A new report urges the Interior Department to scrap a George W. Bush administration policy designed to subsidize the development of oil shale in the Rocky Mountain West.
The report by the group Taxpayers for Common Sense warns that it is too early to set a royalty rate for oil shale that would ensure a fair return to American taxpayers, because no company has developed a commercially viable technology.
It also found that the federal government offered nearly $7 billion in loan and price guarantees to oil shale companies in the 1980s, with little or no return to taxpayers.
"With the nation poised at the edge of the fiscal cliff, we can't afford to continue this billion-dollar boondoggle, which in more than 100 years, has never resulted in a commercially viable energy source," said Ryan Alexander, president of TCS.
Oil shale advocates today blasted the report as a veiled attempt to kill an energy source that could create jobs and significantly enhance national security.
Government scientists believe oil shale deposits in Colorado, Wyoming and Utah could supply more than a trillion barrels of crude -- more than any other deposit in the world -- but acknowledge that coaxing oil from the rocks is energy- and water-intensive and, so far, has been a bad economic bet.
The Bush administration in 2008 passed a rule that would charge oil shale developers a 5 percent royalty that would be gradually increased to 12.5 percent -- the rate currently charged for conventional oil and gas on public lands.
But that rule was discarded in early 2011 as part of a settlement with environmental groups that required the Obama administration to either set a new royalty rate or scrap it altogether until more is understood about the technology.
A draft rule is expected any day, given that the settlement set a deadline of May.
Setting a royalty that is too low would fail to ensure a "fair return" to taxpayers, as required by the 2005 Energy Policy Act, according to the TCS report.
However, failure to "encourage" oil shale development, as the 2005 law also requires, could open the door to lawsuits. The American Petroleum Institute and Shell Frontier Oil & Gas Inc. suggested as much in a March 2011 filing to a federal court in Colorado that argued the settlement with environmentalists violated the 2005 law.
Jim Spehar, a former mayor and city council member in Grand Junction, Colo. -- which is near the infamous Exxon Corp. Colony oil shale project that went belly up in 1982, slashing 2,000 jobs -- said royalty rates are important to surrounding communities that must shoulder the costs of workforce housing, child care, safety enforcement, health care and damage to roads.
"We can't do that if royalty rates are set at bargain basement prices," he said.
Today's report argued that oil companies already receive subsidies through tax deductions and write-offs for infrastructure and costs incurred.
A call to Glenn Vawter, executive director of the National Oil Shale Association, was not returned by press time.
But industry backers said it is silly to assume companies will invest in risky research and development projects if the future payoff is unknown.
"The report is simply an anti-energy document hiding behind a mask of false fiscal prudence," said Dan Kish, senior vice president for policy at the Institute for Energy Research, an industry-backed think tank.
"Their report advocates hiking a royalty rate that is already five times higher than Alberta's oil sand royalty rate that has attracted hundreds of billions of dollars in investment," he said. "The impact of their recommendations would kill potential jobs, royalties and revenues in a quest for a higher percentage of nothing rather than a smaller percentage of a huge resource that could serve U.S. needs for over a century."
Republicans have been skeptical about any energy subsidies, but a House Republican from Texas this week introduced a bill to authorize $10 million annually over the next five years in oil shale research and development (E&E Daily, Nov. 27).
House Democrats this summer successfully removed $25 million in oil shale research subsidies from a GOP spending bill (E&E Daily, June 5).
Environmental groups have long opposed oil shale development, arguing that its greenhouse gas emissions and water demands exceed those of conventional oil production and that the drought-prone West could ill afford a full-scale industry.
Interior Secretary Ken Salazar, who delayed the Bush oil shale program when he was a Democratic senator from Colorado, has taken a similarly skeptical view.
Earlier this month, Salazar released a final plan to reduce by roughly two-thirds the amount of land the Bush administration made available for oil shale research, development and production.
Written By: Phil Taylor
Original Publication URL: http://www.eenews.net/eenewspm/2012/11/30/9
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