TASK FORCE ON STRATEGIC

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1 * * TASK FORCE ON STRATEGIC UNCONVENTIONAL FUELS ANNUAL REPORT December

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3 TASK FORCE ON STRATEGIC UNCONVENTIONAL FUELS * * June 24, 2011 Honorable Steven Chu Secretary of Energy 1000 Independence Ave SW Washington, D.C Dear Mr. Secretary: On behalf of the Task Force on Strategic Unconventional Fuels, established under subsection 369(h)(1) of the 2005 Energy Policy Act, we are pleased to provide our 2009 Annual Report on Task Force Activities, in support of the Department of Energy s obligation under subsection 369 (h)(5)(b) to report annually on the progress that is being made to establish an unconventional fuels industry in the United States. This Annual Report was prepared by the Task Force consisting of eleven members, including the Secretaries of the Departments of Energy, Defense, and the Interior; the Governors of the States of Colorado, Kentucky, Mississippi, Utah, and Wyoming; and representatives of Uintah County, Utah, the Association of Governments of Northwest Colorado, and the Choctaw County, Mississippi Economic Development Foundation. The Annual Report has three main parts. Part I is a description of the Task Force including its mission and scope. Part II focuses on the current status of market conditions, and particularly the vulnerability of the United States due to its reliance on foreign imports. Part III describes recent activities related to unconventional fuels development, including legislative developments; the efforts in the Departments of Energy, Defense, and the Interior; activities in member states; and activities in the private sector. The mission of the Task Force is to evaluate the potential contributions of unconventional resources, individually and in aggregate; to identify and address development constraints; and to offer recommendations to promote and accelerate commercial development. To this end, the Task Force developed and submitted to the President and to Congress an Initial Report of recommendations dated September Following that, the Task Force developed and submitted to the Department of Energy and to Congress a more detailed three-volume report of recommendations dated September These reports describe development benefits and challenges, as well as an integrated program plan to establish a sustainable unconventional resources industry that respects the environment and addresses socio-economic impacts. The reports also serve as the basis for measuring the progress in establishing an unconventional fuels industry, as well as the basis for determining the Task Force activities, identified in the 2009 Annual Report, that are needed to monitor this progress. We appreciate your thoughtful consideration of our 2009 Annual Report. Respectfully submitted by: TASK FORCE ON STRATEGIC UNCONVENTIONAL FUELS CC: Distribution Attached

4 Distribution U.S. Senate Honorable Harry Reid Majority Leader Honorable Daniel Inouye Chairman, Committee on Appropriations Honorable Jeff Bingaman Chairman, Committee on Energy and Natural Resources Honorable Carl Levin, Chairman Committee on Armed Services Honorable Kent Conrad, Chairman Committee on the Budget Honorable Mitch McConnell Minority Leader Honorable Thad Cochran Ranking Minority Member Honorable Lisa Murkowski Ranking Minority Member Honorable John McCain Ranking Minority Member Honorable Jeff Sessions Ranking Minority Member U.S. House of Representatives Honorable John Boehner Speaker of the House Honorable Fred Upton, Chairman, Committee on Energy and Commerce Honorable Harold Rogers Chairman, Committee on Appropriations Honorable Rodney Frelinghuysen, Chairman Subcommittee on Energy and Water Development, Committee on Appropriations Honorable Paul Ryan, Chairman Committee on the Budget Honorable Ed Whitfield, Chairman Subcommittee on Energy and Power Committee on Energy and Commerce Honorable Buck McKeon, Chairman Committee on Armed Services Honorable Doc Hastings, Chairman Committee on Natural Resources Honorable Doug Lamborn, Chairman Subcommittee on Energy and Mineral Resources, Committee on Natural Resources Honorable Nancy Pelosi Minority Leader Honorable Henry Waxman Ranking Minority Member Honorable Norman D. Dicks Ranking Minority Member Honorable Peter J. Visclosky Ranking Minority Member Honorable Chris Van Hollen Ranking Minority Member Honorable Bobby L. Rush Ranking Minority Member Honorable Adam Smith Ranking Minority Member Honorable Edward Markey Ranking Minority Member Honorable Rush Holt Ranking Minority Member

5 Table of Contents Part I: Introduction...1 Task Force Mission and Purpose...1 Scope of Resources Considered...1 Task Force Structure...1 Task Force Activities...2 Other Topics of Concern or Deliberation...2 Task Force Future Roles and Plans...2 Part II: Changing Markets and Policies...3 Part III: Recent U.S. Unconventional Fuels Development Activity...5 FEDERAL EFFORTS AND ACTIVITIES...5 Congressional Activity...5 Executive Branch Actions and Initiatives...5 Department of Energy...5 Department of the Interior...7 Department of Defense...9 PRIVATE INDUSTRY EFFORTS AND ACTIVITIES...10 U.S. Oil Shale Activity...11 U.S. Coal-to-Liquids Activity...11 U.S. Tar Sands Activity...12 U.S. Heavy Oil Activity...12 U.S. CO 2 Enhanced Oil Recovery Activity...12 STATE AND LOCAL ACTIVITIES AND EFFORTS...13 State of Colorado...13 State of Mississippi...17 State of Utah...17 State of Wyoming...19 References...21 List of Figures Figure 1. Task Force on Strategic Unconventional Fuels (as of December 2009)....1 Figure 2. Estimates of Growth in Population, Economic Activity, and Energy Demand to Figure 3. Proven Global Oil Reserves Holdings Figure Oil Shale RD&D Leases Awarded by BLM...10 Figure 5. First Transcontinental Synthetic Fuel Flight...12 Figure 6. Rentech s Product Demonstration Unit... 13

