It wasn't long ago that "peak oil" -- the notion that the world's supply of our primary fuel is declining toward insufficiency -- was a major worry for some. Now, we've recently had news that the General Accounting Office in Washington has pegged the potential oil reserves in a remote area where Wyoming, Utah, and Colorado converge at trillions of barrels.

If that's correct, it would put us well ahead of even the Saudis' cache. In fact, it would propel us beyond the combined reserves of all OPEC countries.

Don't believe everything you hear
The trouble with these contentions -- that we're either on the verge of exhausting the earth's oil or we're practically swimming in black gold -- is that neither is likely to be 100% correct. We've heard for years about the peak oil concept. It's one of those subjects on which you can solicit a dozen opinions and receive as many different answers. But the second premise, that the "Green River Formation" in the West contains the globe's mother lode of oil, is even more problematic.

You may have heard the news earlier this month that Anu K. Mittal, the U.S. Government Accountability Office's director of natural resources and environment, told a house subcommittee that the formation, an assemblage of more than 1,000 feet of sedimentary rocks, contains "the world's largest deposits of oil." More specifically, according to Ms. Mittal, the U.S. Geological Survey "estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions."

There were two other critical statements tucked away in her testimony:

  • "As you can imagine, having the technology to develop this vast energy resource will lead to a number of important socioeconomic benefits including the creation of jobs, increases in wealth, and increases in tax and royalty payments for federal and state governments."
  • "The federal government is in a unique position to influence the development of oil shale because nearly three-quarters of the oil shale within the Green River Formation lies beneath federal lands managed by the Department of the Interior's Bureau of Land Management."

I suggest, however, that you hold your screams of euphoria -- especially those based on the first bullet point. It's also premature to expect the Energy Information Administration to immediately revise the estimated U.S. oil reserves to somewhere in excess of 1.5 trillion barrels. You see, there's more to the story than simply accepting the testimony to Congress at face value.

Coal in our stockings?
The phrase, "having the technology to develop this vast energy resource" indicates the rub here. It turns out that, using today's economics and available technology, the oil shale at Green River isn't quite ready for prime time. Unlike the oil that's trapped in shale rock in formations like the Bakken and the Eagle Ford, oil in the play to the west exists as kerogen, a coal-like solid. To render it usable, heating of the oil to about 700 degrees or in-situ mining is required.

That, in case you're wondering, explains the absence of a latter-day gold rush among the oil companies -- perhaps led by ExxonMobil (NYSE: XOM) -- to produce oil from the formation. Royal Dutch Shell (NYSE: RDS-B) is the only company among the majors that is active in the formation. It's working on the first of three BLM research, development, and demonstration studies. So there remains little indication whether the oil shale is likely to yield significant output anytime soon. Indeed, an effective production process will likely require far more advanced technology than is currently available, and it may only occur with crude prices well above today's levels.

Private industry is preferable
Furthermore, the idea that the federal government should lead in influencing the development of oil shale is hard to accept. Indeed, it calls to mind President Obama's fallacious contention earlier this year that "it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock." Reality tells us that Halliburton (NYSE: HAL), along with what is now a part of Devon Energy (NYSE: DVN), was really at the forefront of developing the techniques that now yield "all this natural gas." And looking ahead, it's difficult to place stock in energy leadership from an administration headed by a president who has said, "We must end the age of oil."

For now it appears that our domestic oil production will be concentrated in the Gulf of Mexico, along with such active onshore plays as the Bakken, the Eagle Ford, the Niobrara -- something of a neighbor of the Green River -- and the revitalized Permian Basin of southwest Texas and southeastern New Mexico. And then, for added long-term stability, we always have our friends to the north.

Foolish bottom line
We currently receive more imported oil from Canada than from any other source, much of it from the tar sands of northern Alberta. On that basis, real leadership from the White House would include approval of TransCanada's (NYSE: TRP) proposed Keystone XL pipeline. Earlier this month the company proposed a new -- and hopefully more acceptable -- route through the U.S., leading to the Texas coast. It's hard to imagine our Canadian neighbors being anything but our friends.

Given my strong belief that its new proposal markedly increases the prospects for an approval of an extended Keystone line, I'd urge Fools to monitor TransCanada closely -- and start by adding the company to My Watchlist.