Oil shale in US West again beckons energy companies

New York, March 23 | Updated: Mar 24 2006, 05:30am hrs
Big oil could soon begin trying to melt petroleum on U.S. lands from oil shale, a resource the government says has huge potential but was so pricey to produce in the 1980s that companies walked away from it.

Royal Dutch Shell, Exxon Mobil Corp., Chevron Corp., and other companies are completing environmental impact statements on applications for eight research and development leases to produce oil from shale in Colorado and Utah.In addition, last years U.S. Energy Policy Act requires the government to set up a commercialized oil shale leasing program by August 2007.

U.S. oil production has fallen nearly 50 percent from 1970 to 2005, domestic and foreign demand is rising, and crude futures so far this year are average well above last years average $57 per barrel.That is spurring oil company interest in alternative sources of crude despite concerns by local groups that oil shale production consumes large amounts of water and power, both of which are scarce in the West.

Were not disputing the fact that it is power intensive, but you get a transportation fuel which is needed in our economy, said Jill Davis, a Shell spokeswoman. So for what you give up you get a lot out.

Companies say the challenges mean they are years away from deciding whether they will produce the oil commercially.But the oil beckons.

More than 1 trillion barrels of petroleum lie underground in shale deposits in the U.S. West, mostly Colorado, according to the Department of Energy. The amount, as a point of comparison, is several times more oil than Saudi Arabia has in proved reserves.

The U.S. Bureau of Land Management may grant some of the research and development leases as early as July. Ten years later it could convert them from research leases of 160 acres to commercial leases of 5,000 acres.

Oil shales history gives both the government and companies pause. It was hot after the 1979 Iranian Revolution had boosted crude prices higher than todays, when adjusted for inflation.But then prices and price outlooks fell on rising non-OPEC production and drooping demand.On May 2, 1982, known in Colorado as Black Sunday, Exxon closed its $5 billion Colony shale project in Colorado, laying off 2,200 workers.Twenty years later all parties realize the need to develop efficient and environmentally sound oil shale technologies at a measured pace so that volatility doesnt happen again, Exxon spokesman Robert Davis said in an e-mail.

Reuters