Congressional Testimony By Jim Evans, Executive Director Associated Governments of Northwest Colorado Before the Senate Committee on Energy and Natural Resources Washington, D.C.
April 12, 2005
Mr. Chairman and Members of the Committee:
My name is Jim Evans, Executive Director of the Associated Governments of Northwest Colorado (AGNC), representing cities and counties in the 5-county region of Garfield, Mesa, Moffat, Rio Blanco and Routt Counties in Northwest Colorado. On behalf of our local governments I want to express our appreciation to your committee for asking our local government views on the development of oil shale technology.
Our local government association was formed at the start of the last oil shale development cycle as the "Regional Oil Shale Planning Commission" with the specific charge to address the socioeconomic and environmental impacts of a potential commercial scale oil shale industry. Now, renamed as the Associated Governments of Northwest Colorado, we are still concerned with this issue. This time around it appears that our region will need to address the potential growth and infrastructure impacts of oil shale development on top of the socioeconomic impacts already occurring in our region from record levels of natural gas, oil and coal production. With estimates of from 600 billion barrels to 1.8 trillion barrels of recoverable oil from shale in our region, we recognize the national interest in developing the technology for this resource. In particular, the needs identified for the Department of Defense for a secure domestic source of fuel make us realize that the importance of the resource cannot be ignored. We also understand the potential economic benefit development of this resource can play on our national balance-of-trade and G.N.P.
Since more than 80% of the oil shale resource is located on federally-owned public land and recognizing that the future development is driven by national interests, local governments in our region believe the federal government must play a lead role in addressing these socioeconomic and environmental impacts and costs. We do not want to see local governments (and local taxpayers) stuck with the costs of new infrastructure and the mitigation of environmental impacts. So we are pleased to see that your Committee and the Department of Energy as we begin this next cycle in Oil Shale development are addressing these issues up front. This is a refreshing difference than the start of the last cycle. Back then, with an oil embargo facing the country, Congress first responded with a proposal for an Energy Mobilization Board with the power to declare Northwest Colorado as a "National Sacrifice Zone". Fortunately, that proposal did not make it all the way through Congress and as my following testimony indicates, we learned a lot during a fairly painful 18-year boom/bust cycle prematurely attempting to develop commercial scale projects.
This time we appreciate the "Research and Development" type approach being put forward by the Department of Energy, and by the recognition of your Committee up front that you are looking for development of an environmentally friendly technology, and an approach not dependent upon the price of oil.
Because we support your stated approach it gives me the opportunity to say, "I am from the Local Government, and I am here to help you."
I would like to start my help by submitting for the record the following resolution from Club 20, the community based Colorado organization representing cities, counties, businesses and citizens throughout Western Colorado. This resolution was unanimously adopted by the Club 20 Board of Directors endorsing a Research & Development program as being considered by your Committee.
Club 20 Support for an Economically Viable And Environmentally Sound Oil Shale R & D Program
Whereas Oil shale may still be the largest untapped resource available for transportation fuels;
Whereas the richest deposits of oil shale in the world are located in Northwestern Colorado and Eastern Utah;
Whereas a DOE report indicates that oil shale development may still be important for our country's National Security (as an alternative to imported oil) and for our Economic Security (to improve our balance of trade); and
Whereas without a well conceived federal R & D program this region may again someday be faced with another crisis oriented commercial scale oil shale program.
Now therefore be it resolved that Club 20 supports research and development efforts leading to an economically viable and environmentally sound oil shale program.
Further, Club 20 supports DOI/DOE/DOD efforts to develop a national oil shale policy and long-term R & D plans.
Approved, Feb. 15, 2005
Club 20 Energy Committee
Club 20 Natural Resources Committee
Approved, April 1, 2005
Club 20 Board of Directors
Background: Last Oil Shale Development Cycle 1974-1992
- The last oil shale cycle started with the Arab Oil Embargo in 1974. This was a Sudden Oil Shortage, resulting in long lines at gas pumps, temporary high gas prices, and a staggering impact on the U.S. Auto Industry and U.S. economy, aggravated by gasoline rationing.
