msnbc.com staff and news service reports
updated 2/25/2009 6:50:14 PM ET 2009-02-25T23:50:14

The Obama administration on Wednesday reversed yet another Bush-era policy, scrapping leases for oil-shale development on federal lands in Colorado, Utah and Wyoming.

Citing environmental and economic concerns, Interior Secretary Ken Salazar withdrew a proposal for expanded research and development leases and shelved a planned second round.

"We need to push forward aggressively with research, development and demonstration of oil shale technologies to see if we can find a safe and economically viable way to unlock these resources on a commercial scale," he said in a statement.

Salazar rescinded a lease offer made last month for research, development and demonstration projects that could have led to oil-shale works on 1.9 million acres in the three states, greatly expanding the program.

"I am withdrawing that Jan. 14 solicitation because in my view it was a midnight decision, and it was flawed," Salazar told reporters on a teleconference call from Washington, D.C.

He said he also is scrapping an initial 5 percent royalty rate on oil-shale production, saying the rate "sells taxpayers short." Conventional oil and gas production on public land produces royalties of up to 18.8 percent.

Salazar added that new lease proposals would be drafted that "help answer critical questions about oil shale, including about the viability of emerging technologies on a commercial scale, how much water and power would be required, and what impact commercial development would have on land, water, wildlife, and communities."

'Low royalty rates' cited
The Bush-era leases "locked in low royalty rates and a premature regulatory framework," he added. "If oil shale technology proves to be viable on a commercial scale, taxpayers should get a fair rate of return from their resource."

Last October, the Bush administration gave energy companies steep discounts in the royalties they would be required to pay as it established the groundwork for commercial oil shale development on federal land.

At the time Interior Department officials said the 5 percent royalty rate during the first five years of production was needed to spur drilling while still giving taxpayers a fair return. But that rate was much lower than the 12.5 percent to 18.8 percent the government collects from companies harvesting conventional oil and gas on public lands.

Lawmakers from Colorado, Utah and Wyoming, which would have received half of the royalties collected, had said it was too early to issue final rules on oil shale development since so little is known about its impacts on the environment and water resources.

Salazar at the time was a senator representing Colorado, and called the Bush regulations "premature and flawed."

Lots of energy needed
Up to 800 billion barrels of oil — enough to displace oil imports for 100 years, according to the Interior Department — is locked within fine-grained rock known as oil shale. The bulk of the resources are within a 16,000-square-mile area known as the Green River formation in Colorado, Utah and Wyoming.

Energy companies are looking into various ways of extracting the oil economically. Unlike traditional sources of oil, oil shale is costly to produce. Energy is needed to bake the rock and pump the molten oil to the surface. Shale oil can cost about $37.75 to $65.21 a barrel to produce, compared with $19.50 per barrel for conventional crude, according to Interior Department figures.

A government program to subsidize oil shale development in the 1980s was shut down when cost figures came in at several times the then-market price for oil.

Salazar's action marks the second time he has reversed an action by the Bush administration. He also halted the leasing of oil and gas drilling parcels near national parks in Utah three weeks ago.

The Environmental Protection Agency has also reversed or is reviewing several Bush-era environmental rules.

Industry angry, activists happy
A trade association of independent oil and natural gas producers criticized Salazar's decision.

"It's part of a pattern of decisions by the secretary that are detrimental to all sources of domestic energy," said Kathleen Sgamma, government affairs director for the Denver-based Independent Petroleum Association of Mountain States.

Environmental groups hailed the slowdown in oil-shale leasing, saying the technology is unproved.

The federal government already has leased land in Colorado and Utah — but none in Wyoming — for small-scale oil-shale works.

Shell Exploration & Production Co., a major player with three research and development leases in Colorado it picked up years ago, said it wasn't affected by Salazar's decision because it wasn't eligible to bid on more federal parcels. Shell is working its own lands in western Colorado, testing a method of baking oil shale in the ground.

"The whole point of this was to get more entities out there researching technology," said Tracy Boyd, a Shell spokesman in Denver.

Shell won't know until the middle of the next decade whether oil-shale development is feasible, he said.

The Associated Press contributed to this report.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments