Red Lodge Clearinghouse

The scene is not all that different from those that can be found throughout this region of the state, where the natural gas boom has turned formerly wild landscapes into hubs of industrial activity, with their accompanying trucks, pipelines, noise and lights. But there are no drilling rigs here, and the precious resource being eyed for extraction is not natural gas, but kerogen buried within layers of shale.

This is the 25-acre site of Shell Oil Co.'s latest phase of research into turning that kerogen -- a precursor to petroleum -- into a usable fuel for the world market. Kerogen yields oil only when heated to extreme temperatures.

Shell is developing a process to heat up oil shale underground to 700 degrees Fahrenheit and pump kerogen up to the surface, but before it can do that, the company wants to create a barrier to groundwater movement to protect water from contamination during the extraction process. This is where the pipes come in.

Although the pipes reach above the land's surface just about as high as an 18-wheeler, and in some places even higher to allow access for semis, they have a much greater reach underground, stretching as deep as 1,850 feet beneath the surface. The pipes circulate an ammonia refrigerant cooled to 40 degrees below zero that creates a 15- to 25-feet-thick freeze wall, preventing groundwater from flowing into the area planned for oil shale extraction. Shell started the freeze wall experiment here October 2007.

Last week, just a few trucks and workers were busy at the site, apparently involved in mundane tasks like moving dirt from one area to another.

"It's not the most exciting thing to look at because everything's taking place underground," said Shell spokesman Tracy Boyd. "It's like watching a submarine race. You just have to know what's going on down there."

Shell is still experimenting with the freeze wall, so it keeps a close eye on everything from water levels to temperatures in the hope of learning whether the technology is feasible. The freeze-wall test is expected to continue for another three years.

Shell has yet to test its cooling and heating technologies at a single site, but it expects that a 75- to 100-foot buffer zone between the freeze wall and the heaters will be sufficient to ensure that the freeze wall does not melt. It expects to carry out the first fully integrated test of its cooling and freezing technologies on one of three pilot research, design and development sites it has leased from the Bureau of Land Management.

The company estimates that full-scale commercial production is still at least a decade away.

But that has not stopped a push to encourage commercial oil shale development as part of an overall program to ramp up domestic energy production under the Bush administration. With gasoline topping $4 a gallon earlier this year, there has been increased pressure to remove obstacles to domestic energy development, both on land and offshore.

Moratorium expires, bailout approved

One of the most significant obstacles to oil shale development disappeared last week with the expiration of a congressional moratorium on developing final rules for commercial oil shale leasing on public land.

Opponents to issuing the rules say the Bureau of Land Management should wait until more is known about how commercial oil shale development will occur, noting significant uncertainties about the amount of water and electricity needed for full-scale production.

"I believe that if they can really find a way to produce oil shale that's economically viable, sustainable, that is not going to destroy all the lands, that will leave a smaller impact, then it's going to be difficult to argue for not developing that resource, but we don't know what that's going to look like yet," said Garfield County Commissioner Trési Houpt.

But industry representatives say the issuance of the rules is necessary to encourage oil shale development, noting that companies may be reluctant to pursue development without a clear idea of what regulations they will face and how much the government plans to charge for royalties.

"You can't prove viability of your technology without knowing what your costs will be," Boyd said.

Glenn Vawter, who has worked in the oil shale industry since 1964 and is now with the National Oil Shale Association, said the rules will likely not have much effect on the industry except to give a better idea of what the ground rules are, which could help companies determine whether to proceed with a commercial project.

"I don't think we'll see people rushing out now to develop oil shale because the regulations get published," Vawter said. "It's a comfort level -- people who are spending money, they're going to be able to figure out the economics of this, once they know what the royalties and bonus payments and terms of the leases will be."

Also, the bailout bill that President Bush signed into law last week allows the expensing of half of the capital cost of oil shale retorting facilities for the first year of their construction, which environmentalists say represents a big step backward on global warming and encourages development in some of North America's most precious natural places.

The language is part of a larger tax incentive aimed at encouraging the construction of more refineries in the hope of reducing Americans' energy costs.

