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Rocky Mountain News: Lawmakers get rare glimpse of shale project

By Gargi Chakrabarty,
June 1, 2006

MEEKER – U.S. Sens. Pete Domenici and Ken Salazar toured a private patch of land in Rio Blanco County on Wednesday to get a first- hand look at an ambitious and proprietary oil-shale project that might one day reduce the country’s dependence on foreign oil.

Energy behemoth Shell has been researching a new technology to extract oil by heating shale rock on the site since 1982. But the Mahogany project grabbed limelight a couple of years ago as skyrocketing oil prices drove lawmakers and the industry to evaluate new and unconventional sources of oil, including oil shale.

Until the tour, Shell has kept the site, on a patch of desolate land 60 miles from Meeker, off limits.

Shell says it won’t be able to make a decision about whether its technology is commercially profitable until 2010, although Domenici is already taking the project to the bank.

“The reality check is, companies here doing this research know the reality,” said Domenici, R-N.M., standing next to Salazar, a Colorado Democrat, at the project site. “They are not here to throw money away.

“We have great hope that (the technology) will work,” Domenici added.

Salazar was more cautious.

Referring to the boom-and-bust cycles of oil shale in the early 1980s in Colorado, he warned that development of oil shale should not harm the Western Slope’s way of life or its tourism-based economy.

“We need to be thoughtful about oil-shale development,” Salazar said. “It has great potential, but great risk.”

Calling tourism a gold mine, Salazar added, “We don’t want to do anything in the context of oil shale that will endanger that sustainability.”

The United States holds more than 50 percent of the world’s oil- shale resources, the equivalent of 2.6 trillion barrels of oil, of which 1.5 trillion barrels are recoverable.

Domenici is chairman of the Senate Committee on Energy and Natural Resources, of which Salazar is a member.

They had worked together to pass legislation last August that pushed the U.S. Bureau of Land Management to lease federal lands for oil-shale development.

The BLM is studying the impact of such development and is likely to begin commercial leasing by early 2008. The agency also has short-listed three companies in Colorado – including Shell – to lease federal lands for research into oil shale. The research leases will likely be approved this summer.

Terry O’Connor, Shell’s vice president of external and regulatory affairs for unconventional resources, said the company would take its research to the next and final level if BLM approves its lease application.

“Without the research and development leases, it is debatable if we will move forward,” O’Connor said, adding that Shell already has spent tens of millions of dollars in the project.

Extracting oil from shale is not a new process; it has been around for 600 years. Pioneers in the West used shale to light campfires.

Attempts to commercially develop oil shale got a boost with World War II and carried well in to the 1960s and 1970s. And they partly succeeded when oil price rose to $40 a barrel in the 1970s. But by 1982, the price crashed and many companies shut down their shale businesses overnight, plunging the Western Slope’s economy into recession.

Abandoning the traditional process in which shale is mined, crushed and then heated in giant ovens to extract oil, Shell is trying a new process to reduce surface damage.

The technique involves drilling holes and inserting heaters in target underground zones to slowly heat layers of shale. Once the rock is heated, it releases a combination of two parts oil and one part gas, which is pumped out through conventional means.

Salazar and Domenici will hold a field hearing in Grand Junction today to hear from witnesses the pros and cons of oil-shale development. Soon after the hearing, Domenici will fly to Utah to tour oil-shale properties there.

Dawn Schumann-Keithley, who runs the Pink Pig lunch truck parked 19 miles from Rifle on Colorado 13, already is buying in to the latest oil-shale rush.

“Business is picking up each day,” she said.

At issue

Shell Oil is banking that it can produce shale oil at a cost that can compete with $70-a-barrel crude oil. Shell’s highly guarded extraction technology uses electricity to heat the oil shale underground. Then the liquid keragen is pumped out. Shell’s proprietary process uses water and energy, but not as much as the traditional process, and it is less intrusive on the environment.

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