- Congress responded in a crisis mode.
- The first industry proposal to local government was: Get out of the way and we will develop Oil Shale! Congress responded with a Proposal for Northwest Colorado to be declared a "National Sacrifice Area", including an Energy Mobilization Board with power to override Federal, State and Local environmental and land use laws. State and Local governments responded on an adversarial basis.
- President Jimmy Carter instead got Congress to establish the Synfuels Corp. with $15 Billion in price guarantees and price incentives.
- In our region 12 projects were underway at peak of cycle (either in planning, permitting or construction).
- An Exxon White Paper suggested a socioeconomic impact of a one-million population increase in NW Colorado by 1990. It appeared that all the construction workers in USA would be required for the effort if all the companies went forward at the same time.
- The Colorado projects reaching construction or testing: Exxon Colony Project, Unocal, Oxy (CB), CA consortium. The DOE Anvil Points facility in the meantime was pretty much abandoned, except for a look at an asphalt additive byproduct.
- The cycle collapse (Bust) started May 2, 1982 with an abrupt Exxon Colony closure. In the Boomtown Blues book, this event was blamed for the U.S. and worldwide recession.
- The Unocal project & Oxy continued their efforts through 1990-92. This somewhat mitigated the "bust" cycle. At the peak of the cycle, the combined population of the 2 most impacted counties (Garfield and Mesa) increased from 1981 to 1983 by 12%, from 112.0 thousand to 125.6 thousand. Then in the next 2 years the combined population dropped back o 111.8 thousand.
- Congress then overreacted and shut down virtually all oil shale research programs, despite recommendations from many sources that research and development activities should continue. Was Anything Learned During This Cycle? Yes!
- Congress in 1975-76 enacted Mineral Leasing Act Amendments at the urging of States and Local Governments. The State share of federal royalties increased from 37½ to 50% with priority for local governments impacted by Mineral Leasing activities, such as Oil Shale, Oil, Natural Gas and Coal.
- Congress enacted Payments-In-Lieu of Taxes (PILT) Act to compensate counties for tax exempt federal land thereby giving direct assistance to rural public land counties.
- States in turn enacted Severance Taxes, also with a priority to address socioeconomic impacts.
- Local governments in turn enacted Major Impact Land Use Mitigation Ordinances? The Colorado Joint Review Process (CJRP) was initiated. This was a voluntary program designed to coordinate and speed up federal, state and local permitting.
- Local Government Energy Impact Programs were established by States with the new Revenue from Mineral Leasing and Severance Taxes. These programs today address the ongoing impacts of mineral development. The Energy Impact Program in Colorado actually started with the formation of the Regional Oil Shale Planning Commission (now AGNC) and the enactment of the Oil Shale Trust Fund (OSTF). From the OSTF $75 million plus interest was allocated to NW Colorado counties. The $75 million was Colorado's 37.5% of federal Oil Shale leasing bonuses.
- Negative impacts of the abrupt Exxon Colony Project closure actually resulted in a positive turnaround on State/Local/Industry relationships and communications as Unocal and Oxy proceeded with their projects with local support.
- Local governments also supported continuation of the Unocal and Oxy projects, including proposals to turn them into federal oil shale technology demonstration projects.
- Support for a Federal Oil Shale R & D program was generated in Colorado, Utah, Wyoming, Kentucky, Illinois and California, but to no avail.
- New Paraho Corp. temporarily continued oil shale asphalt testing at Anvil Points to demonstrate the byproduct approach to make oil shale economically viable. Some of the asphalt test strips are still in place with no repairs required. Local Government Advice to Industry for the Next Oil Shale Development Cycle: Communicate! Communicate! Communicate!
The Shell Oil Shale Project is on the right track. Shell Oil is the only company in Colorado who is currently continuing with field-testing. Local governments appreciate these efforts. Their efforts have included ongoing meetings with County Commissioners, Cities, school districts and citizen groups. They have sponsored and organized town meetings. These were very successful from a local perspective. These should continue at the beginning of each phase of an R & D program.
