OVERSIGHT-PROTOTYPE OIL SHALE LEASING TUESDAY, NOVEMBER 30, 1976 U.S. SENATE, SUBCOMMITTEE ON MINERALS, MATERIALS AND FUELS, OF THE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, The subcommittee met at 10 a.m., in room 1114, Dirksen Office Building, Hon. Lee Metcalf, presiding. Present: Senators Metcalf and Bumpers. Also present: D. Michael Harvey, deputy chief counsel, and Norman R. Williams, professional staff member. OPENING STATEMENT OF HON. LEE METCALF, A U.S. SENATOR FROM THE STATE OF MONTANA Senator METCALF. The subcommittee will be in order. There have been grave changes in the country since the last time this subcommittee met, but the purpose of this hearing is to get ready for the prospective session of Congress coming up, and to catch up with what has been done on oil shale development. This is an oversight hearing of the Subcommittee on Minerals, Materials, and Fuels of the Senate Interior Committee. Its purpose is to examine future prospects for oil shale development in light of the recent suspension by the Department of the Interior of operations on all four of the outstanding Federal oil shale leases. Since December of 1973, the subcommittee has maintained continual oversight of the Interior Department's prototype oil shale leasing program. We held hearings in 1973, 1974, and 1976. Since then we have had a continual exchange of correspondence with the Department of the Interior and other interested parties about the status of the program. The Interior Department has approved applications for lease suspensions filed on March 3 by the Colorado-b lessees, and on July 2 by the Colorado-a lessees. The suspensions are for 1 year. According to a letter we received on August 20, 1976,1 one reason for suspension was the discovery that natural background levels of certain contaminants at the development sites exceed Federal clean air standards, thus causing doubts about the feasibility of proceeding with mining and processing. Engineering problems related to rock strength and lack of authorization for off-tract disposal of spent shale and overburden are other reasons which the Department cited. 1 See app. III, p. 99. (1) The Secretary, acting under powers vested in him by the Mineral Leasing Act, determined that suspension of the leases should be granted in the interest of conservation of natural resources. More recently, he has granted suspension of two leases for Utah tracts as well, thus bringing the active portion of the Department's oil shale prototype program to a complete halt. His action raises serious questions about the long-range intentions of the lessees, about the prospects for survival of the Department's oil shale leasing program, and about the future of oil shale development in the national energy picture. Since 1973, members of the Senate Interior Committee have repeatedly urged the Department to lease Federal lands for in situ development of oil shale. The two Wyoming tracts which the Department originally indicated might be developed by in situ methods contained the smallest quantity of shale of the original six tracts. They were never leased. In April 1975, the Department called for nominations for in situ leases, and I believe environmental impact statements are now in preparation. The Department cited this proposal as the basis for its opposition to the in situ oil shale demonstration called for by section 102 of the illfated conference report on the December 1975 ERDA authorization bills. The conferees favored that approach because there were so many doubts about the ability of private industry to follow through to commercial development of oil shale on Federal lands under existing parameters of the Department's prototype program. Today we wish to review these and other related matters to determine if we can, where the oil shale prototype program is heading and to learn about projects under way on private oil shale lands. Representatives of the Department of the Interior, the Energy Research and Development Administration, the Federal lessees, and representatives of other private corporations interested in oil shale development have been asked to testify. The first witness is Mr. Christopher G. Farrand, Deputy Assistant Secretary for Land and Water Resources, Department of the Interior. We are delighted to have you here with us this morning, you and your colleagues. You go right ahead with your perpared statement. STATEMENT OF CHRISTOPHER G. FARRAND, DEPUTY ASSISTANT SECRETARY, LAND AND WATER RESOURCES, DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY FREDERICK FERGUSON, ASSISTANT SOLICITOR Mr. FARRAND. Thank you, Mr. Chairman. I brought with us Mr. Frederick Ferguson, our Assistant Solicitor for Minerals and, of course, you know Mr. White. Rather than read my statement, I will summarize the pertinent points. Senator METCALF. All statements will be put in the record if the witnesses wish to summarize, and then we can have a little more time for discussion. Mr. FARRAND. Rather than recapitulate the history and background of the Department's prototype program, I thought I would pick up where we left off the last time we appeared before this committee. You recall early last spring we appeared to discuss legislation authorizing offsite disposal. Since that time, and as you are well aware and mentioned in your opening remarks, we have granted requests for suspension for Colorado tract C-a and C-b as of July, and more recently than that, we have granted suspensions for the Utah A and B. Also, since that time, and perhaps equally significant, Colorado tract C-b, one of the lessees, Shell Oil Co., withdrew from the lease and the other remaining partner, Ashland, subsequently announced that it had joined in partnership with the Occidental Petroleum Co., in which Occidental would become the operator with a 50-percent equity in the lease. The net effect of these actions, while they may appear to