By Julie Cart
    The Los Angeles Times

    Sunday 20 November 2005

    Mahogany Test Site, Colorado - Tucked into a ravine and hidden behind ridges standing like stony sentinels is the site of Shell Oil Co.'s ultra-experimental, highly anticipated 30-year project to unlock oil from vast underground beds of rock.

    Here, on this sweeping plateau in western Colorado, the Bush administration has fixed its hopes for the next big energy boom: oil shale, which the US Department of the Interior praises as an "energy resource with staggering potential." Members of Congress have described the region as the Saudi Arabia of oil shale.

    Legislation recently signed by President Bush instructs the Interior Department to lease 35% of the federal government's oil shale lands within the next year; provides tax breaks to the industry; reduces the ability of states and local communities to influence where projects are located; and compresses multiple, lengthy environmental assessments into a single analysis good for 10 years.

    Oil shale is immature rock that, left alone, would require millions of years of natural heating to produce oil.

    Modern techniques greatly accelerate that process by cooking underground rock. But some experts warn that the process could use more energy than it yields, and conservationists and many local residents point to the massive amounts of water it will consume and to the disturbances to land, wildlife habitat and the lives of rural people.

    Residents wonder how oil shale excavations, which can be massive, will affect the half-million-acre basin that supports one of North America's largest migratory deer herds, prized elk haunts and more than 350 species of animals. They also ponder how industrialization and growth might play out in the largely rural landscape of Rio Blanco County, which has a population of 6,000, about 250 miles west of Denver.

    "I don't like it," said Scott Brynildson, a rancher who also owns a plumbing company in nearby Rifle. "It's not why I live here. If I want all those people, I'd live in Denver. I wanted to raise my kids in a small town. It's just crazy."

    Most of this area is ranchland with more sheep than people, its livestock herds ranging across rolling hills studded with cedar and stands of Douglas fir. But the Piceance Basin, as the region is known to geologists, is also a vast mineral storehouse where companies have leased public land to get at significant deposits of coal, natural gas, oil and oil shale.

    Longtime residents have watched boom and bust cycles of gas, oil and oil shale come and go. They've seen legions of workers troop into small towns, snatch up rental housing and fill schools, hospitals and sewers beyond capacity.

    Many residents of western Colorado still remember "Black Sunday," or May 2, 1982, when oil giant Exxon announced the closure of its $5-billion Colony shale project in Garfield County and laid off 2,200 workers, after producing hundreds of thousands of barrels of oil, seldom recovering the costs.

    A year later, property foreclosures in Grand Junction and Mesa County were more than four times their 1980 numbers, and bankruptcies doubled. Local officials fear a reprise.

    The region is only now beginning to recover and has redrawn its future as a popular place for retirees, hikers and hunters.

    Oil shale is found in 16,000 square miles of rugged Western range land known as the Green River Formation - mostly in Colorado but also small slices of eastern Utah and southern Wyoming. More than 70% of the nation's known oil shale reserves - as much as 2 trillion barrels by some estimates - lies under the region.

    By Shell's reckoning, the denser oil shale formations here could produce a billion barrels of oil per square mile. Those projections are hotly debated, but as a point of comparison, should the Green River Formation produce as predicted, it would amount to as much as eight times the proven oil reserves in Saudi Arabia.

    Terry O'Connor, Shell's vice president of external and regulatory affairs, said the company would decide by 2010 whether to pursue commercial production. But, he said, there was little doubt about the region's potential.

    "We think this is the place and this is the method," he said.

    Record oil prices and increasing scarcity have spurred renewed interest in exploration in the region, and improving technology has sparked optimism that oil shale's time has come. Shell says improved efficiency has made oil shale production economically viable when the price of oil is $20 to $30 a barrel.

    To produce the oil, Shell and other companies sink heaters half a mile into oil shale seams for up to four years, subjecting the rock to 700 degrees.

    Over time, natural gas and a liquid that can be refined into light crude oil rise to the surface.

    To prevent the brewing hydrocarbons from spoiling groundwater, the heated rock core would be surrounded by a 20-to-30-foot-thick impermeable ice wall, which also requires electricity to keep it frozen.

    The federal government has begun leasing land for oil shale production. Ten new research and development leases are being processed by the Bureau of Land Management in Colorado. Others have been awarded on federal land in Utah and Wyoming.