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7 Part I: Introduction Task Force Mission and Purpose Section 369(h) of the Energy Policy Act of 2005, directed the Secretary of Energy, in coordination with the Secretary of the Interior and the Secretary of Defense to form a Task Force to: develop a program to coordinate and accelerate the commercial development of strategic unconventional fuels, including, but not limited to, oil shale and tar sands resources within the United States, in an integrated manner [Sec 369(h)(1)], and to make such recommendations regarding promoting the development of the strategic unconventional fuels resources within the United States as it may deem appropriate [Sec 369 (h)(3)], and to make recommendations with respect to initiating a partnership with the Province of Alberta Canada for sharing information relating to the development and production of oil from tar sands, and with other nations that contain oil shale resources. [Sec 369 (h)(4)]. Scope of Resources Considered The Task Force has defined its scope to encompass: oil shale, coal-derived liquids, heavy oil, tar sands, and oil amenable to carbon dioxide (CO 2 ) enhanced oil recovery (EOR). Task Force Structure The Task Force is comprised of the Secretaries of the Departments of Energy (DOE), the Interior (DOI), and Defense (DOD); the Governors of five states with unconventional fuel resources; and representatives of localities likely to be impacted. It is supported by DOE s Office of Petroleum Reserves (OPR), with input from experts in resource and issue-focused work groups. See Figure 1 for additional information. Figure 1. Task Force on Strategic Unconventional Fuels (as of December 2009) Federal Cabinet Agencies Hon. Steven Chu, Energy Mr. David Johnson (OPR) Hon. Ken Salazar, Interior Mr. Nick Douglas (BLM) Hon. Robert Gates, Defense Mr. Kim Huntley (DESC) Members Members and and their their Official Official Representatives State Governors Community Representatives Hon. Gary Herbert Utah Northwest Colorado Hon. Craig Meis Mr. Ronald Daniels Choctaw County, Mississippi Hon. Bill Ritter, Jr. Colorado Economic Development Mr. Michael King Hon. Dave Freudenthal Wyoming Foundation Mr. Alan Bates Ms. Temple Stevenson Uintah County, Utah Mr. Bill Johnson Hon. Steven L. Beshear Kentucky Mr. Robert Amato Hon. Haley Barbour Mississippi Mr. A.D. Monty Montgomery, Jr. Task Task Force Force Support Support and and Coordination DOE DOE Office Office of of Petroleum Petroleum Reserves Reserves Resource Resource Work Work Groups* Groups* Oil Oil Shale Shale and and Tar Tar Sands Sands Work Work Group Group CO CO 2 EOR and Heavy Oil 2 EOR and Heavy Oil Work Work Group Group Coal Coal / / FT FT Liquids Liquids Work Work Group Group Crosscutting Crosscutting Work Work Groups** Groups** Environmental Environmental Socio-Economic Socio-Economic Infrastructure Infrastructure Facilitation Facilitation Economic Economic Modeling Modeling Work Work Group Group Work Work Group Group Work Work Group Group Work Work Group Group * Resource groups focus on resource, technology, and economics; ** Cross-cutting groups address environmental, socioeconomic, and infrastructure related issues for all strategic unconventional fuels resources; Work groups to be staffed by representatives of participating federal, state, and community organizations. Task Force on Strategic Unconventional Fuels 1 Annual Report 2009

