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Oil prices prompt another look at shale

The U.S. government said Tuesday it was ready to resurrect oil shale drilling in the Rocky Mountains, a technology heralded 30 years ago to boost America's energy output until it failed financially.

About half of the world's oil shale reserves are estimated to be located in the United States, with other big reserves in Russia, China and Australia, according to the Department of Interior and its agency, the Bureau of Land Management, that oversees public lands.

With oil above $40 a barrel, even an expensive technology can add to the bottom line.

"The BLM welcomes public input as to how we can best develop this energy source, which will enable us to expand and diversify domestic energy production in accordance with the president's National Energy Plan," BLM assistant director for minerals Tom Lonnie said in a statement.

Interior and BLM are specifically looking at the Piceance Creek Basin in Colorado, the Uinta Basin in Utah and the Green River and Washakie Basins in Wyoming, areas considered to have the most easily recoverable deposits in the United States.

The BLM said energy companies were keen to develop the area and it comes at time when traditional drilling is hitting record levels in the Rocky Mountain region.

The BLM plans to issue 10-year research and development leases, although the area could go into commercial production before the end of the term, BLM spokesman Jim Edwards said. The public will have 30 days to comment.

Shale is a sedimentary rock containing kerogen, which is then converted into synthetic oil by processing, according to the World Energy Council. Environmentalists argue that the process produces high greenhouse emissions.

"U.S. companies have developed and patented new technologies to develop oil shale that are both economical and environmentally friendly," Lonnie said.

The oil shale boom took Colorado by storm in the 1970s. "One of the things we learned from the oil shale prototype leasing in the 70s was that there were some technologies that could recover oil shale, but they just weren't economical," BLM's Edwards said.

Unocal Corp. was one of the major energy companies that tried to drill oil shale, but pulled out and sold all its properties, spokesman Barry Lane said.

The Rocky Mountain region has been high on the Bush administration's list of areas to increase oil and natural gas production, much to the dismay of environmentalists.

"It's going to be a record year for oil and gas well permits," Brian Macke, director of the Colorado Oil and Gas Conservation Commission, said.

Timeline: A historical look at oil
In real terms, stripping out the impact of inflation, oil prices are much lower today than the highs of some past spikes. The following details average annual dollar-denominated oil prices in the money of the day and the equivalent price in 2003.

Year ------- Event ----- / Money of the day / 2003 dollars
1861 - Pennsylvania oil boom / 0.49 / 10.08
1876 - Russian oil exports start / 2.56 / 43.38
1945 - Post-war reconstruction / 1.05 / 10.79
1974 - Arab oil embargo / 11.58 / 43.38
1979 - Iranian revolution / 30.03 / 76.40
1980 - Iranian revolution / 35.69 / 79.99
1981 - Post-Iranian revolution / 34.28 / 69.59
1990 - Iraqi invasion of Kuwait / 23.84 / 33.54
1998 - Asian economic crisis / 13.11 / 14.80
2004 - Year-to-date / 35.62* / 35.62*
1861-1944: U.S. average, 1945-1985: Arabian Light posted at Ras Tanura, 1986-present day: Brent spot

"Its the largest number of wells that we've permitted since 1981, the last large oil and gas drilling boom in Colorado," Macke said in an interview. The commission estimates it will issue 2,700 permits in 2004, compared with the record of 2,378. About 80 percent of the permits in Colorado are for natural gas.

Things are also busy in neighboring Wyoming, which ranks third in U.S. natural gas production behind Texas and Oklahoma. "We're the highest we've been in 18 years," Don Likwartz, supervisor of the Wyoming Oil and Gas Conservation Commission. "I'm sure price has some effect on it," he said.

Drilling applications are also up in Utah.

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