While no one was looking the Bush Administration quietly changed regulations that would allow oil companies to extract shale from public lands. The U.S. Department of the Interior made both a land grab and a regulatory grab for enormous swaths of shale that have previously been off limits.

We believe this is another body blow to the ailing green industry, as Washington taps a source of energy with huge potential returns. Moreover, president-elect Obama has hedged his bets on oil shale - perhaps surprising many green advocates.

On October 27, 2008, Obama told supporters in Denver…

“When it comes to oil shale right now, I think we have to do more research and more science to discover whether or not the amount of oil that would be generated would justify what would inevitably be some disruption of the landscape here in Colorado…Colorado is blessed with a lot of natural resources.”

By opening up 1.9 million acres of federal land in Wyoming, Utah and Colorado, the U.S. could be looking at an additional 800 billion barrels of oil, according to the Department of the Interior. That’s three times more than Saudi Arabia’s proven oil reserves.

More than 70% of American oil shale is on federal land. It’s mostly in Colorado, Utah, and Wyoming. More than 50 tar sands deposits are found in eastern Utah, containing an estimated 12 to 19 billion barrels of oil.

Since oil currently trades at about $50 a barrel, down from nearly $150 a barrel this summer, the economics of shale may not make financial sense today. However, oil prices will inevitably rebound, and if they surpass $60 a barrel then oil shale becomes viable.

Where Obama may hurt oil shale is in the environmental impact of production. Squeezing oil out of rock requires tremendous amounts of water. The process also spews a lot of greenhouse gasses (but so does ethanol).

If Obama stays the course on Bush’s oil shale policy, the place to put your money would be in new oil-shale technology. There would be a scramble to produce oil shale with cleaner methods, although the impact remains unknown so far on the ultimate price per barrel.

But for investors, oil shale could present a much larger bonanza than green.