The Department of Energy also appears to be on the right track. The Naval Petroleum and Oil Shale Reserve Office of DOE has prepared a well documented and thorough report indicating the National interest in developing the oil shale resource (trade deficit impact on the economy and national defense interest in a secure oil source.) We believe addressing the socioeconomic and environmental issues in the DOE proposal for a National R & D program and demonstration facility is on target. Virtually all groups and industry involved in the last oil shale cycle have recommended the need for an ongoing federal oil shale
research program.These Groups and individuals back in 1991 were: The Rocky Mountain Oil & Gas Association, The Western Oil Shale Action Committee, Club 20, Associated Governments of Northwest Colorado, The Garfield County Citizen Alliance, Governor Roy Romer, Senator Tim Wirth, Representative Ben Campbell, The Rebuild America Foundation, The Alternate Energy Research Institute, and The Rocky Mountain Institute. There may have been others. These were the ones that I was aware of. Recommendation to Address the Socioeconomic Impacts of the Next Oil Shale Cycle With the renewed interest in oil shale development, the Department of Energy needs to provide funding for socioeconomic programs to:
- Assemble and update impact data from the last cycle.
- Identify appropriate computer systems/models to assess projected impacts.
- Development of baseline economic data for current activities.
- Help identify and provide revenue streams for local/state government services/infrastructure potentially impacted by oil shale development.
DOE also needs to identify and recommend appropriate federal, state and local policies to encourage prudent and environmentally sound oil shale development.
Recommendation to Address Environmental Impacts of Oil Shale Development
The DOE Demonstration program/projects should address:
- Surface disturbance impacts and ongoing reclamation requirements.
- Air Quality impacts.
- Water Quality and Quantity impacts.
- Wildlife protection and mitigation requirements.
- Employee health, safety and training needs.
Regular communications with news media and environmental groups should address the potential environmental impacts of various oil shale technologies.
The Colorado Department of Public Health and Environment should be actively involved in monitoring air quality and water quality impacts. The State of Colorado Department of Natural Resources and its Wildlife Division should be actively involved in these reclamation and wildlife issues.
The Department of Interior should develop a leasing program to accommodate access to oil shale for research and demonstration project purposes. Any commercial scale leasing proposals must include provisions that recognize the "carrying capacity" concepts for socioeconomics and the environment that are part of the BLM Piceance Basin Resource Management Plan.
Recommendation to Provide the Funding for Oil Shale Research Costs and Incentives
We believe it is fortunate that Congress may have already provided a potential source of funding for Oil Shale R & D efforts. This revenue may be currently available from the Naval Oil Shale Reserve (NOSR) lands themselves located in Northwest Colorado. As indicated in the attached letter from the Department of Interior, some $43.7 million may be accumulated by March 2007 in a U.S. Treasury account from the current natural gas leases on their NOSR lands. These NOSR lands were transferred by Congress from DOE to the Department of Interior with a Congressional priority established for natural gas leasing.
Some of these funds, estimated at $5.8 million, are earmarked for environmental cleanup of the Anvil Points spent shale pile. Otherwise, we believe Congress has the opportunity for the remainder of these funds to be made available to address the socioeconomic and environmental aspects of oil shale development in Northwest Colorado.
In the future, more revenue should be available from this source. According to industry estimates, additional leasing of the NOSR lands could produce leasing bonuses of up to $360 million (to be shared 50% federal and 50% state) plus ongoing production leases of an estimated $32 million annually for at least 20 years. That would be another $640 million total also to be split 50/50 federal and state. Congress should establish a priority to address oil shale and other energy development impacts in Northwest Colorado from these leasing revenues.
We believe this type of funding is necessary to make sure the DOE research and demonstration projects can proceed without interruptions from fluctuations in the price of oil.
Thank you for this opportunity to testify. I would be happy to answer any questions you may have.
Jim Evans, AGNC Executive Director