Yet such water shortages are becoming the major question as Colorado entertains the latest surge in excitement about its vast deposits of oil shale north and west of Rifle. That excitement is likely to last as long as oil prices remain above $30 a barrel, a bottom-line benchmark once cited by leaseholder Royal Dutch Shell. With commercial production at least a decade away, the company has since backed away from that number even as a barrel of oil remains near $100. Much is still unknown. Oil companies remain tentative about extraction methods, electrical demands and even water needs. For that matter, Colorado is unsure how much water remains available for development under interstate compacts governing the Colorado River Basin."
Some 72 percent of oil shale reserves are located below federal land. In 2005, the Bureau of Land Management offered 160-acre tracts in a three-state area for research, development and demonstration purposes. Leases for six of these sites have been awarded, five of them in Colorado. Royal Dutch Shell has three, Chevron and EGL Resources one each. Those companies that demonstrate commercial viability will be authorized to expand operations to 5,100-acre blocks available for 35 years. At issue is the level of certainty, says Jeremy Boak, from the Colorado School of Mines. "If they expect for the technology to be completely decided upon, they will be waiting for decades," he says. The technology of oil extraction has evolved now for 140 years. Better, he argues, is to define those areas that need regulation. A top item: water availability...
A sticking point is the development of regulations -- including the royalty rates -- governing commercial production. The disagreement is partisan and local. Last year, U.S. Sen. Ken Salazar (D-Colo.) was able to insert a one-year moratorium on adoption of rules governing commercial leases. U.S. Sen. Wayne Allard (R-Colo.) in May attempted to get the moratorium repealed but lost by one vote. "We need the rules and regulations in place first," Allard told an interviewer. "When the oil companies go to bid on their leases, they need to have some idea what their royalties might be and what their remediation requirements might be."[...]
Salazar's position, however, is supported by a very different group: the Front Range Water Users Council. The council includes most major water agencies servicing cities from Fort Collins to Pueblo, plus farm country spreading outward to Kansas and Nebraska. The central worry is that water and oil won't mix. The organization calls for a go-slower approach until the technology is known. Without that knowledge, informed decisions about commercial leasing, including regulations, cannot be made, said H.J. "Chips" Barry, manager of Denver Water, in a May 14 letter. In July, Salazar argued that oil shale companies already have potential access to 30,000 acres of public land for research and development, along with 200,000 privately owned oil shale lands in Colorado and Utah. "Let's put the horse back in front of the cart," he said. Royalties cannot be determined until the economics of oil shale are clear, Salazar spokesman Matt Lee-Ashley further explained. Too low, and taxpayers will be shortchanged. Royal Dutch Shell counters that it must know the royalty rates and other factors affecting operation to assess the economic viability of its technology on a commercial scale...
The first serious attempt to develop oil shale began in 1890. Oil shale chronicler Andrew Gulliford, in his book "Boomtown Blues: Colorado Oil Shale, 1885-1985," explained that Teddy Roosevelt warned of an impending oil shortage in 1908. That fueled interest, and government surveys from 1914 to 1918 confirmed the richness of the deposits. "Is the United States facing a gasoline famine?" National Geographic asked in a 1918 article. "Shall we be required to forgo automobiling except to meet the stern necessities of war and of utilitarian traffic?" No, the magazine said. Oil shale would guarantee America world dominance for decades to come. Similarly enthusiastic prospectors by 1920 had filed 30,000 claims to 4 million acres in areas near Rifle, Parachute and DeBeque. The shales resisted easy surrender. Not so the underground reservoirs of west Texas. With that Texas-sized boom, Colorado's oil shale industry went bust. Interest waxed again during World War II. In 1958, graduate planning students at Cornell University issued detailed plans for a city of 350,000 to accommodate the oil shale extraction. Oil shale development was imperative, the students said, given the U.S. dependence on imported oil. The warning was prescient. The 1973 Arab oil embargo drove up prices, and in 1980 President Jimmy Carter dangled $20 billion in potential subsidies for oil shale startups. Exxon USA said it needed no help but would invest $5 billion anyway. An entirely new town, Battlement Mesa, resulted. Even then, however, oil prices were dropping, eventually bottoming out at $10 a barrel in the mid-1980s. By then, Exxon was gone. It had suspended oil shale operations on May 2, 1982. Immediately, 2,000 people lost their jobs. Housing prices from Glenwood Springs to Grand Junction tumbled. Slower was the decline of Colorado Ute, an electrical wholesale supplier that had overbuilt in anticipation of oil shale. It eventually went bankrupt. The bust contributed to the economic and social funk of Denver. Oil shale got a real shiner...
Just how much water will be needed for oil shale production is not known. A 2006 study by the Rand Corp. assumed at least three barrels of water will be needed for every barrel of oil produced. However, that estimate is rooted in research done in the 1970s and 1980s and assumes construction of coal-fired power plants, which require large amounts of water. [Tracy] Boyd won't divulge Shell's estimates, suggesting the figure hasn't been firmly quantified. But it's clear that Shell will need less than what Rand estimated, he said. One reason is the electrical generation. Natural gas is a component of the oil shale reserves, and can be used to generate electricity, needing less water to do so. Yes, water will be needed -- and there will likely be the need for additional reservoir storage, he said. But oil shale, "will not dry up the Colorado River Basin, as some have implied."[...]
A conditional water right in Colorado is like getting a place in line. You don't have to actually use it, but every six years you must demonstrate intent to do so. Money spent can be evidence of diligence. That isn't hard to prove when attorneys are involved. Western Resource Advocates, a Boulder-based environmental law and policy organization, has tallied at least 750 conditional water rights owned by oil companies, many filed in the 1940s and 1950s. Many are in the Rifle-to-Grand Junction area. As such, they could -- when perfected -- have higher priority than rights of Denver Water and the Northern Colorado Water Conservancy District for transmountain diversions from the Dillon and Granby areas. Oil shale companies also have conditional water rights around Meeker. Some of those conditional rights are senior to water diversions from the White River begun in the 1940s to ensure irrigation of hay meadows, [David Smith, 77, a rancher and native of Meeker] says.
