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					                U.S. Department of Energy




      America’s Oil Shale
  A Roadmap for Federal Decision Making




Sustainable Development of the Oil Shale
     Resources of the United States

                  Deputy Assistant Secretary
                   for Petroleum Reserves
        Office of Naval Petroleum and Oil Shale Reserves
                        December 2004
Oil Shale Development Roadmap




                                          Foreword

Worldwide supplies of conventional oil will soon reach a peak production rate and begin an
irreversible long-term decline. Options to augment liquid fuel supplies in the United States have
once again begun to focus on oil shale as long-term source of reliable, affordable, and secure oil.

The United States government has long recognized the strategic potential of the nation’s vast oil
shale resources to support national security. President Taft in 1912 established an Office of
Naval Petroleum and Oil Shale Reserves and charged that office with ensuring oil for naval
military operations. This office continues to oversee the United States strategic interest in oil
shale.

America’s 2 trillion barrel oil shale resource is recognized as having the same production
potential as Canada’s tar sands. Tar sand production, initiated in the 1960s, has increased
steadily to more than 1 million per barrels/day and is moving toward a near-term goal of 2.5
million barrels per day by 2017. This amount of oil is equivalent to the volume of oil currently
imported by the United States from Middle East countries. Tar sands production has enabled
Canada to add 174 billion barrels to its recoverable oil reserves, making Canada’s proved
reserves second only to those of Saudi Arabia.

Successful tar sands development in Canada required a significant public-private partnership
sustained over a long period of time. The essential government programs and policies needed to
stimulate industry development of oil shale in the United States are not now in place. To initiate
a dialogue toward effective government oil shale decisions, the Office of Naval Petroleum and
Oil Shale Reserves sponsored a review of the Strategic Significance of America’s Oil Shale
Resource. The two-volume analysis, published in March 2004, attracted widespread interest and
favorable comments. Continuing with these planning efforts, the Office identified the elements
of a roadmap needed to guide government decisions.

The enclosed Draft Roadmap is a product of these continuing planning efforts. The role of the
Petroleum Reserves Office is to expedite, within the limits of prudent public policy, Federal
actions to facilitate and stimulate private industry to move forward with development of a
domestic oil shale industry. This document is being circulated for review and comment as part
of a process to develop an effective public-private partnership aimed at oil shale development.
We welcome your comments on the draft document and your suggestions as to how it may be
improved.



John W. Shages                                       Anton R. Dammer
Deputy Assistant Secretary                           Director
for Petroleum Reserves                               Naval Petroleum and Oil Shale Reserves
Washington, D.C.                                     Washington, D.C.




                                                                                                 ii
Oil Shale Development Roadmap




                                  Acknowledgements

“America’s Oil Shale: A Roadmap for Federal Decision Making” is a report prepared by the
U.S. Department of Energy, Deputy Assistant Secretary for Petroleum Reserves, Office of the
Naval Petroleum and Oil Shale Reserves (DOE/NPOSR). Its preparation was supported by AOC
Petroleum Support Services, LLC (AOC-PSS), under subcontract to SI International, Inc.

Mr. Anton R. (Tony) Dammer of Director, Naval Petroleum and Oil Shale Reserves, served as
the Project Director. The DOE/NPOSR acknowledges the significant and invaluable
contributions of a broad range of experts in oil shale mining, technology, policy, resources, and
economics, who participated in technical exchange meetings in Denver, Colorado and
Washington, D.C. or who provided written inputs or comments. Their participation does not
constitute their endorsements as individuals or as representatives of their companies or
employers of the final contents and conclusions of the roadmap document. These participants
include:

Mr. Gary Aho, Sage Geotechnical                     Mr. Steve Krohn, ExxonMobil
Dr. Carl Bauer, DOE National Energy                 Mr. Robert Loucks, Retired
Technology Laboratory                               Dr. Larry Lukens, Consultant
Dr. James W. Bunger, J.W. Bunger and                Mr. Kevin McColloch, Occidental Petroleum
Associates                                          Mr. Terry O’Connor, Shell Unconventional
Dr. James Burchfield , Energy Consultant            Fuels
Mr. Alan Burzlaff, SI International, Inc.           Dr. James Patten, Battelle
Mr. Peter M. Crawford, Intek, Inc.                  Mr. Brent Patterson, ExxonMobil
Dr. John F. Dyni, U.S. Geologic Survey              Dr. Don Repici, Consultant
(Emeritus)                                          Mr. James Scinta, ConocoPhillips
Mr. F.J. Gangle, DOE/NPOSR                          Dr. Dexter Sutterfield, DOE National Energy
Mr. Hugh D. Guthrie, DOE National Energy            Technology Laboratory
Technology Laboratory                               Mr. David Tabet, Utah Geological Survey
Mr. Daniel Johnson, Chevron Texaco                  Mr. Michael Young, Chevron Texaco
Mr. Harry R. Johnson, Intek Inc.


Special recognition is due to those who directly performed the work on this Roadmap. The
principal authors include Dr. James W. Bunger (JWBA), Mr. Peter M. Crawford (INTEK), and
Mr. Harry R. Johnson (INTEK).




                                                                                                  iii
Oil Shale Development Roadmap




                                                Table of Contents


Foreword……………………………………………………………………………………ii

Acknowledgements…………………………………………………………………………iii

Executive Summary…………………………………………………………………………v

  I. Oil Shale Mission and Vision....................................................................................... 1

 II. Roadmap Goals and Objectives……………………………………………………… 2

III. Key Drivers For Federal Action………………………………………………………3

IV. Hurdles Constraining U.S. Oil Shale Development…………………………………..7

 V. Initial Pathways for Federal Decision-Making………………………………………..13

VI. Key Milestones and Schedule………………………………………………………... 21

VII. Potential Ongoing Roles of Key Participants……………………………………....... 23

Appendix 1 -- Oil Supply and Demand Analysis………………………………………….. 26
Appendix 2 -- Potential of Oil Shale to Offset Economic…………………………………. 30
              Impacts of Rising Oil Price



                                                   List of Figures

Figure 1: Growing Disparity Between World Production and World Discoveries…………3
Figure 2: World Conventional Oil Demand Is Rising………………………………….…...3
Figure 3: World Oil Production May Soon Peak and Decline……………………………...4
Figure 4: U.S. Dependence on Petroleum Imports Will Continue to Grow……………….. 4
Figure 5: Unconventional Oil Resources Exceed World Conventional Resources………... 6
Figure 6: Systems Approach to Oil Shale Program Development………………………….13
Figure 7: Oil Shale Program Development Roadmap………………………………………14
Figure 8: Major Milestones for Oil Shale Program Initiation…………………………...….22
Figure 9: Major Roles of Key Oil Shale Development Participant………………………....23

                                                    List of Tables
Table 1: Potential Pathways for Oil Shale Program Development………………………... 11
Table 2: Major Milestones for Oil Shale Program Assessment and Initiation……………. 21



                                                                                                                             iv
Oil Shale Development Roadmap




Executive Summary
The President and the Department of Energy have determined that increasing liquid fuels supply
from domestic sources is an important national objective. America’s rich and concentrated oil
shale resources, containing as much as 2 trillion barrels of potential oil supply could make a
major contribution toward that objective. A domestic oil shale industry would reduce import
dependence and associated costs to the U.S. economy while creating thousands of stable, high-
paying jobs and stimulating economic activity here at home. Significant public and private
collaboration and investment will be required to initiate a domestic oil shale industry and achieve
meaningful quantities of shale oil production in the foreseeable future. It is now both prudent and
timely for Federal decision-makers to consider the strategic potential of oil shale to meet the
nation’s energy needs and to stimulate the domestic economy.
Global conventional oil production is projected to peak and decline while global demand is
projected to continue to rise, reaching a point where demand will likely exceed supply in the first
half of this century. Rising imports of crude oil and refined products, and higher prices driven by
rising demand, are already costing the U.S. economy billions of dollars per year. If not
addressed quickly, deteriorating global market conditions will result in even higher oil prices and
reduced availability of light oil. This could threaten U.S. economic security, limit the fuels
available to the military and first responders to defend American interests at home and abroad,
and significantly impact the standard of living enjoyed by Americans today.
Oil shale development efforts conducted in this country by government and industry between
1970 and 1993 provide a sound foundation of information and experience on which to build a
new oil shale industry. A detailed assessment, entitled “Strategic Significance of America’s Oil
Shale Resources”, was completed by this office in March 2004. As a next step, this Roadmap for
Federal Decision-Making offers a path for assessing oil shale’s potential benefits and impacts
and developing and implementing a program to initiate a domestic oil shale industry.
The Roadmap provides a structure for organizing key Federal agencies (Energy, Interior,
Defense, and Treasury) to define oil shale objectives and strategy and develop a multi-agency
program plan. Plan elements and initiatives, to be developed with input from key stakeholders,
could include oil shale leasing, technology development and demonstration, economic
incentives, regulatory streamlining, environmental assessment, and infrastructure development.
Immediate next steps include completion of baseline analyses to support program planning
efforts, organization of Federal participants and other stakeholders, development of an oil shale
strategy, and development of an integrated multi-agency Federal oil shale plan. This roadmap
suggests the potential roles of the State and Federal government, industry, affected communities,
and other stakeholders in developing a viable domestic oil shale industry.
Recognizing the long lead-times required for industry development and the urgency of increasing
domestic fuels supplies, the roadmap provides an aggressive timeline and establishes key
milestones for initiating Federal actions. These include seeking Congressional authorization
early in 2005, preparing an oil shale strategy by March 2005, responding to Congress’s request
for an assessment of oil shale feasibility by May 2005, completing initial program plans by June
2005, and initiating program activities by October 1, 2005.




