Oil Shale Resources

Statement of C. Stephen Allred

Assistant Secretary, Land and Minerals Management

U.S. Department of the Interior

Oversight Hearing: Oil Shale

Senate Energy and Natural Resources Committee

May 15, 2008

Mr. Chairman and members of the Committee, thank you for the opportunity to participate in this oversight hearing to discuss the development of oil shale resources on federal lands.

I understand the key leadership role this Committee played in the development of Section 369 of the Energy Policy Act of 2005 (EPAct), directing the Department of the Interior to ready itself to meet future requests for the commercial development of oil shale on Federal lands.

This hearing comes at a particularly challenging time as oil prices are reaching record levels, and energy prices are affecting the Nation and our citizens in a number of profound ways. As energy demand continues to rise, we must focus on the need to provide for future energy supplies. The U.S. will continue to be dependent on oil for the foreseeable future, and oil shale is a domestic source that, if developed, can help to meet this demand. Total U.S. energy use will increase 19 percent and demand in China and India will double. Over the next 25 years, domestic production of all energy resources, oil, gas, coal and renewable energy, will be important to our economy. That is why this hearing is so important today.

Oil shale holds much potential for helping to address this challenge. It is imperative that the Federal Government act now to meet our future energy needs. New sources of energy take a great amount of time and private capital to develop and bring on line. With the legislative provisions concerning oil shale in EPAct 2005 Section 369(d)(2) establishing final regulations for commercial oil shale leasing, we can provide the framework for the development of an environmentally sound and economically viable oil shale industry to help meet our future energy needs. Accordingly, I would urge Congress to repeal the current prohibition on the finalization of the oil shale regulations.

Section 369 of EPAct, which builds on the oil shale research, development, and demonstration (RD&D) leasing program initiated by the Department of the Interior (DOI) in 2004, directs the Secretary to develop a Programmatic Environmental Impact Statement (PEIS) and commercial leasing regulations for oil shale. The concept is a comprehensive three-pronged approach: 1) Permit oil shale RD&D projects to ensure that oil shale technologies can operate at economically and environmentally acceptable levels prior to expansion to commercial-scale operations; 2) develop an oil shale PEIS to identify the most geologically prospective oil shale areas in Colorado, Utah, and Wyoming; and 3) develop commercial oil shale regulations that will allow companies to make investment decisions in RD&D efforts now, so that when technologically, commercially, and environmentally feasible, the Federal government is prepared to move forward to allow commercial oil shale leasing. Each of these steps builds upon the other, and each is executed in an open, public process with full consideration of social and environmental concerns.

Finalizing oil shale regulations is a critical component in realizing the potential of this vast resource. Unfortunately, the Consolidated Appropriations Act for Fiscal Year 2008 prohibits the BLM from spending FY 2008 funds to publish final regulations on oil shale. While the prohibition limits the BLM from publishing final regulations, the BLM intends to publish proposed regulations this summer. These regulations will lay out a proposed framework for potential commercial operations. However, absent the certainty that final regulations would bring, the commercial oil shale industry may not be willing to invest the necessary dollars for research, and this vast domestic resource will remain untapped at a time when our Nation is searching for ways to further its energy security.

Oil Shale Programmatic Environmental Impact Statement

The BLM published and accepted comments on a draft PEIS for the future development of oil shale and tar sands. The draft PEIS is not a leasing document, but will serve to inform land allocation decisions by analyzing the most geologically attractive oil shale areas in Colorado, Utah and Wyoming. Decisions that result from the PEIS will identify lands that may be open to receive applications for future commercial oil shale and tar sands leasing, and will amend 12 associated land use plans. Forest Service and National Park Service lands are not included in the analysis for such development at this time. It is important to note that any future leasing and development will be contingent upon the successful completion of site- and project-specific environmental analyses.

The RD&D projects will identify commercially viable technologies that can provide the basis to conduct the appropriate site-specific environmental analysis prior to leasing.

The draft PEIS was developed with the help of 14 cooperating agencies including the states of Colorado, Utah, and Wyoming, and several local governments from those states. It was published and released to the public in December 2007 for a 90-day comment period. In response to requests from the State of Colorado and others for more time, an additional 30-day comment period was granted. The public comment period ended April 21, 2008, and more than 100,000 comment documents were received and are currently being reviewed. A final PEIS is scheduled for completion late this summer, and a record of decision is scheduled for completion by the end of this calendar year. It is important to note that no leasing will occur until RD&D has produced viable technology and a leasing EIS is completed.