be negative, we believe to be positive. In the course of the past few months we have learned what our immediate problems are with the environment and with certain background conditions. However, we feel confident because the new lessees, despite there obsticles, are ones who have continuously professed the greatest interest and enthusiasm for actually developing commercial oil shale deposits. Moreover, we now have focused our attention on trying to solve these remaining impediments to oil shale development. With respect to the reasons for suspension itself, there is one overlying reason that affected all four of the suspended leases. We learned in the baseline data program, which we required of the lessees, that in three specific categories the background air quality, ambient air quality in the Piceance Basin and those portions of Utah where our leases exist, exceeded the ambient air quality standards: particulates, hydrocarbons and ozones. This presents a rather unusual problem since there are no major point sources in that area. We suspect then that this is caused either by fugitive materials from other air quality basins, perhaps the Salt Lake City area, or, more likely, by natural emissions from natural sources within the Peons Creek Basin itself. In the latter case, Mother Nature would be the dirty bird. There is a legal prohibition on lessees not to act under those conditions until it can either be proved that these incidents in which the air quality pollution exceeds the standards no longer exist or until the standards themselves are changed. When we discovered this to be a problem we immediately contacted the Environmental Protection Agency, asked them whether in fact the situation had to be resolved legislatively or whether it could be resolved administratively. The answer the Secretary received from Administrator Train was that they believed that in July an amendment then pending before the Congress would solve the problem, but barring that they thought they could deal with it administratively and were in fact undertaking some studies to determine whether a change in the standards or a change in the approach to the ambient air quality problems might be appropriate. I have received a draft, internal copy, of their study, which indicates that when they set the ambient air quality standards they did not understand all the interrelationships between hydrocarbons on oxides, and in fact they may have to adjust the geographical boundaries for which they set ambient air quality standards. If they do, it might resolve the problem. Without administration or legislative help, however, I remind you that the situation presents an absolute impediment; that there can be no legal action to develop those leases under the conditions that appear to exist at this point. Apart from that circumstance, on Colorado tract C-a there is another reason for suspension. The lessees of Colorado tract C-a submitted a detailed development plan last spring which envisioned surface mining operations. As we discussed when we appeared before the committee earlier, they had requested authority to dispose of spent shale and overburden offsite for reasons that would enhance the recoverability of the resource on that tract. The Department supported that request, and actually sought legislation, as you well know, because there is a sizable difference in the recoverability between open pit, which would necessitate offsite disposal, and an underground operation, which would not necessitate offsite disposal, we believed this was an auxiliary reason for granting suspension; that is, having the issue resolved one way or another in the legislative process. Either the Congress would grant the authority or would not, whereupon we would give the leasers a reasonable time to try to resolve that problem. With respect to Colorado tract C-b, there was an additional reason for suspension. They determined in their detailed development plan preparation that the rock strength in that tract was not as great as they had originally anticipated. Hence the mining design which they had conceived was perhaps no longer valid and that further studies were going to be necessary. The result of less rock strength is the necessity of significantly larger pillars in an underground room and pillar operation. This represents a significant, not prohibitive, but significant loss of resource, of recoverable resource. We felt that this also was an auxiliary reason for suspension under section 39 of the Mineral Leasing Act. Section 39 allows us to suspend for reasons of conservation or resources. There is some question, I think, as to whether that means the mineral resource only or other resources. We believe, however, that in a recent court case, Gulf Oil v. Morton, this issue was resolved. Gulf Oil v. Morton had to do with a provision in the Outer Continental Land Shales Act which we understand is based on section 39 of the Mineral Leasing Act, which allows us to suspend for reasons of conservation of resource. We applied it to an obvious pollution problem of the coast of southern California, and the court upheld us in that determination. So on that basis we feel that we have authority under section 39 to proceed with a suspension order covering not just conservation of the mineral resource but other resources as well, in this case the air quality. I would like to make a couple of more comments, if you will, about other impediments that we see with respect to development of oil shale. Besides the air quality problem and the offsite legislation problem that I mentioned, we have had a problem in the past with another proposal by the Superior Oil Co., in which they anticipate a multimineral development process for oil shale, oil shale that in their particular tract is mixed with two other commercially producible substances: Nacholite, a form of sodium bicarbonate, and Dawsonite, a form of alumina. |