    According to the Bureau of Land Management, the oil shale leasing will take place in the same areas where drilling for natural gas has been rapidly expanding. If all the leases produce, the area would be transformed into a highly industrialized zone with a network of roads, pipelines, rail lines and power plants to service the gas fields, oil shale heating sites and oil shale mines.

    The speed at which oil shale is being promoted is disturbing to Colorado Rep. Mark Udall. "Mandating leases for that much land, that fast, risks putting a big part of northwestern Colorado on the fast track to becoming a national sacrifice zone," Udall said last month. Udall, a Democrat, is the son of the late Arizona Rep. Morris Udall and a nephew of former Interior Secretary Stewart Udall. Largely because of the work of the elder Udalls, the family name is synonymous with wilderness protection in the West.

    O'Connor said Shell was seeking only the kind of assistance that government routinely offers to fledgling businesses.

    "We need support, both from Congress and the states," he said. "Not subsidies, but access to federal lands."

    The report that Congress relied on, prepared by Rand Corp., confirms the presence of vast amounts of oil shale but cautions that "initial commercial operations are likely more than a decade away" and that "technological, economic and environmental uncertainties are pervasive."

    Steve Smith of the Wilderness Society in Denver warned recently of oil shale's "false hope, exaggerated claims and unfulfilled promise."

    Smith said that new technology notwithstanding, getting oil out of the ground was likely to consume unacceptable amounts of groundwater and place drinking water at risk for tens of thousands of people.

    The process uses as much as three barrels of water for each barrel of oil produced. The Rand report notes that "all high-grade Western oil shale resources lie in the Colorado River drainage," a source of supply for millions of people in the arid West.

    Another report, prepared last year for the Department of Energy, says, "Water may still be a constraining factor. Water requirements for the infrastructure and socioeconomic demands could place a burden on the neighboring communities, which could see tremendous growth as a result of a new oil shale industry in the region."

    O'Connor agreed that water issues were the thorniest problems for the company to resolve. He said that Shell had purchased nearby water rights and would recycle as much groundwater as possible.

    For example, he said, the core areas where the heaters are used will be drained of groundwater, but that water will be re-injected to make the freeze wall. He wouldn't say how much water Shell's process requires.

    "Water - it's going to be the thing that will limit oil shale production, there's no question in my mind," said Robert Loucks, who was Shell's manager on a failed oil shale project in the 1980s. Retired after 28 years with Shell and Occidental Petroleum, Loucks is now a consultant and has written a book on the oil shale industry.

    He is optimistic that oil shale will someday contribute to the national energy stock. But his outlook for oil shale is tempered. There is too much urgency now, he said, and not near enough solid scientific information.

    "None of this is proven," Loucks said in an interview. "We don't have a technology to get the oil out of the rock economically. We made thousands of barrels of oil in the '80s and never made a nickel. We need to continue to experiment, but we need to move much more slowly.

    "We got in a lot of trouble in the '80s. We told everyone we were going to produce a lot of oil, just get out of our way. We are heading in that direction again, if we don't slow down."

    According to the Bureau of Land Management, operations on eight of the 10 new leases propose using a process similar to Shell's technology. Two other companies plan to utilize a method more akin to open pit mining, in which millions of tons of rock are dug out of the ground and then fed into a massive above-ground cooker.

    Shell's process consumes enormous amounts of energy. One report projects that a single Colorado oil shale lease site would require the largest coal-fired power plant in the region just to run the heating-freezing infrastructure.

    Shell's system for extracting the oil may use only a few acres, but that area will be heavily industrialized, generating light and production noise around the clock.

    One of the biggest challenges to companies that plan to mine oil shale from open pits will be to restore the landscape to its original shape.

    "We live here for the beauty, the clean air - at least it used to be clean," said lifelong resident Brynildson. "I don't mind a little progress, but I think they are just butchering the landscape and the way of life that I'm accustomed to."

    Potential Bonanza

    More than 70% of the nation's oil shale reserves lie beneath federal land in Colorado, Utah and Wyoming, with the richest deposits found in Colorado's Piceance Basin.

    Shale Stores

    The US has most of the world's oil shale resources. Percentages are highest range estimates for 2005.

    Sources: Colorado School of Mines, geologist Jean Laherrere.