegglen said that Oil Tech Inc., based in Utah, hopes to buy a portion of that, believing it has perfected the extraction process to the point that it can produce oil for as little as $10 a barrel.

Uintah County is eager for the industry's return, and is preparing for whatever lies ahead. Some have speculated Vernal could grow to 100,000 people. Abegglen says that's optimistic, though he could envision several hundred new people moving in.

"Something is going to happen. What and how big, we don't know. About the only thing we can do as a county is hopefully prepare a little bit for a large influx of people," he said. "I can't think of one single thing in Uintah County that won't be impacted. Things like recreation, clean water, sewer plants, elementary schools - every one of those things will be impacted."

Environmentalists are urging a measured approach to development. Steve Bloch of the Southern Utah Wilderness Alliance said the areas where the shale is located are home to threatened plant and animal species, and the process can take a heavy toll on the landscape.

Traditionally, oil shale processing has been a costly, labor-intensive process. It involved using heavy equipment to mine tons of rock, crushing and heating them to the point the oil is pulled from the stone.

There were potential air and water quality issues that generated huge amounts of tailings.

But officials from Shell Exploration and Production are experimenting with a new technology that could make the process more efficient and cost-effective and address the environmental problems.

The Shell process involves drilling a hole 2,000 feet deep and using a heating element to heat the rock more than 1,000 feet down to between 600 and 700 degrees for two years.

The heat breaks the carbon molecules free of the rock, allowing oil and gas to flow through the layers and be pumped to the surface using traditional methods. A thick ring of ice keeps contaminants from polluting groundwater.

The process creates less surface disturbance and waste issues. It taps richer shale deposits deeper underground, and the hydrocarbons that are extracted are higher quality. The heating and freezing of the rock is energy-intensive, but Shell says they still produce three times as much energy as they use in the process.

It will take another five years of research and testing before Shell decides whether the technology can be applied commercially. Right now, the company estimates it could produce oil for $25 to $30 per barrel.

"The whole point is not to get too far ahead of yourself and take it slowly," said Shell spokeswoman Jill Davis. "We've been really, really sensitive about that. We didn't want to create an industry around something we couldn't deliver on."

Russell George grew up in Western Colorado and witnessed the oil shale boom in the '70s. Today, as director of the Colorado Department of Natural Resources, he is advocating a careful approach, laying the groundwork through research and planning.

"We're not in crisis mode like we were 20 years ago," he said. "While we've got time to plan this thing right and get to work on all the pieces we ought to do it."