Oil Shale Regulations

Section 369 of EPAct also directs the Secretary to develop regulations to establish a commercial oil shale leasing program. The regulations are being developed in keeping with the overall goal of the Act, that a BLM oil shale program is to promote economically viable and environmentally sound oil shale production that augments current domestic oil production while addressing the potential effects of development on states and local communities.

The BLM plans to publish proposed regulations this summer for public review and comment that will provide the roadmap for future industry management decisions. They incorporate applicable provisions of EPAct and the Mineral Leasing Act of 1920 (MLA) that establish oil shale lease size, maximum acreage limitations, and rental rates. The proposed regulations will also address direction in EPAct to establish work requirements and milestones that ensure diligent development of leases. In addition, the proposed regulations will address the key comments received in response to the BLM's August 2006 advance notice of proposed rulemaking.

Moving forward with these regulations does not mean commercial oil shale production will take place immediately. To the contrary, with thoughtfully developed regulations, thoroughly vetted through a public process, we have only set the groundwork for the future commercial development of this resource in an environmentally sound manner. With the administrative and regulatory certainty that regulations will provide, energy companies will be encouraged to commit the financial resources needed to fund their RD&D projects, and the development of viable technology will continue to advance. Actual commercial development and production will be dependent upon the results of the RD&D efforts and more site-specific environmental evaluations.

As discussed earlier, consistent with the language in the Consolidated Appropriations Act for FY 2008, the BLM is not spending FY 2008 funds to develop and publish final oil shale regulations; however, the agency is moving forward in a thoughtful, deliberative manner to publish proposed regulations on oil shale. These proposed regulations will address much of the input already received. The publication of the proposed regulations will provide an additional opportunity for the public and interested parties to comment on the proposed regulatory framework and remain engaged on this important issue.

RD&D

The DOI has been a leader in advancing opportunities for oil shale technology RD&D on Federal lands. DOI's Oil Shale Task Force, initiated in 2004, examined options for promoting oil shale development on Federal lands, resulting in the RD&D leasing program's initiation in 2005. In 2007, the Bureau of Land Management (BLM), after a competitive process, authorized six oil shale RD&D projects on public lands in northwestern Colorado and northeastern Utah. These projects provide industry access to oil shale resources to further their efforts to develop oil shale technologies. Despite the potential for significant return, investors face challenges in the development of new technologies and uncertainty in the regulatory and administrative arena. Based on my experience in private industry, I strongly believe we need to promulgate regulations now to help alleviate some of this uncertainty, thus providing the necessary framework the companies need in order to make informed decisions to invest in oil shale development both now and in the future.

This type of research will require significant private capital, with an uncertain return on investment. Part of the wisdom of Section 369 is that it envisions the private sector will lead this investment -- not the American taxpayer. However, for this to be successful, for these companies to invest the large sums of money, a level playing field and a clear set of regulations or “rules of the road” are required. Developing a regulatory framework now will aid in facilitating a producing program in the future. Impeding the Federal Government's efforts at this stage could significantly impact our ongoing efforts to achieve greater energy security.

The Case for Oil Shale

Declining domestic oil production leaves us vulnerable to rising energy costs. Households across America are struggling to deal with these additional costs and experts predict that the trend is set to continue. In looking beyond traditional energy resources to unconventional and alternative fuels, the Department of the Interior has a key role to play in the development of oil shale.

The potential of the U.S. oil shale resource to serve the Nation's needs is staggering. The U.S. Geological Survey estimates that the total U.S. oil shale resource in place is 2.1 trillion barrels – 1.5 trillion barrels of which is located in the Green River Basin of Colorado, Utah, and Wyoming. Even if only a fraction of this resource is ultimately recovered, it could have a significant impact on our Nation's energy supply. The Strategic Unconventional Fuels Task Force has estimated that as much as 800 billion barrels of oil equivalent could be recoverable from oil shale resources depending on technology and economics, enough to replace the oil we import for more than 180years.

Conclusion

Thank you for the opportunity to testify on the progress we are making, and the challenges we face in establishing a program for the commercial development of oil shale on federal lands. As I stated earlier, any delay in finalizing these regulations may discourage private investment in much needed research and development and create a high level of uncertainty that will ultimately affect investments to advance economically viable and environmentally sound oil shale development and technology. I urge Congress to lift this ban and allow us to move forward with the public process of finalizing regulations for commercial oil shale development on federal lands.