San Antonio Express: Oil shale: Another boom?: “Terry O'Connor, a Shell vice president, said the company believes the process will be economical if crude oil stays above $30 a barrel. But the company is at least five years from deciding whether to build a commercial-scale operation.”

Web Posted: 10/23/2005 12:00 AM CDT

Sandy Shore

Associated Press

Editor's Note — Western oil shale has long intrigued energy companies looking to cash in on a domestic resource worth billions. But the shale industry has gone bust before and no one is sure whether oil can be melted out of underground rock in a way that makes financial sense. The Associated Press evaluates the potential of oil shale in the West.

PARACHUTE, Colo. — The brush-covered landscape of buttes and desert just west of the Rockies, already dotted with oil and gas rigs, could be in store for another resource boom as the energy industry turns a fresh eye toward developing oil shale.

A reserve estimated at nearly 1 trillion barrels of oil buried deep in rock formations in Colorado, Utah and Wyoming may be a way to ease U.S. dependence on foreign oil supplies. The newly enacted energy bill was written to help open the way for research programs and commercial leasing of federal land containing oil shale.

Yet shale isn't a quick panacea to the nation's energy woes. This oil is locked in rock, not easy to tap.

Companies have spent years researching how to melt oil out of rock, but it could be 2010 before any decide whether shale mining is commercially and environmentally feasible. It takes a lot of water to recover the oil and it can take months.

Many also worry about the effects that a large-scale operation — particularly coupled with robust natural gas, coal and oil production already under way — would have on the environment, wildlife and the people who spent years recovering from the shale bust in the 1980s.

Amy Beasley, whose grandparents homesteaded on Colorado's Parachute Creek, was a child when major shale production began in the late 1970s. She has lived with the effects of the boom and the bust.

At her Old Mountain gift shop, Beasley welcomes economic development but worries about her family's water supply.

"I just wish they would have more compassion," she said of energy companies.

The concern

Pete Kolbenschlag, a director of the Colorado Environmental Coalition, said government leaders and residents recognize energy development is part of the landscape. The concern, he says, lies in balancing it with environmental protections and a move toward renewable energy resources.

"We know we cannot drill our way to energy independence," he said.

"There certainly has been a resurgence in mining," said Luke Popovich, a spokesman for the National Mining Association. "We're in this sort of perfect storm where it seems all the factors of both domestic and offshore are suddenly in alignment."

Legends are told of American Indians and pioneers who used the rock to light campfires, and a visitor information site in Parachute showcases the tale of a homesteader who built a fireplace out of shale only to burn down his house when he lit a fire for a housewarming party.

Shale oil is easy to see, appearing in dark, gray stripes in the brown rock. There were booms just after World War II and again in the 1960s.

When that one hit, Parachute was a farming and ranching community whose 300 residents felt safe enough to leave their doors unlocked at night. Roads were dirt, there was no police department, and government was overseen by a part-time town administrator.

Oil rush

With the companies came thousands of workers who parked trailers where they could or slept in the streets, under bridges and even in root cellars, Parachute Mayor John Loschke recalled.

"This poor little community got slammed," he said.

Every day, streams of cars would head up a narrow, two-lane road carrying workers to shale mining operations in the buttes west of town. Speculators bought up farm and ranch land.

Suddenly there was money for schools, paved roads, a wastewater system and Exxon's worker housing development, which later became a retirement community called Battlement Mesa.

But when oil prices began to fall and government subsidies dried up, shale went south. Exxon shut down its $5 billion project May 2, 1982, locking the gates and putting 2,200 people out of work. Nicknamed "Black Sunday," it is a bitter reminder of the bust.

"It was a dramatic shock to the community, obviously. That money was flowing in here like blood to the veins," said Robert Loucks of Grand Junction, Colo., a former manager of oil shale operations for Shell and Occidental Oil Shale.

Years to repair

Loucks' operation and other companies worked for years before closing, but the regional economy plunged into a tailspin that has taken years to repair.

Western Colorado has worked hard to diversify its economy with tourism, recreation activities and retirement options. And now energy development is back.

The natural gas boom in particular brought a fresh group of companies and workers, packing hotels, restaurants and homes. Loschke says Parachute even has rush-hour traffic congestion at its main intersection, where there still is no traffic light.

In Vernal, Utah, also hit hard by the shale bust, workers are wanted for lots of jobs. The town's population of about 8,000 is expected to double in 10 years.

"You take a look around, every place has a 'Help Wanted' sign. Workers from the downtown businesses are going out to the oil fields because they pay so well," said Tom Nemec, a safety consultant for San Antonio-based Pioneer Drilling Co. "Right now the economy's booming. Everybody's on the bandwagon."

Hiring the cooks

In July, a manager of another oil company walked up to the counter in a Vernal McDonald's with an offer for jobs. Two cooks were hired on the spot for roughneck wages of $18 an hour, plus a $1,000 signing bonus.

"It happens to us on a regular basis," complained McDonald's supervisor Sandra Richins as she took a break from the breakfast grill. She raised wages to $7 from $6 an hour and offers health insurance, but still can't compete.

"I lose about five people a month to the oil fields — and that's been going on for the last three months," Richins said.

Analysts and industry observers say it isn't a question of whether shale oil can be produced. It can. But is it economically and commercially viable in large quantities?

Methods in use

There are two basic retrieval methods used worldwide.

One involves mining the rock and heating it in an above-ground facility called a retort. It leaves a lot of leftover shale for disposal and requires huge amounts of water for processing.

The other is an underground process in which the rock is heated beneath the surface. Although it would not require as much water, pollution of underground water supplies and the air remain possibilities.

Shell Exploration & Production Co. has been testing this method with buried heaters in a remote stretch of Colorado.

Terry O'Connor, a Shell vice president, said the company believes the process will be economical if crude oil stays above $30 a barrel. But the company is at least five years from deciding whether to build a commercial-scale operation.

Near Vernal, Oil-Tech Inc. is using a retort to melt oil from shale. The privately held company has applied for a permit to mine on state land and is asking the federal government to let it use 30,000 tons of oil shale from a nearby mine.

Loucks says the technology is still years away.

"We've been building plants for years, ever since at least 1920. Each one of them can get oil out of the rock," he said. "We know how to heat it up to 900 degrees, but in no case have we ever shown that that may work and made a buck."

Still, many observers believe the West can handle an oil shale boom — and bust — if development is properly controlled. Communities have become more sophisticated, with more diversified economies, and the mix of people is broader.

"There isn't going to be any boom or bust," said Russell George, a native of nearby Rifle and head of the state Department of Natural Resources. "Nothing is going to happen very fast and frankly shouldn't”.

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