Oil shale: huge potential, huge problems

Rock that burns. That's oil shale: a tremendous US energy resource with as much fuel locked beneath the surface of western Colorado, eastern Utah, and southwestern Wyoming as all the petroleum reserves in the Middle East and Africa.

Now, with a little help from Uncle Sam, this ''synthetic fuel'' has a chance to prove itself in an era of unstable, yet generally rising energy prices.

It is becoming clear that oil shale will be a litmus test of how well industry and government have learned to cope with the severe local problems that rapid growth will bring to rural Western areas. For unlike coal, the other massive fossil fuel resource in the United States, oil shale is concentrated in a small area. And even a relatively moderate growth rate for this fledgling industry will result in radical economic and social change for the area.

Most residents here seem to feel that the industry has acted responsibly thus far. But how can this colossal energy effort be controlled? Can a way be found that will protect the social and physical environment of this area and not unduly stifle the development of the industry?

Residents are not satisfied with the answers they are getting. This became quite apparent at a unique meeting held here recently of all the parties involved. The American Association for the Advancement of Science and the National Conference of State Legislatures engineered the meeting.

The importance of resolving these issues is particularly crucial because ''oil shale development is taking place in the only two Western energy states (Colorado and Utah) in which the 'go, no go' decision'' is in local hands, explains Jack Gilmore, a senior fellow at the Denver Research Institute.

Many agree with John Welles, vice-president for institutional planning and development at the the Colorado School of Mines, when he says that the region's institutions don't appear up to the task.

Local uncertainty comes in part the oil shale industry's long and checkered history in this area. Industry wits have long observed that the price of oil shale always seems to hover about $5 above the current price of petroleum. Over the years residents of picturesque Piceance Basin with its barren, sculptured cliffs and hidden hydrocarbon wealth have been titillated with repeated predictions that an oil shale industry was in the offing.

Now, it finally looks as if the industry's time has come. With federal loans and guarantees Tosco Corporation in partnership with Exxon and a second project run by Union Oil are pushing ahead. And Standard Oil of Ohio has said it will proceed on its own without any federal money.

Still, many economic uncertainties remain. ''Current estimates of the cost of a 50,000-barrel-per-day plant range from $3 billion to $5 billion,'' reports J. Blaine Miller, president of Rio Blanco Oil Shale Company. ''That spread represents the uncertainty in our estimates. That's why no one is willing to talk about price per barrel or profit estimates,'' he adds.

No one expects oil shale to be cheap. The Congressional Office of Technology Assessment (OTA) in a 1980 report estimated the cost of mining oil shale, extracting the asphalt-like hydrocarbon that it contains called kerogen, and upgrading this to the level of crude oil, plus a modest profit, would result in a $40 to $60 per barrel cost.In addition, oil shale development ''will cost about $60,000 per barrel per day as opposed to offshore oil which runs up to $20 ,000 per barrel per day,'' points out John J. McKenna of Dean Witter Reynolds Inc. Although this initial investment can be spread many years, in a period of high interest rates it is considered a major financial obstacle to rapidly developing a large industry.An oil shale operation is mining rather than drilling. Oil shale is only 10 percent oil, unlike conventional petroleum which is 100 percent. A 1.5 million barrel-per-day oil shale industry will dig, treat, and dispose of as many tons of material as the current US coal industry does as a whole. This gives some idea of the magnitude of the environmental problems that the industry represents.To protect itself from these and other risks, the energy industry has persuaded the federal government to grant it special dispensation. The US Synthetic Fuels Corporation was established for this purpose in the waning days of the Carter administration. And after a period of uncertainty, the Reagan administration decided to back it. The corporation will be utilizing the $17.5 billion garnered from the oil windfall profits tax to promote ''commercially viable'' oil shale, coal liquefaction, and alcohol fuels production.Yet the the small, rural communities in the oil shale area such as Glenwood Springs, Rifle, and Parachute face similar risks in coping with the tremendous growth which the oil shale industry may bring. That growth may ultimately result in unprecedented prosperity, if the industry is successfull, or turn them from boom towns into ghost towns almost overnight, if it fails.''We have every reason to be apprehensive. We are trying to cope in our own, desperate way with the tip of the iceberg as it emerges,'' declares John Vanderhof, a former Colorado governor and president of Club 20, a group of western Colorado officials and businessmen wrestling with the region's growth problems.The problem, he explains, is that these communities need money to prepare for explosive growth but will not be getting revenues until after the worst impacts are over.Without more impact assistance, however, even pro-development spokesmen for the area such as Mr. Vanderhof are intimidated by the scale of the proposed industry. Thomas Sladek, director of the energy division of the Colorado School of Mines, estimates that a 400,000 barrel-per-day industry would require 25,000 new homes and $4 million in new municipal services in this sparsely populated area, besides siphoning off hundreds of thousands of acre-feet of water now used for agriculture.Exxon and Tosco will be spending $40 million a year for the next few years to help mitigate these impacts. So far the shale companies are going their own way on water, however, buying up agricultural water rights. This has state Sen. Fred Anderson worried. ''The greatest concern I have is what is going to happen to irrigated agriculture,'' he says. Only if the energy companies will enter into the financing of new, cooperative water storage projects, does he believe that they will have a beneficial effect on the area as a whole. Others knowledgeable with the situation point out that water law in this area is already highly adversarial so even if the energy companies are willing this will be difficult to achieve.''Even if we do nothing but prove that synthetic fuels can be produced at over $35 a barrel, it will be a big boon for the country because it will make OPEC (the Organization of Petroleum Exporting Countries) think twice before raising their prices above this level,'' argues Edward E. Noble, chairman of the synfuels corporation.For this benefit to be realized as far as oil shale goes, however, may require an unprecedented effort to deal with the undesirable side-effects of rapid, energy growth in the rural West.