WASHINGTON, DC, October 21, 2009 (ENS) – Secretary of the Interior Ken Salazar has asked Interior’s Inspector General to investigate a set of favorable conditions and low royalty rates that were offered to energy companies holding oil shale leases on January 15, 2009 – just five days before the end of the Bush administration.
Secretary Salazar told reporters on a teleconference Tuesday that the timing and circumstances of the previous administration’s modifications of existing research, development and demonstration leases, called lease addenda, merit additional review.
The Bush administration established an initial royalty rate of five percent to be paid by lessees to the government for commercial oil shale production, an action that Secretary Salazar has described as “premature.”
“Taxpayers deserve answers to serious questions about why these lease addenda were granted at the eleventh hour, under what circumstances, and at what potential expense to the federal treasury,” said Salazar. “We must reform our nation’s oil shale program and ensure that the American people have the promise of a fair return from their resources.”
Oil shale is a sedimentary rock that, when heated, releases petroleum-like liquids. More than 70 percent of American oil shale – including the thickest and richest deposits – lies on federal land, primarily in Colorado, Utah, and Wyoming.
The United States holds the world’s largest known concentration of oil shale. Nearly five times the proven oil reserves of Saudi Arabia underlies a surface area of 16,000 square miles, according to the Bureau of Land Management, BLM.
In 2006 and 2007, the BLM issued six research, development and demonstration leases, RD&D, oil shale leases on lands in Colorado and Utah for the purpose of developing new oil shale recovery technologies.
The existing leases limit the total initial RD&D land area to a maximum of 160 acres, but if a lessee demonstrates the ability to produce commercial quantities of synthetic petroleum derived from shale, the lessee may develop an area of up to 5,120 contiguous acres.
On January 15, 2009, the Department granted the holders of these six oil shale RD&D leases the right, at the time of conversion to commercial development, to elect to have their leases governed by a set of favorable conditions and low royalty rates.
Salazar says there are serious questions about whether those lease addenda are legal or should be rescinded. “I have decided that before taking final action, I should get to the facts surrounding the addition of those addenda,” the secretary said. “The Inspector General can get us to the facts.”
Citizens from western states, including sportsmen groups and conservationists, applauded Salazar’s announcement that the agency will investigate Bush administration policies for fast-tracking oil shale development.
“The review of Bush administration policies is absolutely necessary in this case as the previous administration crammed imprudent regulatory changes in at the 11th hour,” said Peter Hart, an attorney for Wilderness Workshop on the Western Slope of Colorado. “The rush to develop these resources that characterized the entire tenure of that administration failed to adequately account for impacts to the environment, implications to our precious water resources, and the energy needs associated with development of this resource.”
“Commercial oil shale could drastically impact critical wildlife habitat along with Colorado’s other natural resources,” said Bob Elderkin, a Colorado Wildlife Federation member and former Bureau of Land Management oil and gas regulator. “It’s important that the BLM do a through environmental assessment that determines what the immediate and long-term consequences of commercial oil shale before any approval for industrial production is granted.”
Elderkin noted that under the lease terms, the trigger for conversion to commercial leasing is based only on an economic evaluation.
“The impacts on all resources need a full evaluation so the public and local communities can decide whether the benefits of oil shale out weight the inevitable loss to Colorado’s wildlife and other natural resources,” said Elderkin, a veteran hunter, outfitter and Silt resident who worked in Colorado during the first oil shale boom.”
In an effort to determine whether shale oil production technologies are viable in terms of their impact on power and water supplies, Salazar said Tuesday that the Department of the Interior is offering additional opportunities for energy companies to conduct oil shale RD&D projects on public lands in Colorado, Utah, and Wyoming.
Energy companies will have 60 days after publication of a Federal Register notice to submit applications for the second round of RD&D leases.
Potential lessees may nominate up to 160 acres for RD&D. If the lessees demonstrate the ability to commercially produce oil equivalent derived from shale, up to 480 additional contiguous acres could be added to the lease for commercial-scale development.
The RD&D nominations will be reviewed by an interdisciplinary team of Bureau of Land Management professionals and representatives from the states of Colorado, Utah, and Wyoming, as appropriate, and the departments of Defense and Energy. The team will consider the potential of each proposal to advance technological knowledge, economic viability, and environmental impacts of oil shale development.
In this second round of leasing, rights to commercial development would cover a maximum of 640 acres, one square mile for each lessee. In contrast, the first round, offered by the Bush administration could include 5,120 acres per lessee, or eight square miles.
Salazar said second round lessees will have to meet net criteria for water use, energy use, water quality and diligence milestones. Lessees must submit plans for development within nine months of being granted a lease; they must acquire permits within 16 months, and must submit quarterly progress reports.
“While we disagree that industry needs a second round of RD&D leases for oil shale, the decision by Secretary Salazar to permit industry to seek such leases is a step in the right direction towards ending the debate on oil shale development in Utah,” said Stephen Bloch, conservation director for the Southern Utah Wilderness Alliance. “If industry cannot demonstrate that producing oil from shale rock can be done in an environmentally sound manner, one that protects our air, water, and wildlife, then it has no place on public lands.”
Salazar said he hopes information forthcoming from explorations on all the oil shale leases will help answer basic questions about the environmental impacts of the technology that will determine fair royalty rates to be paid to the government.
“That is the purpose of RD&D leases,” the secretary said. “Companies are testing the technology that will be evaluated regarding these issues. Will take 1.2 gigawatts of generating capacity for kerogen production or more or less?”
“With regard to water, we know stresses and strains on the Colorado River basin,” said Salazar, who hails from Colorado. “Water for oil shale develop will come from the Colorado basin, but we don’t know if it will be 100,000 acre feet or another amount. For oil shale production to be part of our long-term comprehensive energy plan, we need answers to those questions.”
Salazar is questioning how those five percent royalty rates could be set by the Bush administration when these fundamental questions have not yet been answered.