8 Task Force Activities Since 2006, the Task Force has met on numerous occasions to assess unconventional fuels resources and their potential, identify development constraints, and develop program goals, strategies, and plans. Initial Report: The Energy Policy Act of 2005 (EPACT05) directed the Task Force to submit an Initial Report to the Congress and to the President of the United States detailing its analyses and recommendations. The report was completed in June 2006 and sent to Congress and the President in September It can be viewed on the Task Force website at: Integrated Program Plan: EPACT05 directed the Task Force to develop a program to coordinate and accelerate the commercial development of strategic unconventional fuels. A three-volume integrated program plan was released in September Major program plan elements include resource-specific technology, resource access, market, fiscal actions, and program activities for oil shale, tar sands, heavy oil, coal liquids, and CO 2 EOR. The plan also defines crosscutting research, analysis, and support activities related to water resources, regulations and permitting, socioeconomic impacts, carbon management, markets, infrastructure, and environmental considerations that relate to all of the targeted unconventional fuels resources. The plan can be downloaded from the Task Force website at: Annual Report 2008: In 2008, the Task Force prepared a report that describes activities related to oil shale, tar sands, heavy oil, coal liquids, and CO 2 EOR in the jurisdictions represented by Task Force Members Meetings and Calls: The Task Force convened in Washington, D.C. on April 30, 2009 to assess the impact of Task Force recommendations, to brief new Task Force members and representatives from the incoming Administration, and to begin scoping the 2009 annual report. Concerns were raised that Task Force recommendations are not receiving adequate consideration. Members decided to develop recommendations for improving Task Force communications to stakeholders. Another concern was the continued relevance of Task Force recommendations. It was decided to to review and prioritize all recommendations to help policymakers identify the most important for consideration and action. The Task Force conducted conference calls to review progress, address emerging issues, and direct the staff. Other Topics of Concern or Deliberation The Task Force notes that the Nation s strategic unconventional fuel resources and development potential far extends beyond the six states and three local communities currently represented on the Task Force and is considering expanding its membership. Other concerns include funding to support future activities. Since its inception, participants have largely funded activities utilizing program funds. The state of the economy, and Federal, state, and local budgets raises concerns that program funds alone may not be sufficient going forward. Task Force Future Roles and Plans Pursuant to Section 369(h) of the 2005 Energy Policy Act, the Task Force responsible for providing recommendations to the President and Congress for creating an unconventional fuels industry. With the submission of the Task Force s Initial Report in September 2006, and the Task Force s 3-volume program plan in September 2007, and other work since then, that responsibility is largely completed. There are, however, further contributions the Task Force could make in pursuit of an unconventional fuels industry: (1) review and periodically revise its recommendations as circumstances change; (2) continue monitoring and reporting on the implementation of its recommendations; and (3) continue promoting the creation of an unconventional fuels industry. These activities would require continued support from the Department of Energy (DOE), which to date has not been funded by Congress. Hence, the Task Force has decided to consult with DOE on its future role before undertaking further activities. Task Force on Strategic Unconventional Fuels 2 Annual Report 2009

9 Part II: Changing Markets and Policies To fulfill ongoing responsibilities, the Task Force is monitoring changes in global and domestic energy markets, shifts in social trends, and concerns of policy makers that may affect the economics, scale, pace, and policy conditions for developing strategic unconventional resources. Global Recession Reduces Oil Demand and Market Prices: A global economic recession that began in 2007, and continued over the course of 2009, has led to a reduction in the demand for goods and services throughout the global economy. As a result, demand for oil and refined products has declined, and excess production capacity and inventories have increased, reducing the global price of crude oil and consumer prices for motor fuels and other refined products. After peaking at $145/Barrel (Bbl) in 2008, crude oil prices fell to just $45/Bbl due to the economic collapse. Prices have since rebounded to approximately $75/Bbl anticipating increased demand that will result from global economic recovery, but also reflecting the declining value of the U.S. dollar. These high oil prices are expected to persist, impacting U.S. consumers and the pace of domestic economic recovery. The economic recession has caused the U.S. Energy Information Administration (EIA) to reduce its demand outlook. The 2009 Annual Energy Outlook (AEO) projects that demand for petroleum will rise from 19 million barrels per day (MMBbl/D) in 2009 to 21 MMBbl/D by 2030, an increase of only 10 percent i compared to AEO 2006 demand growth projections exceeding 25 percent ii. This new projection also assumes the success of major domestic policy initiatives aimed at reducing oil demand by improving energy efficiency and fostering conservation and increasing alternative fuels production and use. These initiatives have been enacted as part of the Energy Independence and Security Act of 2007 and the American Recovery and Reinvestment Act of Pending energy and climate change policies and legislation could further reduce domestic energy demand growth. However, global energy and petroleum demand is expected to increase substantially due to population growth and economic expansion in developing economies, particularly in Asia. ExxonMobil recently projected that global energy demand could increase by 35 percent by 2030 (Figure 2) iii. Nearly 80 percent of the increase would be supplied by fossil fuels iv. ExxonMobil foresees steady growth in the supply of renewables and other alternative fuels, but expects that it will take many decades for them to make a significant contribution to global supply. In turn, despite U.S. efforts to reduce demand, the increase in global demand would lead to higher oil prices, increasing from an average of $61/Bbl in 2009 to $110 in 2015 and $130 in 2030 v. Figure 2. Estimates of Growth in Population, Economic Activity, and Energy Demand to 2030 Source: ExxonMobil 2008 Competition for Fuel and Supply Uncertainty Exacerbates Global Tensions Price Volatility: Energy supply security will continue to be a major concern for the United States. Foreign sources of petroleum and petroleum products are increasingly insecure. Geopolitical tensions Task Force on Strategic Unconventional Fuels 3 Annual Report 2009

