Energy Development in Utah: Weighing the Costs and Benefits
by Heather Stewart
18 November 2011—
Gov. Gary R. Herbert sent a strong message to Washington during his State of the State address in January. “I remind Washington,” he said, “we are a state, not a colony, and I assure you, on my watch, Utah will not stand idly by.”
What had Herbert taking such a firm fighting stance? Well, many issues, ranging from immigration to healthcare reform—but also access to federal lands and the energy resources they contain.
The federal government owns 70 percent of the land in Utah, most of it under the purview of the Bureau of Land Management. In fact, the BLM oversees 23 million acres of surface land and 32 million subsurface acres in Utah (the agency controls subsurface mineral resources on tribal lands and U.S. Forest Service lands, among others).
The BLM has a complicated mandate from Congress: it must both preserve and protect the land, and allow access for agriculture, recreation, energy extraction and many other purposes.
“[Congress] gave us quite a tall glass of water to drink,” says Juan Palma, director of the Utah BLM. Not every possible use—recreation, wilderness preservation, energy development—can take place on each square acre of land, so the agency must find the most appropriate use for each piece of land.
“And therein lies the controversy,” says Palma.
Black Gold
Utah’s deserts and rock formations conceal a buried secret: vast amounts of fossil fuel resources including coal, oil and natural gas.
Coal mines are abundant in Central Utah, while the Uinta Basin in the northeastern part of the state is being tapped for its crude oil and natural gas. In fact, Uintah, Duchesne and Carbon counties are home to nearly all of the oil and gas operations in the state.
The area is also rich in oil shale and tar sands—a resource that has yet to be successfully unlocked on a grand scale. With the potential for producing billions of gallons of oil, the area has caught the attention of inventors and investors determined to transform solid rock into black gold.
For better or for worse, the economy of the Uinta Basin is tied to energy development.
“The energy industry in one form or another—it’s our lifeblood,” says Tammie Lucero, executive director of economic development for Uintah County. She points out that 65 percent of all natural gas used in the entire state comes from Uintah County.
The economic impacts can be felt in many ways. Energy companies pay leasing fees to use public land, as well as taxes on their revenues. If the land is state owned, the company must pay royalties to the Utah State Trust Lands Administration (STLA), which benefits the state’s educational system.
And, of course, energy development provides quality jobs in a rural region.
“In Uintah County, 60 percent of their employment is through oil and gas; 80 percent of their income—salaries, taxes, revenues—comes from the oil and gas industry. Uintah County is dependant upon the oil and gas industries for their survival,” says Brad Miller, general manager of regulatory affairs for Anadarko, a global energy company.
Based in Texas, Anadarko is the largest producer of natural gas in Uintah County—and in the entire state. According to Miller, the company produces 550 million cubic feet of natural gas per day in Utah, enough to heat 2 million homes every day.
“Anadarko employs 200 people [in Utah] directly. Any given day, we run about 600 contractors, so we’re a significant employer in the Basin,” he says. “In the past four years, we’ve paid $630 million in taxes, royalties and salaries.”
Furthermore, he says Anadarko has spent $2 billion in Uintah County over the past four years. The company drills about 250 wells each year, and Miller says, “We plan to continue that or ramp it up going forward.”
A Fight with the Feds
Despite a recent uptick in drilling, Lucero believes the industry is being thwarted and fears for the economic stability of the Basin.
“[The industry] could be booming, but the federal government has made it unfriendly to do energy business in Uintah County,” she says. A major sticking point has been the number of new leases issued by the BLM. “Several years ago, they had 1,300 leases in Uintah County to drill in one year—that was in the boom cycle…Last year, the BLM did not even give out 100.”
The difficulty in obtaining leases or permits to drill is making companies think twice about doing business in Utah, according to Lucero.
But the BLM is not trying to thwart energy development, says Palma, who insists the agency is development friendly but that its focus has changed.
Palma explains that once leases have been auctioned off, companies must still go through a permitting process in order to drill each well. The permits are evaluated by the BLM and then screened for environmental impacts.
“There are several steps on the journey between somebody proposing to lease a parcel and when there’s actually a drill rig drilling for oil or gas,” Palma says. The applications to drill describe how trucks will access the drill site and, among other things, must account for archeological, wildlife, water and air impacts.
Palma was appointed to head the Utah BLM in May 2010, and he says he quickly realized that the BLM was not issuing enough drilling permits to keep companies working. So the agency has focused less on leasing new parcels and more on ushering applications to drill through the permitting process.
