Ceres president Mindy Lubber, citing regulatory risks, water constraints and numerous other questions about various technologies being pursued to extract a non-liquid form of oil from shale rock said, "Given the wide array of uncertainties, BLM's proposed leasing approach on oil shale makes sense. Investors should be similarly cautious in evaluating future investment in this space." Paul Bugala, senior sustainability analyst, extractive industries, at Calvert Investments said, "Oil shale technologies are still highly speculative, and proving them to be commercially viable will be difficult and require a long period of time with uncertain outcomes. The little that state and federal regulators know about the environmental impacts, especially in the areas of water use and land reclamation, further indicates that caution should be exercised."
While oil shale reserves beneath the three states in the Green River Formation are vast, holding more than three times the proven reserves of Saudi Arabia, the Ceres white paper, Investor Risks from Oil Shale Development, sends a strong cautionary message to policymakers, investors and companies alike. The white paper, prepared by David Gardiner & Associates, LLC, identifies five key risks to oil shale development:
- Core technological uncertainty: Despite decades of efforts, surface and in-ground technologies for producing oil shale still face many uncertainties. The report states: "The uncertainties around continued testing and development of new technologies and processes for producing oil from oil shale leave a great deal still unknown, including the amount of the resource that is recoverable, the efficiencies and costs of various methods, the impacts on natural resources, and the effects of various technologies on the costs of final products (and thus the competitiveness of oil shale)." The white paper cites an earlier report by the Task Force on Strategic Unconventional Fuels (comprised of federal, state, and local officials) which states: "[t]echnology uncertainty is the largest single risk factor associated with oil shale development. This uncertainty remains even after 50 years of government and industry research to develop a commercially viable retorting technology."
- Market risks: Production of oil shale is characterized by significant capital investment, high operating costs, and long payback periods at least a decade. Uncertainties about the costs associated with developing a first-generation commercial facility, combined with oil price volatility and other uncertainties, pose investment risks that make oil shale investment less attractive than other potential uses of capital. Sporadic attempts to commercialize oil shale have repeatedly failed once oil prices fall.
- Water constraints: Oil shale development's need for water is a particular concern in water-stressed states such as Colorado and Utah. The report cites estimates showing that surface technologies may require 2 to 4 barrels of water for every barrel of product produced while in-ground technologies may require up to 12 barrels of water per barrel produced. The U.S. Government Accountability Office has suggested that the size of the oil shale industry in Colorado and Utah may be limited by water availability.
- Regulatory risks: Lifecycle carbon emissions for oil shale fuels are likely to be 25 to 75 percent greater than for conventional petroleum. This means oil shale development could face risks as carbon-reducing rules and regulations take hold whether low-carbon fuel standards, a price on carbon emissions, lifecycle emissions requirements, or other measures. Other federal and state environmental regulations, including those related to air and water quality, also pose risks to oil shale development.
- Risks from public opposition: Public opposition to oil shale based on the actual or perceived environmental impacts could "derail, delay, or increase the costs of such projects," says the white paper.
- They should "analyze their equity investments and engage with relevant companies (e.g., oil and gas companies, end users) in which they are shareholders, to further understand the risks that companies are assuming related to oil shale and the ways in which companies are mitigating those risks."
- They should "pay close attention to the potential for risks to emerge in their fixed income portfolios from state and municipal bonds, to the extent such bonds are used to directly or indirectly support development of oil shale."
- They should "advocate for public policies that create a clearer low-carbon regulatory framework and provide long-term investment certainty.
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