New Ceres Report: Oil Shale
Development in Western U.S. Poses Significant Risks to Investors
Cautious Approach to Development on Federal Lands Makes Sense Given Unknowns
About the Technology and its Wider Impacts
Boston, MA May 30, 2012 Citing technological uncertainties and a wide range of
other risks, a new Ceres white paper supports a federal agency’s proposal to
take a cautious approach to oil shale production in the western U.S.
At issue is the Bureau of Land Management’s proposal to focus oil shale
production in Wyoming, Utah and Colorado on “Research, Development, and
Demonstration” (RD&D) leases only and to reduce the available acreage to about
500,000 acres from nearly two million acres under an earlier plan.
“Given the wide array of uncertainties, BLM’s proposed leasing approach on oil
shale makes sense,” said 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.
“Investors should be similarly
cautious in evaluating future investment in this space.”
“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,” said Paul Bugala, senior sustainability analyst, extractive
industries, at Calvert Investments.
“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
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
The white paper cites an earlier
report by the Task Force on Strategic Unconventional Fuels (comprised of
federal, state, and local officials) which states: “technology 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
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
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
More than 70 percent of the Green River Formation oil shale resources lie
beneath federal lands.
BLM is presently considering
public comments on its proposal to limit development to RD&D leases on 252,181
acres in Utah, 174,476 acres in Wyoming
and 35,308 acres in Colorado.
Investor Risks from Oil Shale Development contains three key recommendations for
• 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.”
• hey 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.
Ceres is an advocate for
sustainability leadership. Ceres mobilizes a powerful coalition of investors,
companies and public interest groups to accelerate and expand the adoption of
sustainable business practices and solutions to build a healthy global economy.
Ceres also directs the Investor
Network on Climate Risk (INCR), a network of 100 institutional investors with
collective assets totaling more than $10 trillion.
For more information, visit http://www.ceres.org