                                                                                                 v
Oil Shale Development Roadmap



                                I. Oil Shale Mission and Vision
Mission: America’s National Energy
Strategy calls for the increased domestic          Vision
production of “reliable, affordable and            Prudent government actions and
environmentally sound energy for America’s         cooperative efforts with private industry
future”. The Department of Energy is               and other stakeholders will stimulate
responsible for ensuring adequate supplies         sustainable private sector development of
of fuels at affordable prices to meet present      a domestic oil shale industry
and future needs of U.S. defense, residential,     producing…
commercial, and industrial consumers.
                                                   !   2 million barrels per day by 2020…
Due to rising global fuels demand, the
anticipated peak in global light crude oil         !   3 million barrels per day by 2040…
production, and the rising costs of energy         while respecting and protecting our
imports, the President and the Secretary of        Nation’s environment.
Energy have determined that increasing the
supply of fuels from domestic sources is a        employment and economic activity, and
national goal.     Among these domestic           provide a reliable domestic source of liquid
sources is the nation’s endowment of              transportation fuels. Shale oil development
western and eastern oil shales, which hold        can also play a vital strategic role, providing
more than 2 trillion barrels of potential oil     the military with long-term secure access to
supply.                                           domestic fuels of superior quality that are
America’s rich, massive, and concentrated         not subject to interruption.
oil shale resources – if developed in a timely
manner – offer the potential to help offset       Vision: The oil shale development efforts
the coming global production decline of           conducted in this country between 1974 and
conventional oil, reduce oil imports and          1990 provide a solid foundation of
their economic costs, stimulate domestic          information, technology, and experience on
                                                  which to build a new oil shale industry.
                                                  When the nascent oil shale industry
 Oil Shale Mission                                collapsed in the 1980s, it was due neither to
 !    Increase domestic fuels production,         failure of the resource or the potential of the
                                                  technology. Nor was it due to environmental
 !    Provide a secure source of military         considerations. It collapsed because crude
      fuels,                                      oil prices fell sharply and projects became
 !    Reduce oil and refined product              uneconomic.
      imports and dependence and their
      economic costs,                             Prudent government actions and cooperative
                                                  efforts   with    private  industry and
 !    Reduce fuels supply disruption              stakeholders will stimulate private sector
      vulnerability,                              commercialization of the nation’s oil shale
 !    Promote national security, and              resources and development of an oil shale
      homeland defense,                           industry that will augment domestic fuel
                                                  supplies by 2 million barrels per day by
 !    Create quality jobs, and                    2020 and more than twice that amount by
 !    Boost economic activity                     mid-century.



                                                                                               1
Oil Shale Development Roadmap



Realizing this vision will require Federal
and State government policy, technology               Risks of Failing to Act
and economic support, and effective
                                                      !    National security degradation
coordination among Federal agencies.
                                                      !    Economic dislocation
The Deputy Assistant Secretary for
Petroleum Reserves and the National Energy            !    Oil and refined product supply
Technology Laboratory will lead this                       shortages
coordination effort and work closely with
stakeholders to achieve mission success.          It is unlikely that supplies of alternative
                                                  fuels now in development will be sufficient,
Risks: America’s growing reliance on
                                                  in the foreseeable future, to measurably
foreign sources of oil, increases the risk of
                                                  offset the decline in oil production, respond
supply disruption. The nation’s economy
                                                  to supply disruptions, or meet our needs for
and its defense rely on the availability of
                                                  liquid fuels to drive the economy and defend
crude oil and refined products at affordable
                                                  the nation and its vital interests.
prices. Rising global demand and peaking
crude oil supply will intensify competition       The risks of doing nothing far exceed the
for crude oil, resulting in higher oil and        costs of a proactive examination of oil
refined product prices that will impact the       shale’s potential and prudent public action to
nation’s balance of trade, its economic           enable and encourage private industry to
vitality, and its competitiveness.                initiate a domestic oil shale industry.


                                II. Roadmap Goals and Objectives
The Roadmap offers a course of action that                have on affected communities and
will provide Federal decision makers a clear              stakeholders. The Roadmap defines
and flexible path forward to determine how                pathways for assessing costs and
the nation should pursue development of a                 benefits.
domestic oil shale industry. It seeks to:
                                                  !       Review Status of U.S. Oil Shale
!   Summarize Key Drivers for Including                   Industry: The Roadmap provides for an
    Oil Shale in National Energy Policy: A                assessment of of the oil shale resource
    priority of the Roadmap is to identify the            and      the   status    of   technology
    hurdles facing industry, and articulate               development to the point where
    the issues and liquid fuels outlook that              activities were curtailed when oil prices
    compel recognizing oil shale as a                     collapsed in the early 1980s.
    strategic energy resource and making its      !       Identify Next Steps: The Roadmap
    development an explicit element of                    identifies immediate steps to be taken to
    national energy policy.                               support a government decision to pursue
!   Define Pathways For Federal Decision                  oil shale industry development.
    Making and Planning:           Decision       !       Identify Key Participants and Roles:
    makers in the Executive Branch and in                 The Roadmap describes potential
    Congress require specific information                 ongoing roles of government, industry,
    about the economic and national security              and other stakeholders in advancing and
    benefits of resuming oil shale industry               establishing a viable domestic oil shale
    development, and the impacts it may                   industry.


                                                                                                 2
    Oil Shale Development Roadmap



    III. Summary of Global Situation and Key Drivers for Federal Action
    Numerous global oil supply and market                                                                      Figure 2. World Conventional Oil
    factors compel Federal action to encourage                                                                        Demand is Rising
    and enable industry to develop the nation’s                                                 120
    oil shale resources.
                                                                                                                                                          Central/S. America
    World Oil Demand is Rising: Global                                                          100
    annual consumption of crude oil now far                                                                                                               Africa

    exceeds new discoveries (Figure 1). This                                                    80                                                        Middle East
    trend of producing largely from past oil




                                                                              M M B b l/D a y
    discoveries is expected to continue. Yet,                                                   60
                                                                                                                                                          Developing Asia

    world demand for conventional oil continues                                                                                                           EE/FSU
    to grow at an unusually high rate, driven
                                                                                                40
    largely by developing Asian economies.                                                                                                                Industrialized Asia


    While U.S. annual demand growth is an                                                                                                                 Western Europe

    estimated 1.5 percent, China’s oil demand                                                   20
                                                                                                                                                          North America
    growth exceeded 28 percent in the past year.
                                                                                                  0
    The increase in demand for imported oil into
                                                                                                             1990           2000         2010     2020
    the United States comes at a time when                                                             U.S. EIA, International Energy Outlook, 2003.
    other consuming countries are also
    increasing their demand for oil. China’s                                        The high demand worldwide is rapidly
    demand for imported oil is expected to rise                                     reducing OPEC’s spare oil production
    by over 7 percent annually and India’s by                                       capacity and taxing its ability to offset
    more than 6 percent (Figure 2).                                                 supply shortfalls that may occur elsewhere
                                                                                    in the world. OPEC’s estimated excess or
    Most of the global demand increase can only
                                                                                    “swing” capacity has decreased from 15
    be met from OPEC. Is such a growing
                                                                                    million barrels per day in 1985, to less than
    dependence advisable? Is it possible for
                                                                                    1 million barrels per day in 2004. The ability
    OPEC to meet the increasing world demand
                                                                                    of Saudi Arabia to increase production to
    for oil? If so, is increasing dependence on
                                                                                    moderate world oil prices is now in
    OPEC in America’s best interests?
                                                                                    question. Once OPEC’s spare production

                    Figure 1: Growing Disparity Between World Production and World Discoveries
               60



                                                                                                                           Discovered

               50                                                                                                          Future Discoveries

                                                                                                                           Production


               40
 illio b e r
B nb l/y a




               30




               20




               10




               0
                1930         1940        1950         1960   1970   1980   1990                       2000          2010        2020       2030   2040   2050


                    Oil and Gas Journal, July 21, 2003.



                                                                                                                                                             3
Oil Shale Development Roadmap



capacity     is     exhausted,      worldwide              may slow the rate of decline, but are
competition for oil will cause a switch in the             unlikely to reverse it. In 2003, the world
world petroleum economy from the                           consumed 27 billion barrels of petroleum,
historical buyers’ market to a sellers’                    but only replaced 3 billion barrels of
market. This situation will significantly                  reserves. Development of petroleum
increase oil prices, at a high cost to the U.S.            resources in other producing countries is
and world economies. A more expansive                      unlikely to keep pace with rising demand
discussion of the effect of OPEC’s excess                  and declining production. Perceptions of a
capacity reduction on the U.S. economy,                    coming supply shortfall may stimulate
excerpted from Strategic Significance of                   irrational behavior by nations and
America’s Oil Shale Resources, is provided                 consumers. Whether the global supply
in Appendix 1.                                             shortfall begins as early as this decade or as
                                                           late as 2040, the nation needs to prepare now
World Conventional Oil Supply May
Soon Peak and Decline: Adding urgency                      for a reduction in global petroleum supplies
                                                           and the higher prices and economic impacts
to the rising global demand situation is the
indication that world oil production may                   that will follow.
peak sooner than generally believed,                       U.S. Energy and Economic Security is
accelerating the onset of competition among                Increasingly at Risk: U.S oil imports have
consumers for ever-scarcer oil resources                   reached a historic peak level of nearly 60
(Figure 3). Except for the Organization of                 percent of demand, and imports are expected
Petroleum Exporting Countries (OPEC),                      to grow as U.S. demand increases and
most of the world’s oil producing provinces                domestic production continues its inexorable
have already reached peak production and                   decline (Figure 4).
are in a steady decline.
                                                           The nation’s rising dependence on oil
New field discoveries and reserve additions                imports from politically unstable sources
and extensions brought on by new                           places national energy and economic
investments and advances in technology
     Figure 3. World Oil Production May Soon                    Figure 4. U.S. Dependence on Petroleum
                Peak and Decline                                Imports Will Continue to Grow (MM B/D)

                                                           35
                                                                        History               Projections
                                                                                                            Low oil price
                                                           30
                                                                                                             Reference

                                                                                                             High oil price
                                                           25




                                                           20         Consumption
                                                                                                               Net imports


                                                           15




                                                           10                                                  High oil price
                                                                    Domestic supply                            Reference
                                                                                                               Low oil price

                                                            5




                                                            0
                                                             1970    1980    1990      2002      2015   2025


    Laherrere, Future Sources of Crude Oil Supply, 1997.
                                                            U.S. EIA, Annual Energy Outlook, 2004.

