Companies Believe In Oil Shale's Future

There's a saying in the Rocky Mountain West: Oil shale has a promising future — and it always will. The Obama Administration has reversed a Bush administration policy of allowing large leases on public lands for oil shale research and development. That made environmentalists happy, but oil companies are not giving up on shale just yet.

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The Obama administration has put the brakes on developing what the oil industry calls the Saudi Arabia of the Rockies. Locked away inside the Rocky Mountains is so much oil, it's estimated to be three times the proven reserves of Saudi Arabia. But it is called oil shale. The Bush administration had planned to start leasing land to oil companies looking for a way to mine this potentially valuable resource, but President Obama's administration has pleased environmentalists by switching to a go-slow approach. From Denver, NPR's Jeff Brady reports.

JEFF BRADY: Way back in 1882, Mike Callahan learned a difficult lesson about oil shale. He built a log cabin on the banks of Parachute Creek, and for the fireplace…

Mr. JASON HANSON (Center of the American West): He used some rocks that he found abundantly in the area, these dark brown rocks that they quarried really nicely. They broke nice and straight and flat.

BRADY: That's Jason Hanson with the Center of the American West at the University of Colorado. And what Callahan didn't know is that in the tiny pores of that rock was a hard substance called kerogen and when it's heated to about 650 degrees it converts to oil and gas.

Mr. HANSON: He lit a fire in the fireplace and at that point his housewarming turned into a bad pun.

BRADY: And all that hard work went up in smoke. For much of the past century entrepreneurs have tried to figure out how to make money off all those hydrocarbons locked away in shale. There've been many false starts and there's a saying around here that oil shale has always had a promising future and it always will.

In general, research has boomed when gasoline prices were high and busted whenever they dropped. In 2005, Congress passed an Energy Policy Act, which included directives to encourage oil shale development in Colorado, Utah and Wyoming. Last fall, the Bush administration finalized rules for leasing public land to companies working on oil shale, but then environmentalists challenged them in court.

David Abelson is with Western Resource Advocates.

Mr. DAVID ABELSON (Western Resource Advocates): Number one, they have a very low royalty rate, which with a low royalty rate you're in essence serving to subsidize global warming.

BRADY: And Abelson says there's just not enough information yet to establish regulations. He worries it'll require almost as much energy to extract the oil as it'll produce. Plus, just about all the processes being considered require huge amounts of water.

Mr. ABELSON: We firmly believe that oil shale is a cruel hoax. It doesn't deliver the promise that people hope it does, and in fact would have minimal increased energy production with a high carbon output.

BRADY: Abelson says the U.S. should focus instead on developing cleaner sources of energy. He's pleased the Obama administration recently withdrew research leases that were put out for bid as President Bush was leaving office. Those leases were so large they looked suspiciously like they were intended for commercial development instead of just research.

Interior Secretary Ken Salazar agrees with environmental groups that the royalty rates on oil shale were too low and his department is slowing down the Bush administration's aggressive development plan. Despite this, oil companies say they're still big believers in oil shale.

Mr. TRACY BOYD (Shell Mahogany Research Project): Well, shale is in this for the long term.

BRADY: Tracy Boyd with Shell says oil shale will become economical, because there's one truth that no one can deny: the oil that's easy to get to is becoming more difficult to find.

Mr. BOYD: It's kind of like low hanging fruit. And after you've grabbed all the low hanging fruit you have to reach a little higher. You have to work a little harder to develop the resource.

BRADY: And Shell is betting that as oil becomes scarcer, prices will rise and someday this region will live up to its billing as the Saudi Arabia of the Rockies.

Jeff Brady, NPR News, Denver.

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