“The real employment isn’t at the leasing stage—that’s just a piece of paper. The real employment occurs at the drilling stage…That’s where people have jobs. That’s where semis are moving,” he says.
The numbers back him up. In 2009, the state had 1,170 applications for permits to drill, but drilling commenced on only 514 wells, according to the state Division of Oil, Gas and Mining. But in 2010, the state had only a slight uptick in applications—1,185—but drilling commenced on 975 wells.
Regulatory Nightmare
It would be difficult to dispute that energy companies face a regulatory nightmare in the Basin. Much of the land there is controlled by the BLM, but there is also state-owned, tribal and some private land. Energy companies must navigate a patchwork of overlapping agencies, both federal and state.
In addition to the BLM, companies may need to gain approvals from the U.S. Army Corps of Engineers, the Environmental Protection Agency, the state Department of Natural Resources and several of its divisions, the Department of Environmental Quality and county agencies, among others.
The tortuous process of winding through all of these agencies can take years.
Anadarko recently completed an environment impact statement for an additional 3,675 wells in the Greater Natural Buttes area—a major production increase that will bring hundreds of new jobs. “It’s been in the process about four years now, and that’s actually on the fast track,” says Miller.
His biggest complaint is that the various agencies don’t start working together early enough in the process. The BLM works exclusively on an impact statement for the first couple of years, he says. “After they get their draft done, they turn it over to all the different cooperating agencies.”
Then the EPA returns the document with comments and suggestions, as do the other regulatory agencies. “So it’s a sequential and extremely long process,” Miller says, adding that the agency requests may actually be in conflict with each other.
His suggestion is to get everybody working together from the get-go. “We’d like to do it early in the process instead of late in the process in a sequential manner.”
The complicated regulatory environment is causing companies to abandon the Basin for energy-rich areas on private land, says Lucero.
“One particular company had 10 permits approved when they had applied for hundreds in a month. You can’t do business that way,” she says. “Then they go to Williston, North Dakota, and they can do whatever they want, however they want, as fast as they want, when they want, basically. They still have to get some permits, but because it’s privately owned property, it’s much, much easier.”
A Delicate Balance
The Uinta Basin is an arid environment that supports several unique and rare species of plants, like the Uinta Basin Hookless Cactus. The region is home to Rocky Mountain sheep, mule deer, black bears and prairie dogs. Bird watchers come to see the bald eagles, Golden eagles, hawks and hundreds of other bird species.
Water is of prime importance in the dry climate, and several creeks and rivers flow through the Basin from the Uinta Mountains to the north. Many of these smaller rivers merge together and eventually feed the Green River and ultimately the Colorado River.
The Basin also contains a rich treasure of prehistoric fossils and the archaeological remains of at least two ancient cultures.
So it’s no wonder that many are concerned about the impacts of energy extraction on the landscape.
“Our concern is the effect that energy development will have on [wilderness-caliber] lands, and if it’s surface development that comes along with the drilling of the wells or the mining of coal, oil shale or tar sands—and then all of the other aspects of energy development that come part in parcel: the roads, the pipeline, the other infrastructure that’s necessary to make that development happen,” says Stephen Bloch, attorney for the Southern Utah Wilderness Alliance (SUWA).
The organization has fought to mitigate some of the impacts of energy development in the region. But that does not mean SUWA is completely obstructionist: it has worked with at least three energy companies on development plans that minimize harm to the delicate ecosystem and waterways.
Bloch points to a settlement between SUWA and the Bill Barrett Corporation, which wanted to drill in the environmentally sensitive West Tavaputs plateau.
“The company significantly reduced the footprint of the project while still maintaining access to the overwhelming majority of the gas resources. So they are lighter on the land in terms of where their surface locations are,” says Bloch. The company’s original proposal called for 800 wells, 200 of which would be located in “areas that the BLM acknowledged were wilderness value. At the end of the day, the project that was approved by the BLM had less than six of those locations.”
Bill Barrett will actually be able to get even more gas than it originally predicted, says Bloch. But more importantly, the landscape that is now spared from drill rigs “is just west of the Desolation Canyon stretch of the Green River. This is an area that’s extremely remote, popular for river runners, renowned for its solitude, for its natural quiet—the fact that they won’t be having wells within sight or sound of the river is significant.”