                                                                                                                                4
Oil Shale Development Roadmap



security at risk to supply interruptions         feasibility of alternative energy resources
caused by terrorist acts, political fiat, or     and technologies that may result from long-
natural disaster. A labor strike in Venezuela    term research and development. If these
or Nigeria, a pipeline explosion in Iraq, or a   alternate energy expectations are not
terrorist attack on key shipping terminals       achieved in a timely manner, the impacts on
could cut global oil supply, causing             economies that rely on petroleum could be
immediate price shocks with far reaching         catastrophic, causing both significant socio-
economic impacts.                                economic      dislocation,   and     political
                                                 instability.
Increasing geopolitical risk also deters the
global petroleum industry from making            Domestic Energy Options are Limited:
long-term investments that are now needed        America’s domestic energy production
to explore, find, and produce new oil            options to address the coming dislocation in
supplies. This risk contributes to higher        global petroleum supply and demand are
current world oil prices and cost of goods       limited, especially in the near-term. Nuclear
and exacerbates the long-term supply             energy, and solar and renewable energy
problem. These conditions, along with            resources, are better suited to producing
limited global oil exploration opportunities     electricity and heat than to producing liquid
and activity, underscore the increasing risk     transportation fuels.
that America’s growing reliance on               The only other resources within the United
imported oil poses to national security and      States that can produce liquid transportation
economic vitality.                               fuels to replace imported oil in significant
Military Preparedness and Homeland               quantities are coal and oil shale, both fossil
Defense Require Secure Fuel Sources:             fuels. Coal can be converted to liquid fuels
The nation requires reliable sources of          through direct liquefaction or by gasification
military fuels to defend itself and to protect   and conversion (by Fischer-Tropsch
its vital interests around the world. Growing    technology) to liquids. Both approaches
competition for increasingly scarce sources      require sustained higher global oil prices in
of foreign oil, coupled with greater risks of    order for coal liquids to be economically
supply disruptions due to geopolitical           competitive.
instability, could hinder America’s military     Oil shale was a sound idea in the 1970s. Oil
preparedness and responsiveness at home          shale, though long recognized by industry
and abroad. National Guard and other             and the government for its enormous
domestic first-responders also share in that     potential, has been largely ignored since the
risk. Rising oil prices increase the cost of     oil price decline of the 1980s terminated
the nation’s defense. A secure, domestic         initial commercial development of this
supply of fuels would significantly reduce       resource.      Given further erosion of
this risk and help to maintain the readiness     America’s domestic fuels supply base,
of U.S. armed services and first responders.     expected higher sustained global oil prices,
Current Energy Policy Relies Heavily on          and the potential economic and price
Middle East Oil: Current national energy         impacts of a coming global supply peak, oil
policy is based on optimistic projections of     shale looks even more promising today.
future increases in Middle East oil
                                                 Unconventional Oil Resources are
production. It is also dependent, perhaps to     Plentiful: An enormous resource base of
an extreme, on assumptions about the future      unconventional oil exists worldwide and,
economic, technical, and environmental



                                                                                             5
Oil Shale Development Roadmap




                           Figure 5. Unconventional Oil Resources Exceed World
                                         Conventional Resources

                                                                                       Unconventional




                                               U.S. Oil Shale
                                               2.0 trillion Bbls

                                                                               Canadian Tar Sands
                                                                                 1.5 trillion Bbls




                                    Proved Oil Reserves
                                       1.0 trillion Bbls

                                                                      Possible/
                                                                   Undiscovered                      Tar Sands Reserves
                                                                    Oil Reserves                       174 billion Bbls
                                                                   1.7 trillion Bbls




                                Conventional
                                             U.S. EIA, International Energy Outlook, 2003.

particularly, in the Western Hemisphere,                                   barrels by most estimates. U.S. oil shale is
where significant quantities of hydrocarbons                               among the richest and most geographically
are found in oil shale, tar sand, and very                                 concentrated in the world, yet lies
heavy oil (Figure 5). These resources are                                  undeveloped mainly in the Western United
deemed “unconventional” because they have                                  States, in Utah, Colorado, and Wyoming
been economically or technically infeasible
                                                                           Eastern oil shales also offer significant
to produce relative to conventional oil.                                   promise but their development will likely
However, as expected future oil prices
                                                                           follow the more concentrated western
continue to rise, technology improves, and                                 resources. Future development of this rich
development costs fall, these known, secure
                                                                           and massive resource will require access to
resources become competitive and viable.                                   the resource, technology maturation, large
America’s Oil Shale Resources Can Help                                     capital investments, and stable and reliable
Bridge the Gap: A domestic oil shale                                       government policies and incentives that
industry could provide the needed “bridge”                                 create a receptive climate for industry
between conventional petroleum and future                                  investment and commitment.
alternative energy sources as global
                                                                           In light of current and expected world
petroleum supply peaks and begins its
                                                                           events, and the long lead-times required to
inevitable decline.                                                        turn investment decisions into actual fuels
It is conceivable that a 2 million barrel per                              production, it is now prudent to recognize
day shale oil industry could be developed in                               and pursue the potential of U.S. oil shale and
the United States by 2020, a near-term                                     to include oil shale in the mix of energy
venture in contrast to the timelines                                       resources, policies, and programs that are
envisioned for transition to other fuels.                                  essential to sustain U.S. economic growth
The potentially recoverable oil contained in                               and vitality and bolster national energy
                                                                           security.
U.S. oil shale deposits exceeds one trillion


                                                                                                                          6
Oil Shale Development Roadmap



               IV. Hurdles Constraining U.S. Oil Shale Development
The Department of Energy has identified a       developed in the 1980s may be able to be
range of public policy, technical, economic,    commercialized swiftly to help achieve early
environmental, and socio-economic hurdles       production goals. Advances being developed
that constrain private industry’s aggressive,   in the United States and elsewhere in the
near-term development of a viable domestic      world suggest that many technological
oil shale industry within the next two          challenges to commercial-scale oil shale
decades - the time frame needed to meet         production may soon be overcome. This
national needs and goals.                       assertion needs to be borne out by further
                                                analysis of past and current efforts and by
Overcoming        these    investment   and
                                                demonstration of the most promising
development hurdles will require aggressive
                                                approaches at or near commercially-
Federal action and support. Such support
                                                representative scale in U.S. Western Shales.
may encompass oil shale leasing, technology
development and demonstration, economic         These demonstrations are unlikely to occur
and      tax    incentives;    environmental    without cooperative public support to reduce
assessment, regulatory streamlining, and        front-end costs and investment risk. No
infrastructure development support.             public programs currently exist to encourage
                                                or assist the demonstration of oil shale
Prior attempts to establish an oil shale
                                                technologies at this scale in the United
industry in the United States raise
                                                States.
reasonable questions about the technical
feasibility, economic      viability,  and      While the industry is being initiated with
environmental acceptability of successfully     current technology, aggressive R&D is also
implementing a domestic oil shale industry      needed to explore and advance new
in the coming decades. These questions          approaches and novel concepts that promise
must be addressed to dispel common              to expand technology options, improve
misperceptions, to inform policy decisions,     operability and efficiency, and reduce costs
and to guide program design and                 of producing shale oil, over time.
implementation.                                 Advancement of novel concepts and new
The numerous hurdles that constrain oil         approaches requires significant investment
shale industry development (summarized          in long-range, high-risk research and
below) suggest key objectives and areas of      development (to achieve proof of concept)
focus for Federal actions and for public-       and applied R&D (to develop and prove
private collaborative efforts.                  technology at bench or field scale) prior to
                                                demonstration      at  a     commercially-
Technology Performance and Readiness            representative scale.
The feasibility of various technological        However, industry investment in such long-
approaches to recover and process U.S.          term high-risk, basic research, and applied
western oil shale at commercial scale           oil shale technology R&D is unlikely to be
remains uncertain. Such uncertainty             of sufficient magnitude to achieve the
represents a risk to the investments needed     needed results in the timeframe necessary to
to build a domestic oil shale industry.         meet the nation’s needs and to achieve
A domestic oil shale industry can be            domestic energy production goals, without a
initiated building on our existing knowledge    government commitment and significant
and     technology     base.     Technologies   public investment.


                                                                                          7
Oil Shale Development Roadmap



Economic Viability of Shale Oil                 the development of oil shale challenge swift
                                                industry commercialization.
Production of shale oil has been perceived
as uneconomic at historical crude oil prices.   Although environmental controls and
                                                technology performance were important
As a result of decades of research and
                                                issues, curtailment of previous oil shale
capital investment, Canada has recently
                                                industry development efforts in the United
achieved economic production of oil from
                                                States was due principally to the precipitous
its massive Alberta tar sand resource. The
                                                decline in world oil prices.
producible Alberta tar sand deposits, once
deemed unconventional, are now recognized       Environmental controls and mitigation
as proven crude oil reserves. An analogous      technologies have matured during the past
development path leading to improved            25 years, as have environmental regulations
resource economics and addition of proved       and permitting processes. Modern oil shale
reserves is possible for U.S. oil shale. The    projects will include environmental controls
current and potential future economic           and regulatory compliance in their project
viability of U.S. oil shale needs to be         designs and economic projections.
analyzed and understood as a precursor to       Environmental characteristics of specific
oil shale development.                          technologies need to be assessed relative to
                                                State and Federal environmental regulations.
Oil Shale Resources on Federal Lands
                                                Much data exists from prior oil shale leasing
Nearly 80 percent of the United States’         and industry commercialization efforts, but
Western oil shale resources are owned and       require analysis in the context of regulatory
managed by Federal and State government         requirements.
agencies. Policies are needed to make these
                                                Significant stakeholder outreach, education,
resources available on terms attractive to
                                                and communications will be required to
industry while ensuring efficient resource
                                                overcome negative perceptions of the
development.
                                                environmental impacts of oil shale
The 1920 Mineral Leasing Act restricts the      production, to achieve community support,
number and size of leases available to          and consensus, and to expedite project
private entities for oil shale development. A   permitting.
moratorium on oil shale leases has been in
place since the 1980s. The Prototype Oil        Water Availability and Usage
Shale Leasing Program, developed by DOI         Current water supply from the Colorado
in 1973, provides a strong foundation for       River Basin System is likely to be adequate
crafting a new leasing policy. However, it      to support the initial phases of oil shale
will require revision to reflect advances in    industry development. However, the quantity
mining, in-situ conversion, and surface         of water required for a large-scale industry,
retorting technologies, new environmental       producing 2 – 4 million barrels per day or
practices, and regulatory changes.              more, could present a significant hurdle.
Potential Environmental Impacts and             Population expansion in areas served by the
Concerns                                        Colorado River Basin is expected to increase
                                                water     consumption.      However,      new
Air quality, carbon emissions, groundwater,
                                                technologies       and     processes      may
spent shale disposal, land reclamation, and
                                                significantly reduce water requirements
other environmental issues associated with
                                                relative to oil shale projects designed in the
                                                1980s. Nonetheless, the quantity of water


