White House finishes review of BLM royalty rule

Posted: Mar 20, 2013

Written by

Phil Taylor, E&E News PM
Oil shale extraction

The White House this month finished its review of a draft Interior Department rule governing future royalty rates for oil shale in the Rocky Mountains, a sign that the long-delayed proposal may soon be released.

The rule springs from a lawsuit filed years ago by environmentalists challenging the George W. Bush administration's decision to offer reduced royalty rates to encourage development on federal lands in Colorado, Utah and Wyoming.

The royalty rates were designed to create incentives for research into an unproven -- but potentially massive -- energy source, but were criticized by environmentalists as an unnecessary subsidy that could fleece local governments that depend on royalty revenues to fund infrastructure and public safety.

A settlement struck with the environmental groups required a draft rule to be published by May 2012, which was around the same time the Bureau of Land Management sent the draft rule to OMB.

A BLM spokesman said there is no timeline for the rule's release.

Under the February 2011 settlement with more than a dozen environmental groups, Interior agreed to set a royalty rate that would balance the needs of industry while ensuring a fair return to the American taxpayer. The agency must also consider withdrawing the royalty rate altogether until more is understood about the costs of oil shale development.

A report last November by Taxpayers for Common Sense urged the latter, arguing that a royalty rate is premature because no company has developed a commercially viable technology (E&ENews PM, Nov. 29, 2012).

But industry proponents have warned that raising the royalty rate for oil shale could actually decrease revenue to local governments if it discourages companies from investing in the research and development of the fuel in the first place.

Interior is also yet to issue a record of decision for its proposal in November to make 677,000 acres available for oil shale development in Colorado, Wyoming and Utah, reducing by 66 percent the lands available under a Bush administration plan in 2008 (E&ENews PM, Nov. 9, 2012).

Environmental groups have opposed oil shale, arguing that its widespread development would siphon water from agricultural users and release more global warming gases into the air than conventional oil.

The U.S. oil shale resource is estimated at more than a trillion barrels of oil, but companies have yet to discover a commercially viable way of turning the kerogen in shale into marketable crude. Oil shale is different from the shale oil that is being commercially produced in North Dakota, Texas and northeast Colorado, among other places.

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