10 in Venezuela, Nigeria, the Middle East, and other regions of the world continue to threaten the near-term and long-term reliability of supply to the global market. These threats and uncertainties are reflected in risk-premiums and volatility in global spot and futures prices for crude oil and refined products. Energy Nationalism Limits Trade and Supply: Despite the global recession, uncertainty about future oil supplies continues to fuel competition among nations for control of supplies, reinforcing the trend toward resource nationalism. More than 75% of world crude oil reserves are owned not by public companies, but by governments and national oil companies (NOCs) (Figure 3) vi. Many import-dependent economies continue to negotiate off-market agreements to forward purchase oil and refined products directly from national oil companies. These agreements reduce the volumes of crude and products that are freely traded in global markets, contributing to price escalation and volatility. High Prices Impact Military Readiness and National Defense: The Department of Defense consumes approximately 325,000 barrels of oil equivalent (BOE) per day to fuel military aircraft, surface vehicles, seagoing vessels, and other military operations vii. In 2002, the Department spent $5.5 billion on fuels viii. By 2008, when crude oil prices peaked at $145/Bbl, the cost for the same volume of fuels had risen to $16.7 Figure 3. Proven Global Oil Reserve Holdings Exclus ive NOC Control, 77% Available Under Negotiation with NOCs, 11% Russian Companies, 6% IOC Held, 6% Source: PFC Energy, 2005 billion ix. The Air Force is the largest military consumer of fuels. It is estimated that every $10/Bbl increase in the price of crude oil, increases the Air Force s costs by $615 million annually. With defense budgets already stretched, higher fuel costs greatly increase the cost of defending the United States. In addition, the ability to project force and support military operations abroad is challenged by fuel logistics and supply availability. The development of defense fuels from domestic unconventional resources could supply most domestic defense fuel needs while enhancing supply security and accessibility. The Department has initiated efforts to promote development of alternative fuels from reliable sources that can meet DOD's supply requirements and conform to stringent fuel specifications and manufacturing and performance standards for environmental protection and greenhouse gas reduction. Concerns about the Environment and Climate Change Heighten the Challenge: Proposed climate change legislation in the U.S., if enacted, could substantially alter the relative roles of the nation s resources of fossil fuels, renewables, nuclear energy, and energy conservation. Nonetheless, economic growth and energy security of the U.S. will continue to be largely based on fossil fuels. The key to determining the contribution that conventional and unconventional fossil fuels must make to the energy future of the United States will be the deployment of technologies that make their production and use economically feasible under carbon constraints. Implications for Unconventional Resources: Although the projected gap between U.S. oil supply and demand may currently be narrowing, and oil prices have moderated from their peak, the nation remains dependant on oil imports for nearly 60% of its demand, posing significant challenges to America s economic and energy security. The opportunity to reduce oil import dependence by increasing production of fuels from domestic sources, including unconventional resources, continues to offer significant national energy, economic, and security benefits. Task Force on Strategic Unconventional Fuels 4 Annual Report 2009

11 Part III: Recent U.S. Unconventional Fuels Development Activity FEDERAL EFFORTS AND ACTIVITIES A variety of activities related to unconventional fuels have continued in Congress, the Executive Branch, in private industry, and in the States during 2009, as described below. Congressional Activity Congressional debate continues concerning the best approach to ensure America s energy future and reduce the impacts of energy development and use on the environment. The 2009 economic stimulus package passed as the American Recovery and Reinvestment Act provided funding for a variety of initiatives aimed at stimulating alternative fuels production and energy conservation while reducing greenhouse gas emissions. Various annual energy and defense appropriations bills have also provided some funding in these areas. Since 2009, Congress has conducted numerous hearings and engaged in extensive deliberations that may to lead to new energy and climate change legislation. Depending on the final provisions, major climate change legislation may impact domestic production of unconventional fuels. The Energy Independence and Security Act (EISA) of 2007 introduces additional challenges that must be addressed in considering options for unconventional fuels. Section 526 states that: "No Federal agency shall enter into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from nonconventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the lifecycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources. Executive Branch Actions and Initiatives A long term goal of the new Administration is to greatly reduce the Nation s demand for fossil fuels, by encouraging greater conservation and efficiency and by encouraging the production and use of fuels from alternative resources, including renewables and nuclear energy. Nonetheless, it is understood that while we transition to alternative energy sources over the coming decades, much of our Nation s energy supply will continue to come from fossil sources. Accordingly, activities continue within several Federal agencies to help sustain or increase production of fuels from our considerable fossil energy resources to meet our needs and reduce oil import dependence in a more environmentally responsible and sustainable manner. Department of Energy OPR continues to play an important role in the development of unconventional fuels, including domestic oil shale and tar sands. Task Force Support: OPR supported the Task Force in the conduct of the Task Force s responsibilities set out in Subsection 369(h) of the 2005 Energy Policy Act. Recent activities include: the 2008 Annual Report, the April 2009 Task Force meeting, three conference call meetings, and the development of a proposed annual report for OPR also supported the development of proposed communications materials, e.g., PowerPoint briefings, for Task Force use in communicating with stakeholders; and a review of the Task Force s recommendations was conducted, and recommended updates and priorities were provided to the Task Force. Other Support: In addition to Task Force support, OPR engaged in a number of activities in response to Subsection 369 (i) of the 2005 Energy Policy Act. Task Force on Strategic Unconventional Fuels 5 Annual Report 2009

