In their efforts this week to cut production quota's by a million barrels a day with prices hovering at $60 a barrel the Organization of Petroleum Exporting Countries has destroyed the little credibility it still had as a reliable and trustworthy supplier of oil to world markets. OPEC's billions extorted from the world economy has helped destabilize the world's political landscape from Venezuela's posturing, to Saudi Whahabbi venom, to Iranian nuclear roulette, to Nigerian murderous civil unrest, and on. For world stability it is becoming imperative that alternatives to fossil fuels are developed post haste and substitutes found for OPEC supplied oil.
And this realization is beginning to take hold. Only last week Conoco agreed to invest some $10.7 billion in joint development with EnCana, to develop EnCana's oil sands holdings at Foster Lake and Christina Lake on the eastern flank of Alberta's Athabasca tar sands. Hopefully this is only the beginning of accelerated steps to shedding our OPEC dependency.
Just before Labor Day, the Bureau of Land Management took the first major step toward exploiting the Big Casino of our national oil reserves: shale oil, locked in rocky deposits of the American west, deposits that could give the United States energy independence and extend the world supply of oil for 120 years or more.
Some 70 percent of the oil shale is on federally owned land, mostly in Colorado, and the Bureau has invited public comment on issuing research leases there as a prelude to commercial leases. The research leases would go to Royal Dutch Shell and Chevron, which will test rival ways to get at the oil without having to mine and crush the rock. The mining method, tried in the first wave of oil shale development in the 1970s, was not only cumbersome and costly; it also scarred the landscape with mountains of waste even more voluminous than the original shale.
The two companies and the Bureau predict that neither of the new methods will have significant environmental impact. Shell's process involves drilling into the shale and using electric heaters to bake the rock to 700 degrees Fahrenheit, which releases oil and gas at the molecular level so it can be pumped to the surface. The company has been researching and testing this method for 20 years and believes it could be profitable even if the price of crude oil fell to $30 a barrel. Chevron's process, so far tried only on paper, uses carbon dioxide, possibly aided by propellants and explosives, to break the rock underground and then pump in heated carbon dioxide to free up the oil.
So far, so good; and the potential prize is staggeringly vast. The 3.3 trillion barrels of oil locked in shale in two major deposits in the U.S., one in the East in the Devonian-Mississippian shales, and the second and by far the largest, exceeding 2 trillion barrels,in the Green River Formation in Colorado, Wyoming and Utah. Together they constitute the most significant shale oil deposits in the world. They hold more than ten times, I repeat ten times, the acknowledged oil reserves of Saudi Arabia (professed to be circa 260 billions, but probably larger). Accessing this vast treasure would push OPEC into inconsequence and we would all be the better for it.
The problem is the government's insistence on using commercial leases - potentially a colossal handout to the oil industry. Thanks to their campaign contributions to Congress and the millions they spend on K Street lobbyists, the oilmen have made a sick joke of the leasing game. They get the contracts, on land owned by the nation, by promising royalty payments that are at best a pittance. Then, as in the deepwater wells in the Gulf of Mexico, Congress votes royalty relief, supposedly as an incentive for more exploration. In the next five years, the oilmen will be excused from paying an estimated $7 billion in royalties due from these wells. They take nations oil resources for little more than the expense of drilling and pumping it -- but we repay them even that through a combination of depletion credits and tax incentives.
It's time to end this shell (pun intended) game and curb the "oiligopoly's" boundless greed. As I have said before, we must reclaim the riches of our publicly owned lands and use them to benefit the nation as a whole and not just the oil industry (see "The Oil/Gas on Federal Lands Belong to Us!" 03.24.06). Oil and gas on Federal land should be controlled by a national trust. Like Norway's, our national trust could hire the oil companies at a fair value to produce the oil. But the national trust's profits, would be used to fund alternative fuel programs, mass transportation, hydrogen power, and other projects to ease our dependence on fossil fuels.
A national oil trust could be structured along the lines of a highly successful precedent, the Tennessee Valley Authority, which has been controlling floods, generating power, and boosting the economies of the Tennessee's border states for more than 60 years.
It is time for us to engage this challenge as a national commitment in the interests of our national security and energy self reliance.