The disfigurement of beautiful scenery is only one of the environmental impacts of drilling. The large drill pads, generally spaced 10 acres apart, fragment wildlife habitat and migratory pathways. The heavy trucks emit pollutants into the air, and drilling processes can pollute the air and groundwater.
Newer processes have diminished many of these problems, says Anadarko’s Miller. For one thing, the company now drills up to four wells from each drill pad. “One, it ended up saving us money, and two, it reduced our [habitat] fragmentation. It reduced our truck traffic significantly, so we’re not bothering the habitat near as much,” he says.
The company uses a gas-gathering system and low-bleed valves to prevent natural gas from seeping into the air from drill sites. “We’ve done a lot of things to ensure we have minimal release of natural gas or volatile organic compounds,” says Miller.
In the drilling process, pressurized water is surged deep into the ground. Anadarko recycles 90 percent of those “stimulation” fluids. “When we go to the next well, we only have to bring about 10 percent of that volume...Two, three years ago, we would have hauled the water by truck. That took about 550 truck loads of water to move from one location to the next—each day.”
Now the company uses irrigation pipe to pump the water from location to location. That measure alone has reduced truck traffic by 2.5 million miles per year, says Miller, and saved the company about $50,000 per well.
“A lot of these things we’re doing for the environment are saving the company a significant amount of money,” he says.
Buried Treasure
The other, as-yet untapped resource in the Basin is oil shale—rock containing trapped organic material, from which oil can be produced. Several companies are itching to start mining and processing the shale, often with new and unproven technologies.
The Energy Policy Act of 2005 directed the BLM to develop a research and development leasing program for oil shale on federal lands. The BLM issued a call for proposals, and six “demonstration” projects were given the green light with 160-acre parcels and a first-preference right for nearly 5,000 additional acres if the projects proved successful.
In 2010, the BLM approved three additional demonstration projects. However, none of these projects have moved beyond the research and development stage.
Although 72 percent of the country’s oil shale resources are on BLM lands, many companies are pursuing oil shale development on state, tribal or private land.
Several companies discussed their plans and technologies at a recent conference on unconventional fuels hosted by the Institute for Clean and Secure Energy at the University of Utah. Earth Energy Resources, for instance, has developed a patent-pending process that uses a bio-solvent to liberate hydrocarbons from sand grains. The process will leave only “clean” sand that can be used to backfill the mine, according to D. Glen Snarr, president and CFO of Earth Energy.
The company has obtained a large mine permit from the Utah Department of Oil, Gas and Mining, but the permit is under appeal by Living Rivers, an environmental organization that is working to protect and restore rivers in the Southwest.
Red Leaf Resources has completed a pilot project and plans to ramp up to a small mining operation on state land this year. The company’s patented process involves encapsulating mined shale in a clay shell, then heating the shale with natural gas heaters. When the process is completed, the capsule is simply left in place and the surface reclaimed through seeding.
Laura Nelson of Red Leaf points out that the process uses almost no water and emits two-thirds less carbon dioxide than traditional methods of processing oil shale.
An Estonian company, Enefit, recently purchased large oil shale holdings in Utah. The company’s technology “does not need to be proven,” says Chairman Harri Mikk, who points out that Enefit has successfully operated an oil shale plant in Estonia for decades.
Enefit’s process involves mining the shale then transporting it to a plant for processing. Mikk expects it to take up to six years to obtain the necessary permits to begin its Utah operations. At the earliest, the company will produce its first oil in 2019.
Many remain skeptical that developing oil shale is technologically, financially or environment-
ally feasible.
None of the BLM’s demonstration projects have moved forward, points out Bloch. “So we don’t know what the true environmental or economic costs are going to be, but what we’ve seen so far is significant amounts of water in a state and in a region that needs every drop of water that it has, significant air pollution, and in a place like the Uinta Basin, which is exceeding federal air quality standards on an annual basis in the wintertime.”
The economics don’t add up either, he says. “If these companies could make synthetic crude for $30 a barrel—which all of them say is possible—they’d be doing it right now.”
Nelson implies that the benefits of developing oil shale resources may outweigh environmental costs. “When we rely on the rest of the world to meet our energy needs, we are simply exporting the environmental problems,” she says.
And helping the country reduce its dependence on foreign oil also has national security implications, says Lucero. “If we need the oil and we need the gas and we’ve got it here, it’s still far better than always importing everything.”
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