12 Unconventional Fuels Strategic Plan: To address Task Force recommendations, OPR participated in an ad hoc working group consisting of representatives from industry, government (local, state, and Federal), national laboratories and universities. The group met 3 times in 2008 leading to the development and release of a strategic plan dated November 2008 for the development of unconventional resources in the western energy corridor that spans the Rocky Mountain area from Montana to New Mexico. The group met once in 2009 to review the progress of their plan and consider next steps for implementation. Energy Efficiency, Carbon Production, and Water Use Associated with Oil Shale Development: In 2009, OPR initiated a study to estimate these parameters for the development of oil shale in small but potentially highly productive areas of Colorado, Utah, and Wyoming. Phase I of the study identified existing data from past and current oil shale projects, technologies, and resource assessments - data that will be used in Phase II to calculate life cycle energy efficiencies, carbon production, and water requirements for oil shale technologies. A draft report for Phase I was in review at the end of Subject to funding, Phase II is planned to be undertaken in National Strategic Unconventional Resource Model: The model was developed to evaluate alternative development scenarios for unconventional fuel resources. Model outputs include estimated costs, production rates, public revenues, contribution to gross domestic product, value of imports avoided, and employment. During 2009, OPR updated oil prices, capital costs, and operating costs used in the model. Lab Support for Oil Shale Assessment: OPR is managing a congressionally-directed effort by the Los Alamos National Lab to develop an integrated modeling and analysis capability to assess potential air, water, carbon and other environmental impacts of oil shale development in the Piceance Basin. This work is scheduled to be completed in OPR also supported a suite of activities at the Idaho National Lab to better understand some of the more contemporary oil shale technologies; to better understand how to streamline regulatory requirements; to better understand capabilities of software to determine carrying capacity; to better understand interdependencies and conflicts that may arise in the course of concurrent development of multiple resources; and to develop communications plans for the public review of proposed development plans. Oil Shale R&D Profiles: OPR compiled profiles of 26 ongoing oil shale research and development projects at seven universities, geologic surveys, and national labs related to protecting water resources, to reducing carbon emissions, and to reducing potential adverse socio-economic impacts associated with oil shale development. The profiles were documented in a report dated June Secure Fuels from Domestic Resources (3 rd Edition): In September 2009 OPR published the third edition of its report Secure Fuels from Domestic Resources which profiles oil shale and tar sands technologies that are being pursued by 35 private companies for use in the United States. The new edition reflects industry progress in resource and technology development. Technology and Information Transfer: OPR participated in numerous activities to facilitate sharing of information regarding unconventional fuels resources and technologies, including: participating in conferences, moderating technical panels, speaking at conferences, releasing technical papers, publishing in magazines and books, and responding to frequent requests for support from other government agencies, Congress, the Administration, industry, and the public. Colorado School of Mines Oil Shale Symposia: In 2009, OPR and other cosponsors, including industry, academia, and trade organizations, continued to support the Colorado School of Mines Oil Shale Symposium, which resumed in 2006, after an 11 year hiatus. The Oil Shale Symposium addresses a broad range of oil shale Task Force on Strategic Unconventional Fuels 6 Annual Report 2009

13 development topics including resource assessments, conversion technologies, research and development, environmental impacts and mitigation strategies, regulatory framework, and project and program status in the U.S. and abroad. The symposia provide a forum for the exchange of information and ideas among industry, academia, and government. U.S. - Estonia Oil Shale Agreement: OPR is supporting the Department of Energy in the process of entering into a new cooperative research agreement between the United States and the Republic of Estonia. Department of the Interior RD&D Leases: The Department of the Interior s Bureau of Land Management (DOI/BLM) has been a leader in advancing opportunities for oil shale and tar sands technology research and demonstration on Federal lands. DOI s internal Oil Shale Task Force, initiated in 2004, examined options for promoting oil shale development on Federal Lands, resulting in the initiation of the Oil Shale Research, Development, and Demonstration (RD&D) Leasing Program in EPACT05 subsequently directed DOI/BLM to expedite its efforts, prepare a Programmatic Environmental Impact Statement (PEIS), serve as lead agency for permitting processes, and develop and implement commercial oil shale and tar sands leasing regulations. BLM oil shale RD&D leases grant rights to develop oil shale resources on tracts not to exceed 160 acres of public land per lease. The initial term of the leases is 10 years with the option of extending the leases up to 5 years with proof of diligent pursuit of commercial production levels. The leases also contain a preferential right to convert the RD&D acreage plus adjacent acreage up to 5,120 acres total to a 20-year commercial lease once the lessee demonstrates that it has achieved commercial production levels, pays a bonus based on fair market value of the lease, provides a bond to cover all costs of reclamation, and consults with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure. Before a commercial lease may be issued, the BLM must determine, following analysis pursuant to the National Environmental Policy Act (NEPA), that commercial-scale operations can be conducted, subject to mitigation measures specified in stipulations or regulations, without unacceptable environmental consequences. The BLM issued RD&D leases for five oil shale projects on public lands in Colorado s Piceance Basin managed by the BLM in January These were the first-ever RD&D leases issued for public lands and the first Federal oil shale leases issued in more than 30 years (Figure 4). The RD&D leases were awarded for projects proposed by Chevron USA, Inc.; EGL Resources, Inc.; and Shell Frontier Oil & Gas, Inc. based on proposals submitted by the companies in June The DOI issued a sixth RD&D lease in June 2007 to Oil Shale Exploration Co., LLC (OSEC) that will allow OSEC to test oil shale retort technology on a 160-acre tract of public land, including the White River mine, in Uintah County, Utah. Each of these RD&D leases was issued after environmental analysis determined that the company s RD&D projects would have no significant impacts. On November 3, 2009, the DOI/BLM published a Notice in the Federal Register calling for nominations for a second round of oil shale RD&D projects. The Notice announcement closed on January 4, 2010, and the Department and the BLM are assembling an Interdisciplinary Team to review/rate and rank the applications/ nominations. The Interdisciplinary Team is expected to include representatives of the Governors of the States of Colorado, Utah, and Wyoming, representatives of the Secretaries of Energy and Defense, and a representative from the Colorado School of Mines. The general requirement for establishing the criteria for evaluating and ranking the Task Force on Strategic Unconventional Fuels 7 Annual Report 2009