                                                                                            8
Oil Shale Development Roadmap



required and measures to reduce that            during the early phases of an oil shale
quantity need to be evaluated in detail.        industry.
Alternate water sources, including inter-
                                                Investment Risk
basin transfers and new gathering and
storage projects, need to be identified. The    Oil shale production is characterized by
means for water to be supplied in the most      high front-end capital and operating costs
economically and environmentally sound          and long lead times between capital
manner need to be fully analyzed and            investments and operating revenues. The
understood. New technologies to treat           potential for changes in economic
connate water and process water for             conditions, energy markets, capital markets,
recovery and re-use need to be identified.      government leadership and policies, and
                                                public support for oil shale projects,
Other Process Inputs and Infrastructure         imposes greater risks than many other
Some oil shale processes require external       energy project investments.
inputs of natural gas or electric power for     Coupled with technical uncertainty and the
process heat or for upgrading raw kerogen       volatility of crude oil and product prices, oil
oil to refinery-grade feedstocks. Yet, some     shale investment risks pose a high hurdle to
other processes are self-sufficient or even     project financing, especially in first-
net-gas or power producers                      generation projects. Such hurdles may make
Although natural gas is indigenous to the       oil shale investments less attractive than
western oil shale region, and major pipeline    other investment options. They may limit
infrastructure exists, the quantities to be     access to capital and/or increase the cost of
required, their availability to oil shale       capital. Public actions and policies to
projects, and the adequacy of infrastructure    reduce or share investment risk are needed
to deliver gas to project sites or upgrading    to improve the investment climate and
facilities may be limited, particularly as      achieve public goals.
natural gas demand continues to rise.
                                                Public and Private Commitment to Oil
Sustainable Development         and   Socio-    Shale are Uncertain
Economic Impacts
                                                The economic risks, technical and
Because of the dense concentration of the       regulatory uncertainty, and absence of
resources in a relatively small area of the     explicit government support, along with the
country, oil shale industry development and     lingering memory of billions of dollars of
operation will stimulate rapid and              public and private investments lost when oil
significant population growth in the affected   prices collapsed in the early 1980s, deter
communities, accompanied by expanded            aggressive pursuit of the U.S. oil shale
investment requirements for community           opportunity.
infrastructure and support services.
                                                Oil shale development may represent both
Analyses of these requirements, their costs     prudent public policy to meet the nation’s
and socioeconomic impacts, and approaches       strategic needs and an important new
for providing this critical supporting          business opportunity for the energy industry,
infrastructure, are needed to support policy    as global oil production approaches its peak.
making and development planning. Federal        The Federal government needs an
support and legislative action may be needed    expression of interest from industry and the
to ensure that state and local governments      investment community, as well as from
do not bear inordinate cost or economic risk    impacted communities, to initiate major


                                                                                             9
Oil Shale Development Roadmap



Federal support. Industry and the investment     Cooperative Federal     assistance may be
community need a similar commitment from         required to mitigate    risks and empower
the Federal government before they can           industry to take the    initial steps toward
proceed. Until this apparent impasse is          commercialization of   the nation’s vast oil
resolved, little progress can be achieved.       shale resources.
The government needs to take the initiative
                                                 Pathways to Address Hurdles to Oil Shale
by firmly demonstrating its interest and
                                                 Industry Development
willingness to commit support for
development of an oil shale industry. This       Based on initial review of the current status
must be done quickly if public goals and         of the resource, technology, market, and
objectives are to be met in a timely manner.     commercialization hurdles faced by
                                                 industry, several potential pathways and oil
Federal Assistance is Now Warranted              shale program options are apparent. These
Overcoming these hurdles will require            are summarized in Table 1, below. These
significant capital investment and risk by       options include an array of tax incentives,
industry to conduct research and advance         regulatory      efforts,    research     and
technology; to build and demonstrate             development,         demonstrations,     and
production, upgrading and refining facilities;   commercialization efforts that may be
to meet strict environmental standards; and,     considered depending on supply impact
to support the development of community          desired by policymakers, industry needs,
infrastructure.                                  and the scope of authority and funding
                                                 available for the effort.




                                                                                           10
Oil Shale Development Roadmap


              Table 1. Potential Pathways for Oil Shale Program Development
Hurdle Area        Goals and Objectives                Potential Pathways                     Key Participants
Oil Shale Policy   Establish oil shale as a priority   Oil Shale Statement of Policy          White House, DOE, DOI, DoD
and                for domestic and military           Program Authorization                  Congress
Commitment to      liquid fuels.                       Budgets and Appropriations
Oil Shale          Understand potential costs and
Development                                            Initial analytical basis for policy
                   benefits of various policy and      development and decision-making
                   program options.
                   Authorize / fund analysis to
                   underpin policy and plans.
Government         Develop structure for oil shale     Interagency Collaboration MOU          DOE, DoD, DOI, Treasury
Coordination       program planning and                Comprehensive Oil Shale Policy         Interested companies and
and Program        implementation.                     Roadmaps and Program Plans             associations
Development        Develop analytical basis for        (R&D, Commercialization)               States
                   making and evaluating               Industry collaboration
                   program and policy decisions.
                                                       Public-Private partnerships

Education and      Understand stakeholder issues       Technical Exchange forums              DOE, Industry, DOI
Stakeholder        and concerns.                       Stakeholder outreach plan              Public/Private Partnership
Outreach           Facilitate stakeholder              Communications plan                    States
                   understanding of oil shale                                                 Local Communities
                   resource, technology, benefits,                                            NGOs
                   and impacts.
Environmental      Understand environmental            Environmental assessment               EPA, DOT, States, Localities
Impacts and        impacts of development;             Expedited permitting                   DOE, States
Concerns           Identify requirements and           State /Federal coordination
                   methods for mitigation.
Oil Shale          Ensure competitive access to        Resource characterization              DOI / BLM, USGS, DOE
Resource           and efficient development of        Oil shale leasing policy and plans     Interested companies and
Access, and        oil shale on public lands.          Competing use issues                   organizations; Private landowners
Conservation
Economic /         Reduce economic barriers.           Demonstrate costs of various           DOE, companies, industry
Investment         Create positive climate for         development scenarios.                 associations, others
Climate and        private oil shale investment.       Economic incentives (i.e.,
Risk Factors                                           Purchases; Royalty Relief).            DoD, Treasury, DOI, States
                   Reduce front-end costs.
                                                       Tax incentives / structure changes.
Technology         Improve performance / reduce        Demonstrate current technology         DOE, companies
Performance        technical risk of mining, in-       Identify technology gaps and future    DOE, companies, industry
and Readiness      situ, surface retort upgrading,     R&D needs and priorities               associations, research
                   and refining processes.             Cost-share research, development       organizations
                   Demonstrate current                 and demonstration                      Industry, universities, and
                   technology at commercial            R&D incentives for industry            research organizations
                   scale.                                                                     DOE, Treasury, States
                   Develop novel and next-
                   generation technologies.
Project and        Develop secure infrastructure       Investment incentives                  Congress, Treasury, DOE
Community          to supply project inputs (i.e.,     Financial aid to States / localities   Congress, Treasury
Infrastructure     water, natural gas, electric        Infrastructure protection support      States, DOE, Congress, Treasury,
                   power) and transport products /                                            DHS
                   outputs.                            Federal water supply projects
                                                       Expedited permitting                   Congress, Corps of Engineers
                   Develop essential community
                   infrastructure to support rapid                                            EPA, DOT, States, Localities
                   population growth.




                                                                                                                             11
Oil Shale Development Roadmap




                  V. Initial Pathways for Federal Decision-Making

Fully understanding, addressing, and                    1.0 Organization
overcoming the hurdles to oil shale industry            One goal of ongoing efforts is to establish
development      will   require    extensive            the business case for an oil shale industry
collaboration between the public and private            commercialization        program      and    to
sectors over a period of several years.                 demonstrate the potential of oil shale to help
Federal involvement in this process will                offset civilian or military fuels shortages due
occur in several phases portrayed simply in             to global supply and demand shifts or
Figure 6.                                               temporary supply disruptions. Another goal
Efforts to examine the potential of oil shale,          is to organize key Federal participants to
and determine the merits of further public              work effectively with one another and with
and private efforts to commercialize the                industry and other stakeholders to
resource began in earnest with DOE’s                    effectively stimulate oil shale development.
assessment of the Strategic Potential of                Several specific activities have been
America’s Oil Shale Resources, completed                initiated or planned to achieve these goals:
in March 2004. This study provided a                    1.1 Authorization and Funding Request
preliminary view of the potential of
America’s oil shale and the status of oil               The Deputy Assistant Secretary for
shale projects, technology, and advances                Petroleum Reserves will prepare a program
since the 1980s.                                        authorization request by January 2005 and
                                                        coordinate its approval through DOE and
Although additional analysis is required to             OMB channels, as appropriate. While this
support prudent policy decisions, the results           request is in process, strategy development,
of this study were sufficiently compelling to           supporting analysis, and program planning
initiate organization, strategy development,            efforts will proceed.
and planning efforts for a broader Federal
effort.                                                 1.2 Federal Oil Shale Task Force
Figure 7, provides a Roadmap for Federal                Numerous Federal agencies, including the
actions leading to implementation of an oil             Department of Energy, the Department of
shale program plan. The activities and steps            the Interior, the Department of Defense, and
that comprise the Roadmap are discussed in              the Department of Treasury will be involved
greater detail below                                    in the planning of a Federal Oil Shale
                                                        Program. Initial steps have already been
 Figure 6: Systems Approach to Oil Shale Program Development

          Organization and Strategy

                                       Program Analysis and Planning

                                                       Program Implementation

                                                                   Program Evaluation



  2003             2004         2005          2006          2007          2008



                                                                                                    13
Oil Shale Development Roadmap



taken to lay the ground work for interagency                 the Petroleum Reserves Office within the
collaboration through the development of a                   Department of Energy, consistent with that
draft Memorandum of Understanding                            office’s historic mission and charter. The
(MOU) between DOE, DoD, and DOI.                             Task Force will be initiated in January 2005.

To implement the MOU and support a                           1.3 Technology Assessment and Profiles
collaborative multi-agency effort, a charter                 DOE has identified a requirement for
will be drafted for the formation of a Federal
                                                             additional information regarding the status,
Oil Shale Task Force, under the direction of                 performance, and availability of specific oil
      Figure 7: Oil Shale Program Development Roadmap




                                   1.0 Organization
                                   1.1 Draft Authorization Request
                                   1.2 Task Force Charter and Initiation
                                   1.3 Technology Assessment and Profiles
                                   1.4 Environmental Assessment
                                   1.5 Stakeholder Engagement Plan



                                   2.0 Federal Oil Shale Strategy
                                   2.1 Define Federal Goals and Objectives
                                   2.2 Prepare Federal Oil Shale Strategy



                                3.0 Program Planning Assessment
                                3.1 Economic Assessment of Impacts of Higher Prices
                                3.2 Security Impact Assessment of Supply Disruptions
                                3.3 Industry Development Hurdles Assessment
                                3.4 Value of Oil Shale Industry Development




                          4.0 Federal Oil Shale Program Plan, Addressing:
                          4.1 Resource Availability and Leasing
                          4.2 Economic Constraints and Incentives
                          4.3 Technology Constraints and RD&D
                          4.4 Environmental Constraints and Mitigation
                          4.5 Infrastructure Constraints and Solutions
                          4.6 Socio Economic Issues and Solutions
                          4.7 Comprehensive Analysis of Oil Shale Program Costs and Benefits
                          4.8 Programmatic Environmental Requirements
                          4.9 Performance Metrics and Evaluation Criteria




                                      Implement                           Program
                                       Oil Shale                         Evaluation
                                       Program




