This week, the U.S. Senate is set to take up the energy bill. This bill contains provisions sponsored by the Colorado, Utah and Wyoming Senate delegations pertaining to production of fuels from oil shale. This raises a logical question: Why, with high oil prices and a clear need for domestic oil, does government need to take up this initiative?
The simple answer is “timing.” But a broader answer is, “Given the complex environment of global energy supply, free-market forces alone cannot be expected to assure our energy security.”
It is incumbent for government, in the public interest, to take the action necessary to assure our energy security. Quoting from the 2004 Department of Energy publication Strategic Significance of America’s Oil Shale Resource: “Government policy that avoids responsibility for liquid fuels is dangerous because it presumes that industry will naturally fill the void. Industry has no fiduciary or corporate obligation to make risky investments.”
Industry sees oil shale as just such a risky investment. Lack of government policy, lack of resource access, immature technology, uncertain regulatory requirements and prospects of oil price downturns pose high risks to investment.
Looking at current petroleum supply trend lines, we see that we don’t have a lot of time to deal with these issues. Global oil supply is reaching its limit, and because of this, commodity markets are placing a premium on crude oil prices far into the future. The International Energy Agency is already sounding an alarm that investment in oil production is not keeping pace with what is needed to meet future global demand. ExxonMobil is one of the first major players to publicly say that supply shortfalls may occur sooner than previously thought. Some observers believe that the peak in global oil supply will occur in this decade.
Industry experts say it will take seven to 10 years to develop an oil shale venture, even when everyone is pulling in the same direction. The oil shale development undertaken by Shell is testimony to this timeline, where even after years of field work, decisions regarding commercialization are not likely to be made before the end of this decade. The prospects of impending global shortfalls and the long lead times required for new energy developments should instill a sense of urgency to begin the planning process now.
As a society we have two basic choices. We can wait and see what happens, or government and industry can join in a partnership now to find the proper path forward. The danger with “wait and see” is that by the time the problem becomes apparent, we will be reacting, not planning, and the ensuing chaotic situation will increase prospects for unpleasant results.
Our senators from Colorado, Wayne Allard and Ken Salazar; Utah, Orrin Hatch and Bob Bennett; and Wyoming’s Craig Thomas should be commended for sensing the urgency and getting out in front of this problem. Titles in the pending energy bill show industry that government understands the investment risks and that government is willing to help mitigate these risks.
A key provision calls for a task force of community, government and industry representatives to prepare a five-year plan. We need this legislation now to engage both investors and communities in the planning process and ensure that this time, efficient, reliable and environmentally sound development will result and the industry will be sustained.
James W. Bunger is a principal author of the recent U.S. Department of Energy report Strategic Significance of America’s Oil Shale Resource and is currently serving as a consultant to the DOE Office of Petroleum Reserves.
