Potential Rule Change for U.S. Shale Oil

From Scandanavian Oil & Gas (source):

The U.S. Department of the Interior’s has said it supports a proposal by Washington to ease rules on developing shale, which a new estimate says could yield 800 billion barrels of recoverable oil.

The Department is proposing leasing regulations ensure maximum oil shale lease sizes a range of royalty rates.

According to the U.S. Geological Survey, the U.S. holds more than half of the world’s oil shale resources.

Oil shale is a fine-grained sedimentary rock containing organic matter from which oil can be produced. In a report this year in Scandinavian Oil-Gas Magazine, it was learned that Shell had quietly secured a shale concession in Sweden, which is also rich in the alternative energy source.

Commercial development of oil shale will not begin until the technology is ready, “not expected for several years”, according to the Department. The President Bush has called on Congress to remove a ban on finalizing oil shale program regulations.

The largest known deposits of oil shale are in a 16,000-square-mile area in the Green River formation in Colorado, Utah and Wyoming.

The BLM press release is here, and the text of the proposed leasing regulations is here.  I would note that the press release states that “site-specific National Environmental Policy Act (NEPA) analysis would be completed on the proposed development”, but the actual proposed rules say

The BLM has prepared an environmental assessment (EA) and has found that the proposed rule would not constitute a major Federal action significantly affecting the quality of the human environment under Section 102(2)(C) of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4332(2)(C). A detailed statement under NEPA is not required.

In reality, it would be pretty hard to have a site-specific NEPA analysis support anything other than FONSI (Finding of No Significant Impact) if the underlying regulations say the activity is determined FONSI.  How they arrived at FONSI for the proposed rules bothers me a bit, since the proposed regulations don’t differentiate between in-situ and ex-situ processes.

Petroleum News notes that:

In draft rules issued July 22, the Interior Department recommended a range of royalty rates for the extraction of oil from shale on 2 million acres of public property in Colorado, Utah and Wyoming. All would be less — at least for a time — than the 12.5 percent to 18.8 percent the government currently collects from companies producing oil on and offshore.

Interior officials said the discounted rate, which would be fixed at 5 percent in one proposal, would offer an incentive for companies to develop oil shale, which can cost up to three times more to produce than traditional oil. Shale oil also contains less energy than oil, coal and wood, the Interior Department said.

“For years, the cost of extracting oil from shale exceeded the benefit, but today that calculus is changing,” Interior Secretary Dirk Kempthorne told reporters July 22. “This makes oil shale a highly promising resource.”

Looks like a potential score for Newt Gingrich and Frank Luntz.  Reduce the amount of royalty payments paid by private companies for exploitation of public lands (that is, cut the amount of profit that we, the people, get), so that the mining companies that bankrolled the lobbying effort can make a profit and evade the costs of oil shale production (diversion of water from agriculture and drinking, turning public lands into open pits, greenhouse gas emissions, etc.).

Environmentalists, along with Colorado’s Democratic governor, Bill Ritter, accused the Bush administration of rushing to develop oil shale at “bargain basement” rates, without accounting for its various impacts. High oil and natural gas prices have already caused a black gold rush in the West, with more than 100,000 traditional oil and gas wells approved in recent years.

Ritter said July 22 that oil shale, which would not be produce oil until 2015 or 2016, would do nothing to help with high gasoline prices.

“This is a last-ditch, irresponsible attempt by the White House to issue commercial oil-shale leases, at Colorado’s expense,” Ritter said. “These regulations would send bargain basement royalty rates that could cost Coloradans billions of dollars.”

Kate Zimmerman, a senior policy specialist with the National Wildlife Federation, said Interior’s proposal did not represent a fair market value to the public.

“It’s a lowball number in terms of the potential profits these guys are going to reap from oil shale,” she said.

it should be noted that the proposed rules offer several options besides a fixed 5 % royalty, which would be charged as a percentage of the cost of a barrel of oil. Other options include a sliding scale based on the market price of conventional oil and gas, as well as a royalty rate that would start at 5 % and increase to 12.5 %, depending on the level of production.

Industry representatives, who pushed for initial royalties to be lower than 12.5 percent, said that while commercial-scale production of oil shale is a decade off or more, companies need to know what to expect before investing.

The current estimated production cost for shale oil ranges from about $37.75 to $65.21 per barrel, according to the Interior Department, while conventional onshore crude costs approximately $19.50 per barrel to produce (these values are lifting costs, not sales prices).

Additional information at RigZone, via Dow Jones, at the Oil Rules Blog, and various newspapers (here, here, and here, AP story here).

About these ads
This entry was posted in Shale Oil and tagged , . Bookmark the permalink.

One Response to Potential Rule Change for U.S. Shale Oil

  1. Acai Plus says:

    Nice bog you have here. I pretty much lurk the internet when I’m bored and read all I can about the organic lifestyle, but I really liked you view on things. I’ll bookmark the site and subscribe to the feed!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s