                                                                                                       14
Oil Shale Development Roadmap



shale technologies that were developed and       outreach to stakeholders as well as soliciting
tested at various scales during the 1970s and    and assessing stakeholder input and
1980s. Existing information about these          evaluating and incorporating that input in
technologies will be collected and               strategies and program plans. A draft plan
assembled as a resource for analysis and         should be complete in February 2005. A
planning purposes. This will provide a           Technical Exchange meeting is also planned
baseline for identifying technologies and        in February 2005 to explore issues and
processes that could be demonstrated and         concerns and approaches for achieving oil
commercialized quickly to initiate domestic      shale goals objectives.
shale oil production. DOE’s National
Energy      Technology       Laboratory     is   2.0 Federal Oil Shale Strategy
conducting this effort to be completed in        A key role of the Oil Shale Task Force will
January 2005.                                    be to draft and recommend a Federal Oil
                                                 Shale Strategy. The Federal Oil Shale
1.4 Environmental Assessment of Oil              Strategy will provide the basis for preparing
Shale Technologies                               a Federal Oil Shale Program Plan.
A wealth of data exists within the
Department     of Energy      about   the        2.1 Federal Goals and Objectives
environmental performance of oil shale           The strategy will define Federal goals and
technologies and processes that were             key objectives toward achieving those. A
developed during the 1970s and 1980s.            preliminary set of possible goals and
Extensive analysis was also conducted by         objectives, aimed at overcoming identified
DOI for the 1973 Environmental                   hurdles to industry development, were
Assessment of the Prototype Oil Shale            included in DOE’s preliminary assessment
Leasing Program. These data will be              of oil shale potential and are summarized in
reviewed and summarized to provide input         Section IV (Table 1) of this Roadmap.
to oil shale strategy development and
program planning efforts. DOE’s National         2.2 Draft Strategy Document
Energy     Technology     Laboratory    is
conducting this effort to be completed in        DOE will prepare a draft strategy document
January 2005.                                    for consideration by the Oil Shale Task
                                                 Force. It will identify Federal goals and
1.5 Stakeholder Engagement Plan                  objectives, and define federal activity areas,
                                                 program options, and high-level approaches.
A critical factor in the success or failure of   The target date for completion of the draft
oil shale program development and industry       strategy is March 2005.
commercialization efforts will be the
effective input of key stakeholders in           3.0 Program Planning Assessments
industry, the states, affected communities,
and other organizations. As demonstrated by      As noted above, additional analyses will be
Alberta’s development of its tar sands           required to support the development of
program, early stakeholder involvement and       prudent and effective program plans and
input is essential. DOE will prepare a draft     activities that support the Federal Oil Shale
Stakeholder Engagement Plan for review           Strategy and achieve public and private
and approval by the Oil Shale Task Force.        goals and objectives. These include: (1) an
This will include a broad range of               assessment of the potential economic
approaches for providing information and         impacts that can be expected from expected
                                                 higher oil prices; (2) an evaluation of the


                                                                                            15
Oil Shale Development Roadmap



security impacts of potential fuel supply        !   Product prices for fuels
disruptions; (3) more detailed assessment of     !   Domestic fuels demand and energy
the hurdles that constrain oil shale industry        imports
development in the United States; and (4) a
reliable valuation of the national economic      !   Gross domestic product
and security benefits that could be achieved     !   U.S. Employment
by developing a domestic oil shale industry.
These assessments, described in greater          !   Balance of trade       and    balance   of
detail below, are being initiated in the near-       payments.
term with the expectation that they can be       These analyses will establish the economic
completed in March 2005 in order to inform       rationale for program actions to stimulate oil
and focus program planning efforts.              shale development.
3.1 Economic Impacts of Higher Oil               3.2 Security Impacts of Oil Supply
    Prices and Changes in Supply and                 Disruptions
    Demand
                                                 Supply disruptions from political crises,
Reaching peak oil production globally in         economic dislocations, natural disaster, or
shorter timeframes than some predict will        physical constraints may result in short-term
dramatically drive up the price of oil,          or intermediate-term fuel supply shortfalls.
impacting the U.S. and world economies.          Scenarios such as disruption of Saudi
This prospect accelerates the need for a         shipping terminals, a tanker sunk in the
range of solutions, including: (1)               Straits of Hormuz, an extended labor strike
conservation to reduce demand; (2)               and production shutdown in Venezuela, or a
alternatives including renewables and            severe hurricane in the Gulf of Mexico are
intermediates (such as hydrogen); and (3)        not difficult to imagine. The potential
unconventional oil (including oil shale and      impacts of these shortfalls on liquid fuel
tar sands) to increase domestic fuels supply.    supplies for military preparedness and
To assess the national economic benefits of      homeland      defense,     including      first
oil shale production, DOE will model and         responders, need to be understood and
analyze the economic impacts of rising           considered in formulating policy and
prices and reduced supply under a variety of     determining program elements. DOE and
price / supply scenarios. DOE will update        DoD will:
analyses of future worldwide petroleum           !   Assess both the credible probability of a
supply and demand, using Energy                      variety of supply disruption scenarios of
Information       Administration        (EIA),       varying levels and durations and
International Energy Agency (IEA), and               determine respective supply impacts.
private sector forecasts to bracket a range of
uncertainty.                                     !   Update analyses of the security
                                                     implications of supply disruptions from
DOE will determine the price impacts of              potential political crisis or physical
various scenarios of reduced world oil               constraints that may result in short-term
supply and increased global demand, as well          or intermediate-term shortfalls.
as a number of supply interruption
scenarios. DOE will then correlate the price     !   Evaluate military fuel requirements and
impacts to specific measures of U.S.                 preparedness benefits of developing a
economic well-being, including:                      secure domestic resource of quality
                                                     military fuels.


                                                                                             16
Oil Shale Development Roadmap



!   Demonstrate the relationships among         well as guidance to leasing programs. A
    domestic supply, the Strategic Petroleum    wealth of data already exists within the
    Reserve, and the benefits of developing     Department of the Interior (BLM and
    a large and stable domestic oil shale       USGS) that can be used for this purpose.
    industry.
                                                3.3.3 Review Oil Shale Leasing Issues and
                                                Needs: A review of the 1973 Prototype Oil
3.3 Major Factors Influencing Oil Shale
                                                Shale Leasing Policy developed by
    Industry Development
                                                DOI/BLM will be conducted to identify key
To support economic benefits assessments,       issues that must be addressed in developing
policy analyses, and program planning           a new Oil Shale Strategy and a new leasing
efforts, DOE will analyze and update its        plan.
understanding of a range of factors that
                                                BLM’s 2004 proposed rulemaking to
influence or determine the cost, timing,
                                                establish R&D leases for oil shale
ultimate size, and potential fuel supply
                                                development will also be reviewed and
contributions of a domestic oil shale
                                                comments will be prepared and submitted as
industry. The results of these analyses will
                                                appropriate.
provide direct inputs to the assessment of
the potential economic and security value of    3.3.4 Lessons From the Alberta Tar
oil shale industry. Specific components will    Sands and International Oil Shale
include:                                        Projects: Experience in Canada, with its
                                                massive tar sands reserves, and to a lesser
3.3.1 Infrastructure Gaps: An assessment
                                                extent, emerging oil shale technological
of gaps in the infrastructure required to
                                                advances around the globe, point toward
support oil shale industry development (e.g.
                                                opportunities and methodologies that could
water supply, natural gas supply, upgrading
                                                be needed to build a profitable, robust, and
facilities, roads, pipelines, and community
                                                environmentally sound industry in the
facilities) and a practical, phased schedule
                                                United States. Lessons learned from these
for expanding infrastructure to meet future
                                                efforts could inform assumptions about
needs as the industry grows, will be
                                                industry development timing, costs, and
developed.
                                                technology performance. DOE will:
3.3.2 Characterization of U.S. Oil Shale
                                                !   Review the history of U.S. oil shale
Resources:      Updated assessments and
                                                    development and examine the reasons
characterization of the U.S. oil shale
                                                    for prior failures, the lessons, and
resource that reflect improved resource
                                                    benefits resulting from that experience,
knowledge and improvements in oil shale
                                                    and the opportunities to build on past
technology performance will be performed.
                                                    and recent accomplishments.
This analysis will help identify which oil
shale resources and locations are best suited   !   Review the Alberta Tar Sands industry
to specific mining, in-situ, or surface             development experience.
retorting technologies and allow revised        !   Review other active oil shale projects
estimates of potential shale oil production.        around the world.
DOE, BLM, and USGS will meet to concur
on a consistent set of resource estimates for   3.3.5 Oil Shale Technology Status and
the purpose of program planning and             Gaps: Technologies for oil shale mining,
supporting analyses.       The results will     retorting, in-situ conversion, processing, and
provide key inputs to economic analyses as      upgrading have improved due to continued



                                                                                           17
Oil Shale Development Roadmap



research and the experience of oil shale         !   Identify pros and cons, including
projects elsewhere in the world. DOE will:           limitations and technology gaps,
                                                     associated with each project type.
!   Update understanding of technology
    performance, costs, and products of oil
                                                 3.3.7 Assess Economic Viability of Oil
    shale projects underway in the United
                                                 Shale Relative to Other Alternative
    States and around the world                  Liquid Transportation Fuel Sources: To
!   Identify known technical gaps and            demonstrate that oil shale development
    deficiencies                                 can/will compare favorably with other liquid
                                                 fuel resources (in terms of costs,
!   Identify technologies that are ready for
                                                 contributions to domestic energy supply, and
    “next-step” commercialization based on
                                                 energy efficiency) DOE will:
    operability, sustainability, efficiency,
    and environmental compliance.                !   Evaluate unconventional oil sources,
                                                     such as tar sands and coal liquefaction.
!   Identify and prioritize R&D areas where
    Federal participation will help accelerate   !   Evaluate conventional investments in
    commercial       development        while        petroleum extraction, such as ultra-deep
    protecting the environment.                      off-shore production and certain
                                                     enhanced oil recovery technologies.
3.3.6 Model Hypothetical Oil Shale
Plants: To provide a technology baseline for     3.3.8 Understand Potential Research,
program planning and for evaluating              Development        and      Demonstration
program impacts and economic costs and           (RD&D) Requirements: A variety of
benefits, a series of “model” project profiles   research and demonstration work will be
are needed. DOE will:                            required to enable current technologies to
                                                 make the final step to commercialization.
!   Define as many as six hypothetical
                                                 DOE will work with industry to identify
    surface and below-ground mining and
                                                 technologies that are ready for “next step”
    retorting combinations (i.e: Surface mine
                                                 demonstration and commercialization. DOE
    / surface retort; Room and pillar mine /
                                                 will also identify R&D requirements to
    surface retort; In-situ conversion;
                                                 overcome the technology gaps previously
    Modified in-situ; and combinations.)
                                                 identified. Working with industry and other
!   Characterize product       development,      experts, DOE will:
    upgrading and refining requirements and
                                                 !   Identify technologies that already exist
    assess prognosis for improvements.
                                                     that could be demonstrated quickly to
!   Estimate (in ranges) development,                initiate domestic shale oil and fuels
    capital, and operating costs and revenues        production.
!   Model approximate economics of each          !   Identify and prioritize research and
    project type, on a consistent and directly       demonstration needs to        advance
    comparable basis, using a classic project        technology performance, reliability,
    financing approach to illustrate the             efficiency and cost effectiveness and
    business case for each and to determine          mitigate risks.
    if projects are self-sustainable in a
                                                 !   Define      parameters     for     joint
    competitive market.
                                                     industry/government    research     and
                                                     development      collaboration      and
                                                     demonstrations.