The credit allows energy companies to expense certain refining property used to directly process liquid fuel from shale and tar sands. It expires Jan. 1, 2014, and is expected to cost more than $2 billion over its lifetime.

There is also uncertainty about whether the credit could be applied to in-situ oil shale development like Shell's, although environmentalists maintain that such an application would be dubious, since any kerogen product developed by these operations would likely need to be further refined to become a usable transportation fuel.

Bobby McEnaney of the Natural Resources Defense Council said the tax credit could create an investment bubble for those seeking to take advantage of the incentives -- a bubble that could eventually burst much in the same way that the last oil shale boom did in 1982.

"I think it will accelerate investment in a technology that is immature and not ready for prime time," McEnaney said. "It's an investment that's not sustainable in the long run."

Examining the effects

Environmentalists charge that the extraction and refinery of oil from shale is likely to generate upward of four times more greenhouse gases than conventional sources and would be mined from some of the most precious wildlands in the Rocky Mountains.

After flying over Shell's research site last week on a tour provided by EcoFlight, a nonprofit group that provides aircraft for environmental advocacy, Wilderness Workshop staff attorney Peter Hart noted that oil shale development could have a devastating impact on the landscape. "Basically, you're taking a natural, wild landscape and you're turning it into an industrial complex. That's what you're doing. You're scraping it clean, as flat as a pool table, and you're sticking a bunch of crazy, high-tech machinery a thousand feet into the ground, and it's never going to be the same."

Shell estimates that the technology, on which it has already spent "many tens of millions of dollars," could enable the company to extract 1 million barrels of oil per acre -- roughly one-third of U.S. daily oil consumption.

Shell announced Tuesday that it has awarded a $950,000 research grant to Colorado State University in Fort Collins to study revegetation practices on one of its three research leases on federal land. Scientists will study long-term ecological dynamics, including effects of disturbance on plant communities and ecosystems, to help determine how to optimize ecosystem restoration following land uses such as temporary road construction associated with oil and gas drilling or oil shale development.

As part of the research partnership, CSU researchers will host a symposium in 2011 that will feature research results from the Piceance Basin.

Also, six pilot research and development projects are under way in Utah and Colorado to test various ways of extracting usable fuel from oil shales. Each of those 160-acre research and development leases could eventually be converted into commercial leases covering 8 square miles.

All but one of the research leases is sited in northwest Colorado's Piceance Basin, which holds some 90 percent of recoverable domestic oil shale reserves. Oil shale in the United States holds an estimated 800 billion barrels of recoverable oil -- an amount three times the recoverable reserves of Saudi Arabia.

Nearly three-quarters of oil shale reserves lie beneath federal land. The Energy Policy Act of 2005 required the Interior Department to complete a programmatic environmental impact statement for development of oil shale on public lands in Colorado, Utah and Wyoming and specified a separate process for commercial leasing of oil shale.

The Bureau of Land Management issued its final programmatic environmental impact statement in September, opening up 2.4 million acres of public lands to commercial leasing. The final regulations governing leasing are expected to be released by the end of the year.

But environmentalists have not given up the fight against commercial oil shale development. In a letter to Interior Secretary Dirk Kempthorne released Tuesday, the Wilderness Society said BLM undermined the Federal Land Policy and Management Act and the National Environmental Policy Act when it decided to amend 12 land management plans for Colorado, Utah and Wyoming without providing an opportunity for the public to protest.

The letter says that the notice of availability issued when the final programmatic environmental impact statement was published "makes it clear that there is no opportunity for continued public participation in the process" and asks BLM to withdraw the 12 amendments "until the agency has fully complied with applicable laws." BLM also denied the governors of Colorado, Utah and Wyoming the opportunity to conduct formal consistency reviews with the policies and programs of their states, affecting air, water and wildlife, according to the letter.