14 Figure Oil Shale RD&D Leases Awarded by BLM nomination for potential offer of an RD&D lease are the 1) potential for a proposal to advance knowledge of effective technology, 2) economic viability of the applicant, and 3) means of managing the environmental effects of oil shale technology. Programmatic Environmental Impact Statement (PEIS): EPACT05 directs the Secretary of the Interior to complete a PEIS for a land allocation document to amend land use plans for the purpose of commercial leasing for oil shale and tar sands resources on public lands with an emphasis on the most geologically prospective lands within Colorado, Utah, and Wyoming. The PEIS evaluates the amendment of 12 existing Resource Management Plans to designate certain public lands in Colorado, Utah, and Wyoming as available for application for commercial leasing for oil shale and tar sands development. The PEIS analyzes three alternative scenarios. The BLM solicited comments and suggestions for consideration in the preparation of the final PEIS. The 90-day public comment period closed March 20, The agency received several requests for additional time for public comment on the document. Subsequently, the BLM announced that it would accept public comment on the PEIS for an additional 30 days, through April 21, Informal open-house style public meetings on the Draft PEIS were held in February 2008 in Salt Lake City, Price, and Vernal, UT; Rock Springs and Cheyenne, WY; and, Rifle, Meeker, and Denver, CO. The Final PEIS was published on September 5, 2008 and the Record of Decision followed on November 17, Oil Shale Commercial Leasing Regulations: In July 2008, the DOI/BLM published draft commercial oil shale leasing regulations and solicited public comments on the proposed rulemaking by September 22, Approximately 75,000 comments were received and analyzed to finalize the regulations. The final regulations were published in the Federal Register on November 18, The final regulations authorize the BLM to hold lease sales upon completion of further NEPA analyses once shale oil recovery technologies have been proven. The regulations address lease terms (years of lease, minimum lease size, maximum lease size, and maximum lease holdings per entity), NEPA, bonding, royalty structure, bonus bids, rental rates, diligence milestones, and lease conversion from RD&D. Lease rental, size, and maximum allowable acreage were established in the Mineral Leasing Act and Energy Policy Act of Task Force on Strategic Unconventional Fuels 8 Annual Report 2009

15 The proposed leasing process is as follows: the BLM will call for an expression of interest, solicit comments from Governors, local governments, and Indian tribes, set the geographic area and call for lease applications, subject the area to NEPA analysis, and then hold a competitive lease sale with the highest bidder winning. The winner will be required to submit a Plan of Development to the BLM for approval after completion of a site-specific NEPA. The proposed leasing regulations also address the conversion of existing RD&D leases to commercial leases. Each of the existing 160- acre RD&D leases contains a preference lease of additional acreage upon demonstration of a successful method of producing oil from shale (total 5,120 acres per lease). Department of Defense Alternative Fuels Initiatives: The DOD continues to look toward synthetic (unconventional) and biofuels to meet the future energy needs of the Department. The ultimate goal of DOD s investment in alternative fuels is to provide energy security, which is defined for DOD as having assured access to reliable supplies of energy and the ability to protect and deliver sufficient energy to meet operational needs anywhere in the world. The military components within the Department have also developed energy strategies within their respective Services. Air Force: The Air Force published its Air Force Energy Program Policy Memorandum. This policy document, signed by the Secretary of the Air Force, implements the overall Air Force energy policy. It specifically identified aviation fuel as accounting for 81 percent of the Air Force energy costs, and stated that Improving energy security drives the goals and objectives of the Air Force Energy Strategy. The Strategy contains three specific goals: 1. Reducing Demand, 2. Increasing Supply, and 3. Culture Change. The Increasing Supply goal calls out that, By researching, testing, and certifying new technologies the Air Force can assist in creating new domestic supply sources. The Goal is supported by an Implementing Goal that by 2016, the Air Force will be prepared to cost competitively acquire 50% of the Air Force s domestic aviation fuel requirement via an alternative fuel blend in which the alternative component is derived from domestic sources produced in a manner that is greener than fuels produced from conventional petroleum. To assist in meeting this Implementing Goal, two supporting Implementing Objectives were instituted: 1) Procure commercially produced alternative/renewable energy, and 2) Test and certify all aircraft and systems against 50/50 alternative fuel blend by Army: The Army published its Army Energy Security Implementation Strategy. This document highlighted the fact that in 2008, the Army spent over $4.1 billion for fuel and energy. The Army strategy contains five Strategic Energy Security Goals (ESGs). Two of the ESGs have impacts on synthetic/alternatives. ESG 3: The Army seeks to increase use of renewable/alternative energy, Raise the share of renewable/alternative resources for power and fuel use, which can provide a decreased dependence upon conventional fuel sources. This goal also supports national goals related to renewable/alternative energy. ESG 4: Assured access to sufficient energy supplies, is described as Improve and maintain the Army s access to sufficient power and fuel supplies when and where needed. Energy is a critical resource in conducting Army missions. Vulnerabilities to external disruption of power and fuel sources should be minimized and the potential for industry partnerships to enhance energy security and generate net revenues for the Army should be considered. Navy: The Secretary of the Navy also introduced five Energy Targets laying the way forward for the Navy s future energy strategy. Of specific relevance to this forum is the fifth: By 2020, half of our total energy consumption for ships, aircraft, tanks, vehicles, and shore installations will come from alternative sources. Task Force on Strategic Unconventional Fuels 9 Annual Report 2009