                                                                                          18
Oil Shale Development Roadmap



3.3.9 Socio-Economics Impacts, Risks and        scenarios    of     resource     availability,
Costs of Development: Development of            technology       performance,        industry
massive oil shale resources in Colorado,        development timing, and           shale oil
Utah, and Wyoming will cause both               production levels.
significant economic costs and benefits to      Using the results of analyses described in
the     region.     Oil   shale  industry       Section 3.3 above, the analyses will estimate
development will need to be managed as to       the potential levels and timing of:
minimize the adverse socioeconomic
impacts on the region while delivering          !   Shale oil production and oil imports
intended benefits. Working with State and           avoided
local representatives, DOE will:
                                                !   Impacts to dampen global fuels prices
!   Assess the potential costs and timing of
    improvements in community services          !   Gross Domestic Product (GDP) impacts
    and infrastructure that will be needed to       of industry development and operation
    support population growth attributable to   !   Employment impacts
    oil shale industry development and
    associated economic activity.               !   State and federal revenues

!   Evaluate Alberta’s socio-economic
                                                4.0 Federal Oil Shale Program Plan
    development approach for its oil sands
    development as an analog or model for       Based on the goals, objectives, and
    U.S. oil shale development                  limitations established in the Federal Oil
                                                Shale Strategy and on the results of various
!   Conduct economic benefit and risk
                                                analyses and assessments described above,
    analysis to determine regional impacts.
                                                as well as effective input from key
3.3.10       Environmental         Impacts:     stakeholders, an integrated Federal Oil Shale
Depending on the profile of a given project,    Program Plan will be drafted by the Oil
(i.e. surface or underground mining;            Shale Task Force.
retorting technology; in-situ approach;
                                                To effectively respond to the known issues
upgrading approach, etc.) oil shale projects
                                                and hurdles that constrain private sector
will have varying environmental impacts. It
                                                development of a domestic oil shale
is expected that impacts can be reduced
                                                industry, it is expected that the integrated
through cost-effective project designs or
                                                Federal Oil Shale Program Plan may include
mitigated in the future, through restoration
                                                the following major program elements:
and reclamation or other approaches. DOE
will characterize the ranges of potential       !   Resource Availability and Leasing
impacts     from       various  hypothetical
technology scenarios and suggest alternative    !   Economic Constraints and Incentives
mitigation strategies.                          !   Technology Constraints and RD&D
                                                    Requirements
3.4 Evaluate Potential Economic Value of
Oil Shale to United States                      !   Environmental Constraints and
                                                    Mitigation
DOE will assess the potential economic
value that development of an oil shale          !   Infrastructure Constraints and
industry could offer to the United States. To       Development
do so, DOE will augment its modeling            !   Socio-Economic Constraints and
capability to analyze a range of plausible          Solutions


                                                                                            19
Oil Shale Development Roadmap



!   Comprehensive Analysis of Oil Shale        assignments will be determined by the Oil
    Benefits and Costs                         Shale Task Force consistent with its charter.
!   Programmatic Environmental                 Additional analysis and modeling efforts
    Requirements                               will be required to support the development
                                               and justification of specific elements of the
!   Performance Metrics and Evaluation
                                               Federal Oil Shale Program Plan. These may
    Criteria
                                               include resource and technology modeling,
It is anticipated that various agencies will   and environmental analysis, as well as cost-
take the lead in developing specific           benefit analysis of various program elements
segments of the integrated plan. For           and government          actions. Additional
example, it is likely that the Department of   analytical effort will be required to establish
Interior’s Bureau of Land Management will      near-term and long-term performance
lead efforts for planning oil shale leasing.   metrics to support program evaluation and
Similarly, the Department of Treasury may      ensure program effectiveness.
lead or play a key role in evaluating
potential economic and tax incentives. These




                                                                                           20
Oil Shale Development Roadmap



                                VI. Key Milestones and Schedule
The Deputy Assistant Secretary for                 A draft charter for a Federal Oil Shale Task
Petroleum Reserves has developed an                Force will be prepared by mid-January.
aggressive schedule for initiating Federal         Cooperative efforts have already begun with
activities to stimulate creation of a domestic     the circulation of a draft Memorandum of
oil shale industry. (Table 2).                     Understanding (MOU) among several of the
Building on the preliminary efforts already        principal Federal agencies involved,
coordinated by DOE and others, the first           including the Department of Energy, the
version of the Oil Shale Program Roadmap           Department of the Interior (BLM), and the
will be completed for final review and             Department of Defense. This MOU will
comment by mid-December 2004.                      support initiation of the Oil Shale Task
                                                   Force by late January.
Analytical     work      will    commence
immediately to support program planning            Preliminary efforts are already underway
and impacts assessment, including economic         within the Department of Energy to outline
impacts assessment, security impacts               and draft the Federal Oil Shale Strategy by
assessment,    assessment     of   industry        February 2005. This effort will accelerate
development     constraints,   and   initial       the pace of Federal activity once the Task
assessment of the potential value of               Force is in place and allow for the rapid
developing a domestic oil shale industry.          development of a Stakeholder Engagement
These analyses are to be completed in early        Plan. Effective stakeholder outreach and
February, 2005.                                    participation is essential to achieve oil shale
Table 2: Major Milestones for Oil Shale Program    development goals in a timely manner.
Assessment and Initiation
                                                   The Task Force will provide effective
       Activity / Milestone          Expected      direction for the development of the detailed
                                    Completion     elements of an integrated Federal Oil Shale
 Roadmap                            December 04
                                                   Program Plan. With effective participation
                                                   and collaboration, a preliminary Federal Oil
 Draft Authorization Request         January ‘05
                                                   Shale Program Plan, could be available for
 Task Force Charter & Initiation     January ‘05   review and comment by mid-May 2005.
 Technology Assessment & Profiles    January ‘05
 Environmental Assessment            January ‘05
                                                   Additional analysis will be required in all
                                                   areas of activity envisioned in the plan.
 Stakeholder Engagement Plan        February ‘05
                                                   Refinements to the Program Plan will be
 Federal Oil Shale Strategy         February 05
                                                   made over the ensuing months in
 Economic Assessment of Oil Price                  collaboration with policy makers, the States,
                                     March ‘05
 Impacts
                                                   stakeholders, and industry.
 Security Impact Assessment          March ‘05
 Industry Constraints Analyses       March ‘05     Initial program activities are expected to
 Technical Exchange Meeting          March ‘05     start early in the new Federal fiscal year,
 Value of Oil Shale Industry
                                                   beginning October 1, 2005. These major
                                     March ’05     milestones are reflected in Figure 8.
 Development
 Report to Congress                   May ‘05
 Federal Oil Shale Program Plan       May ’05
 Program Implementation Begins       October 05




                                                                                               21
Oil Shale Development Roadmap




Figure 8: Major Milestones for Oil Shale Program Assessment and Initiation




                                                                             22
Oil Shale Development Roadmap



                  VII. Potential Ongoing Roles of Key Participants
Assessing the potential of America’s oil                       The relative roles of each sector are
shale to help meet the nation’s future fuels                   summarized in Figure 9 and in the text that
requirements     in     an      economically                   follows.
competitive and environmentally sound
manner and developing and implementing a                       Federal Government Responsibilities
long-term     public-private     oil   shale                   !    Articulate a comprehensive energy
development program, will require the                               policy and plans that balance the
concerted and ongoing participation of a                            nation’s needs with available supply and
broad range of participants in:                                     emphasize production of secure fuels
!   The Public Sector (Federal, State, and                          from domestic resources.
    Local government) and                                      !    Establish oil shale goals and policies that
!   The Private Sector (Mining and                                  create a favorable investment climate
    Petroleum industries, Technology and                            and reduce investment risk.
    Engineering   companies,     Financial                     !    Provide the analytical basis for assessing
    community, Community groups, and                                economic viability of various technology
    Non-Government Organizations)                                   scenarios for oil shale development
Some roles and responsibilities will be                             (including: surface mining, deep mining,
exclusive to a particular sector. However,                          in-situ, and surface retorts).
many elements of the decision making                           !    Provide the analytical basis for assessing
process will require collaborative effort                           costs, benefits, and energy supply
across public and private sectors.                                  impacts of various potential incentives

                    Figure 9. Major On-Going Roles of Key Oil Shale Development Participants


                        Industry Roles                                Public Sector Roles
                        ! Define Industry Needs                       ! Establish Public Policy
                        ! Develop Technology                          ! Define Incentives
                        ! Project Design                              ! Leasing Program
                        ! Project Finance                             ! Regulation / Permits
                        ! Define Investment Thresholds                ! Investment Climate
                        ! Project Infrastructure                      ! Assure Market
                        ! Environmental Controls                      ! Program Infrastructure
                                                                      ! Interagency Efforts
                                                                      ! Environmental Compliance



                                              Public – Private Roles
                                              ! Cost Shared R&D
                                              ! Demonstration Projects
                                              ! Technology Transfer
                                              ! Community Infrastructure
                                              ! Stakeholder Outreach
                                              ! Water Supply



                                                                                                            23
Oil Shale Development Roadmap



    and policy actions to stimulate oil shale   Stakeholder Responsibilities (including
    production (including tax, R&D,             citizens, interest groups, and NGOs)
    environmental, socio-economic).             !   Offer perspectives and advice on issues
!   Conduct energy supply and demand                of importance to stakeholders.
    modeling that accounts for investment       !   Identify perceived impediments and
    risk, conservation trends, efficiency           make recommendations for mitigating
    trends, and world petroleum economics.          those impediments.
!   Identify and effectively coordinate         !   Participate in forums designed to
    agency-specific responsibilities and            achieve public consensus on the need,
    directives (DOE, DoD, DOI, and                  the methods, and the expected results
    Treasury).                                      and national and community benefits of
!   With industry, identify key research,           oil shale development.
    development, and demonstration needs,
    develop a technology roadmap, and           Industry Responsibilities
    programs to meet those needs.               !   Express the need for a government
!   Produce a resource model that evaluates         policy initiative in oil shale.
    resource characteristics (i.e. depth,       !   Express interest in oil shale as an
    thickness,     richness,   overburden,          investment opportunity.
    accessibility, etc.) to classify the
    resource on public lands, determine         !   Identify impediments to oil shale
    optimal development approaches, and             industry  development      and     offer
    ensure effective resource conservation          recommendations for their mitigation.
    (maximum recovery), and energy              !   Offer advice and recommendations on
    efficiency.                                     government incentives that may be
!   Complete an assessment of government            needed (type, amount and duration) to
    lands and implement appropriate leasing         reduce the investment risk, while
    policy and regulations to ensure access         maintaining the corporate incentive to
    to the nearly 80 percent of western oil         minimize costs.
    shale resources that underlay Federal       !   Identify    technical     barriers  and
    lands.                                          recommend research, development, and
!   Review the status and applicability of          demonstration      efforts essential to
    environmental regulations and respond           industry development that industry
    to permit applications in a timely              would be unlikely to do, without Federal
    manner.                                         assistance, in a time frame consistent
                                                    with achieving national goals and
!   Coordinate effective outreach and               priorities
    communication efforts to engage
    affected stakeholders in the decision-      !   Provide review and advice on issues
    making process, identify and effectively        such as resource classification and land
    respond to critical stakeholder issues,         management policy.
    forge consensus on key decisions, and       !   Interact with Federal, state and local
    share information about plans and               entities to identify and mitigate potential
    progress with affected communities.             socio-economic impacts and community
                                                    risk attributable to oil shale industry
                                                    development.