When the draft programmatic EIS was issued earlier this year, it garnered nearly 105,000 comments during a 120-day period, many of which identified significant deficiencies -- yet BLM made no adjustments to the 12 amendments. Among the problems environmental groups identified with the draft programmatic EIS were inaccurate estimates of water available in the Colorado River Basin to support a commercial oil shale industry and BLM's disregard for the potential global warming impacts of pursuing oil shale without significant additional research.

The letter charges that BLM "has deprived the public of an opportunity to provide meaningful comment" on the programmatic EIS, including issues such as how BLM measured the amended plans' effects on the environment, how the decisions will affect use of public lands and the logic of proceeding with a fuel that generates disproportionate amounts of greenhouse gases.

Fluctuating interest in oil shale

The history of oil shale development in the United States has involved a bit of back-and-forth. The first serious attempt to develop oil shale began in 1890, and interest grew in the early 20th century when former President Theodore Roosevelt warned of an impending oil shortage.

"Is the United States facing a gasoline famine?" National Geographic asked in a 1918 article. "Shall we be required to forgo automobiling except to meet the stern necessities of war and of utilitarian traffic?"

The answer, according to the magazine, was no, thanks to the rich oil shale deposits available in the United States.

By 1920, about 30,000 claims for oil shale were filed on 4 million acres in northwest Colorado. But the promised oil shale boom never materialized, and the lure of "fire rock" was soon overshadowed by the liquid gold flowing from Texas.

Interest in oil shale waned until the 1970s, when the OPEC oil embargo drove up prices. In 1980, then-President Jimmy Carter offered $20 billion in potential subsidies for oil shale start-ups, and companies rushed in to capitalize on these incentives. Exxon Corp. (now Exxon Mobil Corp.) invested $5 billion, and the town of Battlement Mesa was born.

The boom didn't last long. On May 2, 1982, Exxon suspended its oil shale operations, and 2,000 people lost their jobs. One reason: Oil prices were dropping, bottoming out at $10 a barrel by the mid-1980s.

The new boom

So it makes sense that with oil prices above $100 a barrel today, there would be renewed interest in developing oil shale. Vawter of the National Oil Shale Association said energy companies are being much more deliberate about oil shale development than they were in the '70s, when there was a headlong rush to development.

"The development of new technology is going through extensive research and demonstration phases before companies are deciding whether it'll be economic to go forward with a commercial project," Vawter said. "It's at a much slower pace, and people are much more careful."

But oil shale still has its skeptics. "It's not clear whether oil shale is a mirage, an illusion or something real," said energy analyst Randy Udall. "We've tried to do this for a hundred years. It's never worked. Maybe oil prices are high enough now that it will work, but history would suggest that this rock promises a lot and delivers very little."

While oil shale has only recently come back into the spotlight, work on developing this resource has continued unabated for decades. Unocal continued to produce small amounts of oil for several years after Exxon pulled the plug on its facility, and Shell has been quietly working on new technologies for more than a quarter of a century.

Because kerogen must be heated to high temperatures to yield oil, most conventional technologies for developing oil shale have involved extracting the kerogen-rich shale, heating and drawing off the oil. Other producers have fractured the rock underground and then heated it. Both methods have drawbacks, since they produce a range of hydrocarbons that are difficult to refine, and the mining process also yields a large amount of waste rock that must be disposed of.

Shell's in-situ process resolves this problem by heating the rock for a longer period of time at lower temperatures -- 650 to 700 degrees Fahrenheit, versus 900 degrees used in conventional processes. The lower, slower heating process results in a lighter crude oil that, at least theoretically, can be pumped out of the ground and distributed by pipeline.

The process requires large amounts of energy, but Boyd noted that the energy demands from commercial oil shale development could come from a diverse array of sources, not just traditional coal-fired power plants. Natural gas-fired power plants produce significantly less greenhouse gas emissions, and wind and nuclear power do not produce any, he said.

"Fifteen or 10 years from now, when commercial projects are more likely to be starting, it will depend on what the energy market looks like at the time to see what the optimal supply would be," Boyd said.

Heating the rock the way Shell wants to do it would require a 1,000-megawatt power plant, making it the single largest source of electricity in the world, and would cost $3 billion to $4 billion and take four to five years to build, according to Udall. He estimated that Shell's annual utility bill would be in excess of $500 million.

