US Interior Dept Cancels Oil Shale Lease Sale

WASHINGTON (Dow Jones Newswires), Feb. 26, 2009

The U.S. Interior Department Wednesday canceled a previously announced research and development oil shale lease sale in the Western states -- where the government says almost 800 billion barrels of crude resources lay untapped -- but said it would offer a new round in the near future.

The decision is yet another move by President Barack Obama's administration to re-write the nation's energy policy, moving away from reliance on fossil fuels and toward lower greenhouse-gas emitting alternatives.

"Those who have ... said oil shale is a panacea for America's energy needs have been living in a fantasy land," Interior Secretary Ken Salazar said on a conference call announcing the cancelation of the lease auction.

In the waning days of the George W. Bush administration, the Interior Department solicited interest in research and development lease sales. But Salazar said that solicitation is now being withdrawn because, "it included several flaws, including locking in low royalty rates that would shortchange taxpayers."

"They just don't pass the smell test," he said, pointing out the leases were quadruple the size of the existing six research leases and had "locked in low royalty rates and a premature regulatory framework."

"Taxpayers should get a fair rate of return from their resource," he said, but couldn't quantify what a fair rate would be. The original Bush proposal was for a 5% royalty rate.

Although the previous administration last year finalized rules for commercial oil shale development, Salazar has said he's concerned about the environmental impacts of commercial oil shale development - particularly the use of water required for production used with current production technology. Commercial leasing, he said, is premature.

After a 90-day public comment period, the department would move ahead with a new round of research lease sales, however.

Salazar couldn't say what would be the significant differences in the second round from the Bush administration's canceled proposal. His comments indicated, however, the auction was more designed to show the problems with commercial development than to test new technologies for oil shale production.

The research leases will show if the current technologies for development are viable on a commercial scale, how much water and power would be required for large operations, and review the agricultural and environmental impacts, he said.

The environmental community welcomed the news.

"This is an important step forward in protecting America's western lands from oil shale development, which is nothing more than a dirty, expensive pipedream," said Bobby McEnaney, a lands advocate for the Natural Resources Defense Council.

Earlier this month, Salazar said his office would rework the nation's five-year offshore oil and gas leasing plan that proposed opening up acreage on the Outer Continental Shelf, which has been closed to development for decades.

"A pattern seems to be emerging when it comes to developing America's offshore resources - delay," said American Petroleum Institute President Jack Gerard Wednesday after Virginia Gov. Timothy Kaine, a Democrat, asked the Interior Secretary to stall a planned 2011 lease sale off his coast.

As part of the rules drafted by the Interior Department for commercial oil shale leasing, the Bureau of Land Management last year amended its land-use plans in Utah, Colorado and Wyoming to set aside approximately 1.9 million acres of public lands for potential commercial development.

Companies such as Royal Dutch Shell and ExxonMobil have researched development of the resource, but costs and government prohibitions on development have prevented commercial production. Industry officials said commercial development is still years in the future.

Beyond water and cost hurdles, oil shale production and processing produces higher greenhouse gas emissions than conventional oil, and new climate-change legislation Congress is drafting is likely to add another major obstacle for development.  

Copyright (c) 2009 Dow Jones & Company, Inc.


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