                                                                                            24
Oil Shale Development Roadmap



!   Work with Federal and State entities to       !   Establish      policy   and      respond
    develop and implement an effective                legislatively to needs identified in the
    communications plan      to    apprise            consensus building process.
    communities and stakeholders of plans
                                                  !   Coordinate state incentives with Federal
    and progress.                                     incentives to maximize energy supply
                                                      benefits while minimizing public sector
Responsibilities       of   State   and   Local
                                                      costs and impacts
Government
                                                  !   Articulate and coordinate regulatory
!   Participate in environmental and socio-
                                                      requirements to minimize unnecessary
    economic impact mitigation with the
                                                      delays in the permitting requirements.
    Federal Government and Industry.
                                                  !   Coordinate with other legal entities to
!   Assist in stakeholder outreach and
                                                      assist in resolution of unforeseen issues.
    consensus building efforts.




                                                                                             25
Oil Shale Development Roadmap




                                          Appendix 1
                                Oil Supply and Demand Analysis
  (Reproduced from “Strategic Significance of America’s Oil Shale Resources” March, 2004.)

4.1 Oil Demand                                   will consume 6.5 MMBbl/D, second only to
                                                 the United States’ forecasted demand of
World demand for crude oil (including            25.2 MMBbl/D (Ref. 9, pg. 185).
natural gas liquids) is projected by the U.S.    However, China’s booming economy may
Energy Information Agency to increase            already be making the EIA 2003 forecast
from 77.1 MMBbl/D in 2001 to 89.7                obsolete.    In September 2003, China’s
MMBbl/D in 2010, an increase of 12.6             monthly crude-oil imports grew almost 60
MMBbl/D in just 9 years. (Ref. 9, p. 185)        percent as compared with September 2002.
The forecasted oil growth rate is 1.7 percent    Year-to-year imports are up about 30
per year, a significant increase over the        percent as the economy of China expands.
actual 1990 to 2001 rate of 1.4 percent
(Figure 5).                                      Higher living standards are making new cars
                                                 affordable for more Chinese.             Car
The projections are based on the EIA Office      production for the domestic market nearly
of Integrated Analysis and Forecasting’s         doubled in the first seven months of 2003 to
National Energy Modeling System (NEMS),          more than 1 million vehicles, and it is
an integrated market-based approach to           expected to increase five-fold within a
energy analysis. The NEMS model                  decade. The Wall Street Journal cites
correlates        numerous          historical   increased Chinese demand for oil as a
interrelationships governing supply and          fundamental reason for the high price of
demand, with the common interface being          world oil in the fall of 2003 (Ref. 14).
the price and quantities consumed by the
end-user. In the reference case, the model       4.2 Oil Supply
projects that the real price of crude oil (in
2001 dollars) will remain steady, at about       All official forecasts project that plentiful oil
$26.50/bbl, in 2025 ($48/bbl in nominal          supplies will be available, that supply will
price). This model assumes that no shortage      balance with demand, and the real price of
will develop.                                    oil will remain steady at or near 2001 price
                                                 levels.
Three other organizations provide forecasts
comparable to the EIA’s: the International       Other recent and unofficial projections
Energy      Agency      (IEA);     Petroleum     challenge IEA and EIA projections. A
Economics, Ltd.; and, Petroleum Industry         growing number of petroleum geologists
Research Associates. All of the projected        believe that oil production will soon become
growth rates for energy consumption fall         limited by geologic constraints, irrespective
within 0.2 percentage points around the EIA      of demand requirements. The issues are
reference case (Ref. 9, Pg. 19). All of them     framed quite clearly in a series of special
also project that the world’s consumption of     reports by the Oil & Gas Journal (OGJ)
oil will increase in a manner similar to the     (Ref. 2 thru 5). The OGJ articles illuminate
EIA reference case (Ref. 9, Pg. 21).             arguments regarding an eventual peak in
                                                 world oil supply that, if accurate, would
The demand for oil may be underestimated
                                                 cause oil prices to spike and cause
in these forecasts. For example, oil demand
                                                 unprecedented and difficult economic
in China is projected by the EIA to grow, on
                                                 adjustments to follow.
average, 3 percent per year. By 2010, China

                                                                                               26
Oil Shale Development Roadmap




The two sides of the debate are being                       “Royal Dutch/Shell Group, one of the
referred to as the depletionists and the non-               world’s largest oil companies…failed for
depletionists. Depletionists argue that world               a third year to find as much oil as it
production will peak, perhaps in the near                   pumped” (Ref. 16).
term, and that the advent of the peak                   The disparity between increasing production
portends a long, painful decline with serious           and declining discoveries can only have one
world-wide economic consequences. Non-                  outcome: a practical supply limit will be
depletionists argue that advances in                    reached and future supply to meet
technology and favorable investment                     conventional oil demand will not be
climates will continue to stave off the peak            available.   The question is when peak
in production long enough to promote a                  production will occur and what will be its
smooth transition to other energy forms with            ramifications.
higher use-efficiency.
                                                        Whether the peak occurs sooner or later is a
Campbell and Laherrère, in a 1998                       matter of relative urgency, but does not alter
Scientific American paper titled "The End of            a central conclusion; the United States needs
Cheap Oil,” pointed out that:                           to establish a supply base for its future
    "About 80 percent of the oil produced               energy needs using its significant oil shale,
    today flows from fields that were found             coal, and other energy resources.
    before 1973, and the great majority of
    these are declining." (Ref. 15)                     4.3 Declining World Oil
                                                        Production
Discoveries did peak before the 1970s as
shown in Figure 6. This figure also shows               In spite of projections for growth in non-
that no major new field discoveries have                OPEC supply, it appears that non-OPEC and
been made in decades. Presently, world oil              non-Former Soviet Union Countries (non-
reserves are being depleted three times as              FSU) have already peaked and are currently
fast as they are being discovered. Oil is               declining (Figure 7).
being produced from past discoveries, but               The production cycle of the countries shown
the reserves are not being fully replaced.              in Figure 7, and the cumulative quantities
Remaining oil reserves of individual oil                produced reasonably follow Hubbert’s
companies must therefore continue to
shrink. For example:
        Figure 6. Growing Disparity Between World Production and World Discoveries (Ref. 2)




                                                                                                   27
Oil Shale Development Roadmap




model (see Appendix A for a more in-depth          capacity. The United States and other oil
discussion). Although there is no agreement        consuming nations of the world are
about the date that world oil production will      dependent on OPEC not only for imported
peak, forecasts presented by USGS geologist        oil, but also for data and information related
Thomas Magoon (Ref. 6), the OGJ, and               to OPEC reserves. As a matter of policy,
others expect the peak will occur between          OPEC holds confidential the estimated oil
2003 and 2020 (the year the prediction was         reserves of the OPEC members.
made follows the name). What is notable            For the past two decades, OPEC, primarily
about these predictions is that none extend        Saudi Arabia, has assumed the role of the
beyond the year 2020, suggesting that the          world’s “swing” oil producer.             Swing
world may be facing shortfalls much sooner         capacity entails the ability to offset increases
than expected by the EIA.                          or decreases in supply elsewhere in the
2003 – Campbell, 1998                              global market by increasing or decreasing
2003 – Deffeyes, 2001                              oil production, thus maintaining market
2004 to 2019 – Bartlett, 2000                      equilibrium and dampening the economic
                                                   impacts of supply changes. By 1982, OPEC
2007 – Duncan and Youngquist, 1999                 had developed a surplus productive capacity
2008 – Laherrère, 2000                             of about 63 percent of its annual production.
2010 to 2020 – International Energy Agency         However, OPEC’s excess productive
       (IEA), 1998                                 capacity declined significantly over the next
2020 – Edwards, 1997                               20 years, as shown in Figure 8, and is now
World production has not yet peaked                less than 5 MMBbl/day, or about 20 percent
because output from Russia is growing and,         of current annual OPEC production.
at this point in time, OPEC has excess




        Figure 7. Non-OPEC, non-FSU Oil Production Has Peaked and is Declining (Ref. 17




                                                                                                28
Oil Shale Development Roadmap




                                             Figure 8. OPEC Excess Productive Capacity Is Declining (Ref. 18)

                                    80
                                                                 Non-OPEC Production
                                                                 OPEC Production
                                    70                           OPEC Excess Capacity


                                    60
          Million Barrels per Day




                                    50


                                    40


                                    30


                                    20


                                    10


                                     0
                                         1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001


Once OPEC’s excess productive capacity is                                                              "Foreign direct investment in some
gone and its oil production peaks, OPEC                                                                Middle East countries has practically
exports will begin an inexorable decline. At                                                           dried up..." “These [investment] trends
that point in time, the oil markets will shift                                                         suggest that there is a lack of new
from what has traditionally been a buyer’s                                                             investment opportunities that can
market to a seller’s market. The production                                                            generate returns high enough to satisfy
decline and shift of control to the sellers                                                            shareholders." (Ref. 19, pg. 20).
could produce escalating world oil prices                                                        A major part of the world’s future oil supply
                                                                                                 must come from OPEC sources, principally
4.4 Effect of Investment on Oil                                                                  Saudi Arabia. Saudi Arabia has been able to
Production                                                                                       maintain a production capacity of about 10
Models that predict continuing growth in                                                         million barrels per day.           The Saudi
supply also assume that investment capital                                                       productive capacity is projected by EIA to
and     investment     opportunities   with                                                      nearly double, increasing to 19.5 million
acceptable risks will be available. Because                                                      barrels per day by 2020 (Ref. 9, page 235).
the models are based on correlations of                                                          It is not now apparent, however, that
historic relationships, the predictions                                                          adequate investments are being made in the
necessarily assume business-as-usual (Ref.                                                       Saudi fields to double oil production by
12, p 49). Hubbert models do not directly                                                        2020. Economic, political, and legal risks
address investment and instead look at the                                                       are significant factors when making
historical experience of producing fields.                                                       investment      decisions.    Without      the
The Hubbert analysts assume that sufficient                                                      opportunity to find and produce oil, within
new exploration and production investments                                                       acceptable levels of risk, capital investments
will NOT be made, because adequate                                                               will not be made. Without massive new
geologic opportunities will not be present.                                                      investment, new supply cannot keep up with
Thus, projections of increased investment                                                        demand. Production will peak and decline
may NOT be realized. For example:                                                                and oil prices will rise.

