Yesterday the Bureau of Land Management (BLM) released final regulations for a commercial leasing program for oil shale development on federal lands.  Despite BLM’s acknowledgement that “any significant production of oil shale is not likely to occur for a number of years,” they still chose to push forward  with final regulations for a commercial leasing program.

The rush for a commercial leasing program for a commodity not yet proven to be commercially viable should cause great concern for US taxpayers.  Oil shale production is still in early stages of development, and therefore it is impossible to ensure taxpayers will receive a fair return or royalty for extracted shale.  Taxpayers have already lost billions in royalties to the oil and gas industry in other faulty leases.  Fast-tracking a commercial lease program for an industry that is clearly not ready for primetime only jeopardizes losing millions more.     

Despite years of attempts, no other country in the world has successfully produced commercial oil shale.  Even BLM admits that “there is no established oil shale industry.”  Determining a fair royalty rate for U.S. taxpayers for a non-existent industry is a prospect doomed for failure.

Because the oil shale industry is still in the research and development phase, it is difficult to determine if commercial oil shale could ever be competitive with other energy sources.  And if a competitive market for oil shale products does not develop, the federal government will not receive a fair return for federally owned resources and the opening of thousands of acres of federal land and untold reclamation costs.

Further, if the oil shale industry does develop taxpayers stand to lose.  The final regulations allow a meager 5% royalty for the first five years of commercial production, increasing only to a rate comparable to other oil and gas leases in its 13th year of production.  This type of royalty system could easily amount to nothing more than a multi-million dollar giveaway to oil companies.  The final rule even allows for the royalties to be waived completely.

With all these looming questions it is impossible to develop a commercial leasing program that guarantees a fair return for US taxpayers.  If the government begins leasing to oil companies under the current terms, this program will be nothing more than another giveaway to Big Oil.

Research and development on federal lands is already occurring. Fast-tracking to commercial leasing before a technology is developed is a high risk that taxpayers can ill afford in this difficult budget times.  In the future, extracting oil from shale may very well be an effective way to produce more domestic energy but prematurely starting a commercially leasing program will not make oil shale commercially viable, but could end up costing taxpayers dearly.

This entry was posted on Friday, November 21st, 2008 at 11:00 am and is filed under Uncategorized .