WASHINGTON — A decision this week by Shell to shutter its oil shale operation in Colorado to pursue other ventures in Jordan and Canada highlights the difficulties faced by developers in the state as they wrestle with uncertain rules under the Obama administration.
Royal Dutch Shell was one of the most successful companies in the state in its efforts to develop a cost-efficient technique to extract oil from shale rock. But the final act of Ken Salazar as Interior secretary earlier this year to rewrite industry rules left companies in limbo with undeterminable royalty rates, and blocked them from obtaining leases for a majority of federal lands that hold two trillion barrels of recoverable oil.
Dan Kish, senior vice president for policy at the Institute for Energy Research and a former senior staff aide on Capitol Hill, said Salazar consistently opposed every effort to extract oil shale from the rich fields of Colorado, when Salazar served as Colorado’s Senator and after joining the Obama administration as Interior Secretary.
“Mission accomplished, Ken Salazar,” Kish said.
In statements to the press, Shell said its decision evolved from plans to develop other oil shale assets in the company’s holdings in Jordan and Canada.
“We plan to exit our Colorado oil shale research project in order to focus on other opportunities and producing assets in our broad global portfolio,” the company said.
Glenn Vawter, executive director of the National Oil Shale Association in Glenwood Springs, said the company’s financial decision combined with its announcements to move development outside of the U.S. sends a signal to federal regulators that the industry needs reliable rules to continue operations.
“It implies that doing business here was something they had decided that the benefits did not outweigh the risks of pursuing the project,” Vawter said.
In 2005, the Bush administration directed the Interior Department’s Bureau of Land Management to issue leases for its oil shale reserves on federal lands that encompass 70 percent of all U.S. deposits in Colorado, Utah and Wyoming.
However, just days before Salazar stepped down as Interior secretary, he declared 66 percent of the available acreage off-limits to development, and created onerous new bureaucratic red tape to discourage production.
Republican lawmakers predicted the new rules would deter research and development of the technology needed to extract the oil and drive away energy companies willing to invest substantial funding for the effort.
The pending listing of the sage grouse as an endangered species in Colorado also threatens to add even more regulations to the industry and hinder development.
Kish compared the federal government’s actions to telling a company they can build a billion dollar car factory but can’t manufacture any cars.
“It doesn’t take a genius to figure out if you can’t make cars in the billion dollar factory, you’ll stop building the factory,” Kish said.
“They will let you build factories in Jordan and Canada, so it’s no surprise Shell has decided where they are going to go spend their money,” Kish said.
Shell’s decision to exit Colorado came on the heels of the company’s announcement that a site in Louisiana was the lead contender to build a $12.5 billion plant and create 700 jobs to liquefy natural gas.
Louisiana Gov. Bobby Jindal has offered Shell a significant incentive package of tax breaks plus more than $100 million in state grants to purchase the property and make road and other infrastructure improvements.
Critics of the federal government policy for oil shale say the Louisiana decision is a lesson in how to encourage energy development, not shut it down.
Shell has been a major developer in Rio Blanco County since 1996, and follows Chevron that decided last year to close down its Colorado operation.
Several companies will continue their research and development projects in Colorado including American Shale Oil, ExxonMobil, and Natural Soda Holdings.
Vawter said Shell’s departure is disappointing because the company has been the leader in creating the promising new technology of-situ development to extract the oil.
“It’s frustrating,” Vawter said. “If it isn’t one impediment, it’s been another. But oil shale is a huge resource, and that’s why people keep coming back to it.”
“The technology keeps evolving over time, and the cost is a lot lower than we thought it would be, so that’s why it’s a shame to see Shell leave, because they are obviously one of the technology leaders,” Vawter said.
“But if they choose to come back at some time, they are well-positioned to do so.”