"This, to my way of thinking, is thermodynamic insanity," Udall said. "If we're going to make a lot of electricity, I would argue we ought to put it into plug-in vehicles and not use it to bake the earth."

Although Shell's research has garnered the most attention of the research projects being conducted with regard to oil shale, other companies are also looking at innovative ways to develop oil shale.

Chevron Corp. and the Los Alamos National Laboratory are working on a joint research project that would use conventional drilling technologies and modified fracturing techniques. After drilling, Chevron would apply a series of controlled horizontal fractures within the layers of rock containing kerogen, preparing it for heating and in-situ combustion. The company would then circulate hot carbon dioxide-rich gases through the fractured formation using its wells and a gas generator, creating enough heat to yield producible hydrocarbons.

One advantage of Chevron's technique is that the use of conventional drilling technologies would require a smaller footprint than past oil shale extraction activities. The use of conventional drilling may also be more cost efficient and use less water and power.

Raytheon Co. is developing a process that would use radio waves to heat the shale. Exxon Mobil plans to shoot electrically charged particles of petroleum coke, a waste byproduct of refining, into cracks in the shale.

"There's a lot of people doing different things," Vawter said. "Some may be successful, some may not be. But hopefully, a technology will be developed that is economically and environmentally acceptable."

Remaining questions

One of the biggest environmental questions surrounding oil shale development is just how much water would be required. A 2006 study by the RAND Corp. estimated that at least three barrels of water would be needed for every barrel of oil produced, but those figures rely on research from the 1970s and 1980s and assume construction of coal-fired power plants that require large amounts of water.

Although Shell will not divulge how much water will be required for its technologies, Boyd suggested that it will be less than the figures put forward by Rand. "As we develop our research and development projects, we're going to be able to get a firmer handle on what the water needs of the industry are going to be, and when the facts come out, I think it will end up being something somewhat less than that," he said.

"But even at three barrels of water per barrel of oil produced, if you look at that and how that compares to the water that exists in the Colorado River Basin, the rivers are not going to dry up because of that kind of demand," Boyd added.

There is disagreement about how much water is unallocated in the Colorado River, but estimates range from 400,000 to 600,000 acre-feet. A full-scale oil shale industry could require 180,000 to 420,000 acre-feet of water per year.

Shell already has rights to enough water to produce 100,000 barrels a day of oil shale, but a full-scale commercial oil shale industry would consume most of Colorado's unallocated share of the Colorado River, Udall said. "The remaining water that all Coloradans share, that we haven't allocated yet, our share of the Colorado River could be consumed by a very large oil shale industry," he said. "We do have enough water here for a small oil shale industry."

The Colorado River Water Conservation District is working on a study looking at the impacts of energy development on water supplies that is expected to be publicly released next month. "It will certainly point out that if oil shale ever reaches middle to high production levels, if that ever were to be true, there are going to be significant implications to water supply," said Colorado River District spokesman Jim Pokrandt.

Environmentalists have also criticized oil shale development as insufficient, noting that a ton of oil shale holds less energy content as a ton of potatoes or Cap'n Crunch cereal. "The problem with oil shale is you have to process and heat it by the ton, and most of that ton is not energy, so you don't have the option of just harvesting the energy," Udall said.

"An oil-bearing sandstone formation will have just as much energy as oil shale, but you can take the energy out of it without dealing with the rest of the rock. With oil shale, to produce oil shale, you have to heat the rock by the ton. You don't get to harvest the energy until you've heated all of the rock, and most of the rock is stuff that you don't want, that there's no energy in."

Boyd says the comparison holds true if you are looking at conventional oil shale techniques that rely on mining the shale and heating it, but not Shell's in-situ process, which would allow the kerogen to be extracted from the ground. "It's an interesting comparison, but it isn't an apples-and-apples comparison, and I also haven't yet found a vehicle that I can run on Cap'n Crunch or tater tots or potatoes," Boyd said.

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