Oil Shale: History, Incentives, and Policy

Publication Date: April 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

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Abstract:

Oil shale is prevalent in the western states of Colorado, Utah, and Wyoming. The resource potential of these shales is estimated to be the equivalent of 1.8 trillion barrels of oil in place. Retorted oil shale yields liquid hydrocarbons in the range of middle-distillate fuels, such as jet and diesel fuel. However, because oil shales have not proved to be economically recoverable, they are considered a contingent resource and not true reserves. It remains to be demonstrated whether an economically significant oil volume can be extracted under existing operating conditions. In comparison, Saudi Arabia reportedly holds proved reserves of 267 billion barrels.

Federal interest in oil shale dates back to the early 20th Century, when the Naval Petroleum and Oil Shale Reserves were set aside. Out of World War II concerns for a secure oil supply, a Bureau of Mines program began research into exploiting the resource. Commercial interest followed during the 1960s. After a second oil embargo in the 1970s, Congress created a synthetic fuels program to stimulate largescale commercial development of oil shale and other unconventional resources. The federal program proved short-lived, and commercially backed oil shale projects ended in the early 1980s when oil prices began declining.

The current high oil prices have revived the interest in oil shale. The Energy Policy Act of 2005 (EPACT) identified oil shale as a strategically important domestic resource, among others, that should be developed. EPACT also directed the Secretary of Defense to develop a separate strategy to use oil shale in meeting Department of Defense (DOD) requirements when doing so is in the national interest. Tapping unconventional resources, such as oil shale, has been promoted as a means of reducing dependence on foreign oil and improving national security.

Opponents of federal subsidies for oil shale argue that the price and demand for crude oil should act as sufficient incentives to stimulate development. Projections of increased demand and peaking petroleum production in the coming decades tend to support the price-and-supply incentive argument in the long term.

The failure of oil shale has been tied to the perennially lower price of crude oil, a much less risky conventional resource. Proponents of renewing commercial oil shale development might also weigh whether other factors detract from the resource's potential. Refining industry profitability is overwhelmingly driven by light passenger vehicle demand for motor gasoline, and oil-shale distillate does not make ideal feedstock for gasoline production. Policies that discourage the wider use of middledistillates as transportation fuels indirectly discourage oil shale development. Because the largest oil shale resources reside on federal lands, the federal government would have a direct interest and role in the development of this resource.

This report will be updated as new developments occur.