                                                                                                                                               29
Oil Shale Development Roadmap




                                  Appendix 2
    Potential of Oil Shale to Offset Economic Impacts of Rising Oil Prices
  (Reproduced from “Strategic Significance of America’s Oil Shale Resources” March, 2004.)

5.0     Significance of Oil Shale                possible with a coordinated industry-
        Development                              government effort, it is possible that an oil
                                                 shale industry could be initiated by 2011,
Projected demand compared to potential           with an aggressive goal of 2 MMBbl/D by
supply suggests a continued widening of the      2020. Ultimate capacity could reach 10
gap between oil demand and oil supply. The       MMBbl/D, a comparable capacity to the
essential policy question for the United         long-term prospects for Alberta’s tar sand.
States is how will this gap be filled? The       An analysis was conducted to assess the
potential impact on the U.S. economy is a        potential benefits and impacts that could be
critical question that requires immediate        achieved by the development of a domestic
attention.                                       shale oil industry. The results of that
Every effort needs to be made to reduce oil      analysis are provided in the remainder of
demand. Conservation and improved end-           this section of the report.
use efficiency are essential. Higher (real)      Oil shale development can play a vital role
prices will naturally force consumers to         in the future economic well-being of the
conserve and live within supply constraints.     nation. While oil shale’s direct economic
However,      a   severe     supply-demand       value to the nation may approach $1 trillion
discontinuity could lead to worldwide            by 2020, other strategic and national
economic chaos.                                  security benefits may not be fully
One of the most cost-effective initiatives the   measurable in dollars. The benefits of oil
United States could take to prevent this from    shale development will continue well
occurring is to reduce its own call on world     beyond the forecast period, as the resource
oil by supplying more of its own needs.          base is capable of producing for more than
Bringing new liquid fuel supplies on line in     100 years.
significant quantities in the near future may
be essential to achieving this goal.             5.1 Significance to Oil Price
The adverse impacts of shortfalls could be
substantially mitigated by development of        Higher world oil prices will increase the
fuels derived from oil shale. The oil shale      costs of gasoline, distillate oil, jet fuels and
resources of the nation total 2 trillion         other products made from petroleum,
barrels. As much as 750 billion barrels has a    negatively impacting economic activity and
richness of 25 gal/ton or greater and could      reducing the U.S. Gross Domestic Product
be produced with near-term adaptations of        (GDP). The impacts of higher prices on the
existing technology.                             U.S. economy were evaluated for the
                                                 purpose of this study (Ref. 20).
Without arguing the rate at which shortfalls
may occur, and instead looking to what is




                                                                                              30
Oil Shale Development Roadmap



                                   Figure 9. Reduced OPEC Productive Capacity Will Increase Oil Prices (Ref. 20)
                           35



                           30



                           25
  orld Oil price ($/Bbl)




                           20



                           15
 W




                           10
                                                                                                      EIA AEO 2003
                                                                                                      Reduced OPEC
                            5
                                                                                                     Shale Oil Impact
                                                                                                     Source: INTEK Inc.


                            0
                            2000     2002      2004     2006     2008      2010      2012     2014      2016          2018   2020


The analysis assumes that the established                                         5.2 Significance to Gross
decline in OPEC productive capacity (see                                          Domestic Product (GDP)
Figure 8) will continue through 2020.
Continued loss of OPEC excess productive                                          Over the forecast period, reduced world oil
capacity will tighten world wide supplies                                         supplies will cost the U.S. economy $1.1
and increase the world oil price by an                                            trillion as higher world oil prices drive up
estimated $5 per barrel (in constant dollars)                                     the costs of gasoline, jet fuel, distillate, and
as compared with the EIA AEO 2003                                                 other products (Figure 10).
forecast (Figure 9).                                                              This cumulative negative impact on GDP
The analysis assumes that shale oil                                               begins to moderate when shale oil becomes
production begins in 2011 with initial                                            available in 2011 and increased oil supplies
production of 0.2 MMBbl/D and reaches an                                          cause the world oil price to fall. By 2020,
aggressive goal of 2 MMBbl/D by 2020.                                             the cumulative negative impact on the GDP
Shale oil development will decrease U.S.                                          has been reduced from $1.1 trillion to $0.3
demand on world oil supplies; which will                                          trillion. Oil shale development therefore has
reduce the world oil price by over $5 per                                         a direct positive value to the U.S. economy
barrel compared to the reduced OPEC case.                                         of $0.8 trillion over a 10-year period. With
                                                                                  continuing shale oil production the value to
The positive impact on world oil price                                            the economy will accumulate beyond the
shown in Figure 9 will continue beyond the                                        forecast period. Shale oil production could
forecast period, since production will                                            directly offset much of the loss of OPEC
continue    and.,    unlike     conventional                                      production, and hold down both world oil
petroleum, there will be no natural                                               price and, the price consumers pay for
production decline associated with the                                            gasoline and other fuels.
resource. Shale oil production can continue
at a constant, or increasing, rate for many                                       5.3 Natural Gas By-Products
decades.
                                                                                  Natural gas, a clean-burning fuel, is an
                                                                                  essential component of the nation’s energy
                                                                                  future. North America has been able to
                                                                                  meet most of its natural gas needs in the
                                                                                  past, but there will be a growing shortfall of
                                                                                                                             31
Oil Shale Development Roadmap



                                                              Figure 10. Increased Shale Oil Production Will Benefit the U.S. GDP (Ref. 20)
                        .S. DP, billion dollars       0




                                                   -200




                                                   -400
               pact on U G




                                                   -600
                                                                   Reduced OPEC Capacity = $-1094 Billion
                                                                   Increased Oil Shale Production = $-349 Billion
                                                                      Source: INTEK Inc.
     ulative Im




                                                   -800


                                                                                           Benefit of Oil Shale = ($1094-$349)=$745 Billion
  Cum




                                                  -1,000




                                                  -1,200
                                                           2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020


domestic gas production to supply                                                                                   time relief by simply finding            more
increasing demand. To fill this gap, the                                                                            conventional oil will not be possible.
United States is beginning to turn to
                                                                                                                    During the oil price shocks of the 1970s the
Liquefied Natural Gas (LNG) imports. It is
                                                                                                                    United States experienced rising interest
apparent that the nation will soon become
                                                                                                                    rates and high inflation, resulting in the
increasingly dependent on LNG imports to
                                                                                                                    condition known as ‘stagflation’, defined as
satisfy its projected natural gas demand.
                                                                                                                    slowing      growth    in   the     economy
Shale oil development could contribute to                                                                           accompanied by a general rise in prices.
domestic natural gas supply in two ways:                                                                            The relationship between oil price, inflation,
                                              1) shale oil can be used as a substitute                              interest rate, and unemployment is presented
                                                                                                                    in Figure 11.
                                                 for natural gas feedstocks in
                                                 chemical processes, and free up                                    The effects of the oil price spike of the
                                                 natural gas for other uses, and                                    1970s are succinctly summarized by
                                              2) in-situ technologies for shale oil                                 Blanchard as follows:
                                                 production can produce as much as                                     “…the four-fold increase in oil prices
                                                 one-third of the heating value of its                                 imposed by OPEC in 1973-74 raised
                                                 total production in the form of                                       price levels throughout the economy
                                                 natural gas (discussed in Volume II).                                 while slowing economic growth at the
                                                                                                                       same time. This left policy-makers in a
5.4 Consequences of Failure to                                                                                         quandary.
Act                                                                                                                    World central banks, worried about a
                                                                                                                       severe economic slowdown, chose loose
Worldwide competition for oil could result                                                                             monetary policies and inflation took off.
in price escalation and supply disruptions                                                                             The 1973 Arab oil embargo created a
similar to those experienced in the 1970s.                                                                             massive price rise and economic
Unlike the crisis of the 1970s however, this                                                                           dislocation, from Tokyo to Paris to


                                                                                                                                                               32
Oil Shale Development Roadmap




                     Figure 11. Correlation of Economic Variables over the Past 40 Years


                         Correlation of oil prices with interest,
                          inflation, and unemployment rates
                18                                                                                60

                16    Interest, Inflation,
                                                                                                  50
                      Unemployment rates - left axis




                                                                                                       Oil Prices 1996 dollars/bbl
                14

                12                                                                                40
      percent




                10
                                                                                                  30
                 8

                 6                                                                                20

                 4
                                                                                                  10
                 2

                 0                                                                                0
                 1955     1960     1965   1970   1975   1980   1985      1990   1995    2000   2005


                                 Interest rate                        Inflation rate
                                 Unemployment rate                    Crude oil price

    Chicago. The explosion in oil prices                       If peak production occurs unexpectedly, the
    ushered in a decade of "stagflation" in                    United States will likely experience all of
    which inflation soared while economies                     the negative effects seen in the 1970s. The
    stagnated. By the end of the decade, the                   comfortable supply situation of the past
    United States experienced double-digit                     decade gives an impression that the
    unemployment, double-digit inflation                       favorable supply trends can continue
    and double-digit interest rates." (Ref.                    indefinitely. The danger is that we are now
    21)                                                        lulled into a false sense of security.
In the 1970s, a 5 percent imbalance between                    Realistically, there are no economically
supply and demand created shortfalls of                        acceptable alternative sources for (liquid)
liquids, gasoline, and long lines at the pump.                 fossil fuels, other than fossil resources
At that time, high price was less of a worry                   themselves, in the intermediate time frame.
than availability of fuel. Such a loss, even                   Oil shale and coal represent our largest,
though a small percentage of total needs,                      most economically attractive fossil energy
was enough to adversely affect the flow of                     resources. A serious shortfall can only be
goods and the mobility of people, with                         avoided through proper planning and
severe consequences to the U.S. economy.                       effective action to enable development of
The period of the 1970s represents a model,                    these resources before the coming crisis
                                                               occurs.
at least for the early stages of a supply
shortfall.




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