16 Certification of Alternative Fuels: DOD is a leader in exploring the potential military uses of alternative fuels. Towards that end, the certification and approval of Alternative Fuels within the DOD continues at a rapid pace. The Air Force has certified the B-52, C-17, B-1B, F- 22 and F-15 platforms on a blend of Fischer- Tropsch (FT) jet fuel (coal to liquids fuel), and the KC-135, C-5, C-130J and T-38 have completed testing and are awaiting issue of final evaluation reports for unrestricted operations (Figure 5). Additional platforms, F-16, C-130 Legacy, A-10, T-6, Global Hawk, Reaper and B- 2, are in the test planning stage. This means the Air Force is ahead of schedule for their goal to have all Air Force aviation platforms and support equipment certified for the use of alternative fuels by In addition, an ASTM international standard, D7566, Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons was recently approved. Partnering with Industry: In regard to these alternative fuels programs, DLA and the Services have realized the necessity of partnering with the commercial airline industry to create a market for alternative fuels. Therefore, DOD has formed a working relationship with the Commercial Aviation Alternative Fuels Initiative Figure 5. First Transcontinental Synthetic Fuels Flight (CAAFI). With combined requirements between DOD and the commercial airlines, alternative fuel suppliers may have enough leverage to acquire funding for this fledgling industry. Environment and Climate Change: During the past year, DLA developed an interim implementation plan that addresses the actions necessary for compliance with section 526 of EISA. The document describes how DOD will comply with the requirements and identifies needed exceptions for specific operations that would impact mission, availability, or supply. The interim implementation plan is available at: mplementation%20plan%20aug% pdf. For a copy of this document, please contact the DLA Public Affairs Office at Other DOD Initiatives: The Defense Energy Support Center co-chairs an Alternative Fuels Interagency Working Group (IAWG) with DOE. Although not federally chartered or legislatively mandated, numerous Federal Agencies and Departments participate due to the shared interest and mutual benefits of communicating and collaborating on the development and use of alternative fuel. With an eye on this objective, the IAWG created a new tool to use in the pursuit of innovative energy solutions, the IAWG website. The website provides an opportunity to work on energy goals more effectively by fostering communication. Using Wiki and social media technology, members can log into the site and participate in discussion forums, share information and expertise, ask questions or look for interagency contacts through registered user profiles. It is a central communication hub for the Interagency Working Group. PRIVATE INDUSTRY EFFORTS AND ACTIVITIES A C-17 Globemaster III flies over New York City after completing the first transcontinental flight on synthetic fuels Dec. 17, The C-17 took off from McChord Air Force Base, Wash., and landed at McGuire AFB, NJ. (U.S. Air Force) The level of private industry activity associated with unconventional fuels development in the United States continues to grow, particularly as oil prices, down from their peak of $145/Bbl, remain high enough to make unconventional fuels economics attractive to investors x. Private sector activities during 2009 have included: R&D on unconventional fuels technology, Task Force on Strategic Unconventional Fuels 10 Annual Report 2009

