Shale oil prospect: costly relief from imports for US

Oil from shale in the US West could replace several billion dollars worth of imported crude a year by 1990. But achieving such shale oil production presents the United States with a massive challenge.

In a study released June 24, Congress's Office of Technology Assessment (OTA) says such an effort would call for very careful management of water resources that already "are beginning to be strained." It would mean finding meaningful economic incentives for industry to move agressively into a field where prices as high as $48 to $62 a barrel still would probably not provide an attractive return on investment. And it would mean a determined effort to find ways to mitigate potentially severe environmental and social pressures.

As an advisory service to the Congress, OTA analyzes issues and lays out options without recommending specific action. However, the findings leave no doubt that the United States has scarcely begun to face up to the shale oil challenge. And unless a coherent national policy is worked out quickly (within the next year or two), this potentially important source of oil will not make much of an energy contributio a decade hence.

The study considers four levels of future production -- 100,000 bbl/d (barrels per day), 200,000 bbl/d, 400,000 bbl/d, and 1 million bbl/d. It highlights the 400,000 bbl/d target as providing the best balance of process development, plant demonstration, and research to learn how to exploit shales. Lower targets would not bring the industry along fast enough, but meeting a billion bbl/d target would waste resources and would put too much pressure on the environment, the OTA report says.

An industry producing 400,000 bbl/d by 1990 could save the United States $4.2 billion a year in oil import costs, the study estimates. However, while such savings would look good on the country's trade balance sheet, this does not necessarily mean the industry itself would prosper. OTA's computer simulations suggest that shale oil would have to sell for $48 to $62 (in 1979 dollars) to bring a real return on investment of 12 to 15 percent after taxes.

Such rates of return the study of notes, "are not likely to displace investments that have lower costs, lower risks, and higher rates of return, even if shale oil has a competitive price." This means that favorable taxes, subsidies, or other incentives aimed at making the shale oil price economically competitive would not be enough. One of the main problems to be faced is that of finding the right balance of incentives to make a shale oil industry truly viable. However, such incentives need not cost more than $0.60 to $1.40 per barrel of shale oil product.

On the other hand, costs of mitigating possible bad environmental effects could add $1.00 to $2.50 per barrel to the shale oil price. Such effects include air and water pollution, land disruption, and constructing damage. OTA notes that, while the federal Clean Air Act already sets air-pollution standards , there is no comparable law to regulate possible water pollution. Leaching of waste disposal sites, abandoned mines, and the like would constitute a scattered kind of pollution source that is "neither well understood nor well regulated, although the Clean Water Act provides a regulatory framework."

Besides possible pollution, industry needs could also strain regional water sources. These would be mainly the Green River and White River basins and the Colorado River mainstream with the Upper Colorado Basin. This does not necessarily mean there would not be enough water to go around if both shale oil development and development of the region generally are controlled. But without careful planning, serious water shortages are likely to develop.

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