17 Planning and initiation of demonstrationscale or commercial development projects, Continuation or expansion of existing projects (primarily CO 2 EOR and heavy oil), Analyses of development options and associated issues. The known developments in each of these areas as they relate to the unconventional resources addressed by the Task Force are summarized below. U.S. Oil Shale Activity The United States has more than 6 trillion BOE of oil shale resources. More than 2 trillion are of a grade that could support commercial development. Approximately 70% of the resources underlie Federal lands. R&D on Oil Shale Technology: Private industry is investing significant sums into technology research, development and demonstration associated with domestic and other global oil shale resources. This RD&D includes development of new approaches for oil shale retorting, including new surface and in-situ processes. The 2009 release of the DOE report entitled Secure Fuels from Domestic Resources identified 35 companies actively engaged in technology RD&D and project development activities for domestic oil shale and tar sands resources. Four of the companies profiled in the report are pursuing RD&D projects on six leases that were issued by the Department of the Interior in late Several others are investing in research, development, testing, or demonstration efforts on private or state-owned lands. Some pilot projects were initiated on private lands in Colorado and Utah to demonstrate new oil shale technologies. U.S. Coal-to-Liquids Activity The United States has extensive coal resources. With greater demand for fuels from domestic energy sources, and higher market prices for crude oil and refined products, public and private interest in commercial production of liquid fuels from coal has been renewed. Numerous companies are considering or planning construction of coal-to-liquids plants. While most are considering indirect approaches (coal gasification followed by Fisher-Tropsch synthesis to liquids) other direct liquefaction approaches are also being considered. RD&D on Coal to Liquids Technology: RD&D associated with conversion of coal-to-liquid (CTL) fuels is continuing under a variety of efforts sponsored by the Department of Energy, the Department of Defense, and by private industry. Whereas conventional coal gasification approaches followed by Fischer-Tropsch synthesis of the produced gas into liquid fuels generates concentrated quantities of CO 2, RD&D is focused on reducing emissions by developing and demonstrating carbon capture and storage technologies or by reducing the generation of CO 2 by gasifying a combination of coal and biomass. This technology is being aggressively pursued by private industry. At least five pilot test plants and RD&D centers were operating or in development as of the end of CTL Commercial Development Projects: Numerous commercial CTL projects have been proposed and are in the feasibility assessment, design, or planning stages. Most of the projects will apply indirect coal liquefaction processes, incorporating coal gasification, Fisher-Tropsch synthesis to liquids, and CO 2 capture and re-use or storage. Rentech Inc. s natural gas-fueled Product Demonstration Unit, located in Commerce City, Colorado, is currently the only operating synthetic transportation fuels facility in the U.S. (Figure 6). Figure 6. Rentech s Product Demonstration Unit Task Force on Strategic Unconventional Fuels 11 Annual Report 2009

18 The company has produced thousands of gall ons of ultra-clean synthetic fuels and specialty waxes and chemicals at the facility s design capacity of approximately 420 gallons per day. Products include military jet fuel, commercial Jet A and Jet A-1 and ultra-low sulfur diesel, all of which have met or exceeded applicable fuel specifications. Samples have been shipped to potential customers for testing, including the U.S. Air Force. In December of 2009, 13 domestic and international passenger and cargo carriers signed a Memorandum of Understanding that will set the framework for future purchases of jet fuel from CTL synthetic fuels produced by Rentech at a proposed facility in Mississippi xi. U.S. Tar Sands Activity Although the world s largest bituminou s sands deposit is the Athabasca oil sands in Alberta, Canada, substantial tar sands resources are found in more than 70 countries, including the United States. The largest U.S. oil sands resources are located in Utah, with additional deposits in Alaska, Alabama, Texas, California, Kentucky, and Oklahoma. Active development activity is known to be underway in two tar sand areas, Texas and Utah, with the major focus on Utah. As part of the PEIS and pre-leasing activity for oil shale and tar sands on Federal lands, the DOI reviewed existing regulations for tar sands development and evaluated the tar sands areas, including the previously defined special tar sands areas in Utah. BLM s preferred leasing alternative would make 431,000 acres of Federal lands available for tar sands operations in addition to other state and private lands. Regulations already exist for tar sands leasing. Two companies are evaluating commercial tar sands development projects in Utah. U.S. Heavy Oil Activity According to the Oil & Gas Journal, U.S. oil production of heavy oil stimulated by thermal EOR methods continues to decline xii. Much of this production decline is from mature fields, primarily in California. At least four new steam-based thermal heavy oil projects are planned, including one each in the states of California, Texas, Wyoming, and Missouri xiii. Some 15 new in-situ heating projects have been planned or initiated in North Dakota and Montana, increasing heavy oil production in those states. U.S. CO 2 Enhanced Oil Recovery Activity CO 2 EOR is a technology with significant potential for expanded application in the United States to increase the recovery of oil from known reservoirs and to provide a storage venue for CO 2. CO 2 EOR R&D: Until recently, economics, CO 2 availability, and pipeline infrastructure limited the application of CO 2 EOR to reservoirs located in relatively close proximity to ample supplies of CO 2. Increasing interest in the potential of candidate CO 2 EOR reservoirs (and other depleted oil and gas reservoirs) to store CO 2 generated by energy and industrial processes has caused industry and government to re- as new supplies of CO 2 evaluate CO 2 EOR and its potential to increase domestic oil production while sequestering carbon. Further studies are being conducted as part of the sequestration research at the Department of Energy s National Energy Technology Laboratory, by a number of public-private regional carbon sequestration partnerships, and by numerous industry research organizations. Continuation or expansion of existing projects: CO 2 EOR is on the rise and projected to continue to increase become accessible. There are currently more than 80 CO 2 EOR projects in the United States and production is approximately 230,000 barrels of oil per day xiv. In 2009 the volume of CO 2 being injected for enhanced oil recovery reached 3 billion cubic feet per day xv. New pipelines increase accessibility of CO 2 supply: Although the majority of CO 2 EOR production still comes from the Permian Basin fields in West Texas and Eastern New Mexico, there has been a significant increase in activity and planned projects in Mississippi and Louisiana, due to the increased availability of Task Force on Strategic Unconventional Fuels 12 Annual Report 2009