Controversy is heating up over an administration plan to drastically reduce the amount of federal lands available for oil shale development in the American West.

The Bush administration had set aside 1.3 million acres for oil shale and tar sands development in Colorado, Utah and Wyoming. The new Bureau of Land Management plan cuts that amount by two-thirds, down to 700,000 acres, a decision that has prompted industry outrage.

"What they basically did was make it so that nobody is going to want to spend money going after oil shale on federal government lands," said Dan Kish, Senior Vice President of Institute for Energy Research.

Oil shale is very different from the oil reserves driving the current energy boom in places like the Bakken shale formation in North Dakota or the Niobrara in Colorado. In those areas hydraulic fracking is being used to break through layers of shale rock to reach huge pockets of oil trapped between and pump it out.

Oil shale refers to shale rock itself, which contains mineralized hydrocarbons. When subject to intense pressure and extremely high temperatures, oil develops. This can be done by mining the rock first or by leaving it in place and doing the pressurized heating process deep underground.

"That raises all kinds of concerns about what kind of impact that's going to have on our land and on our water," said Todd Malmsbury, spokesperson for the Colorado Wildlife Federation. "Water is the most important resource we have in the West. If we pollute that water, if we deplete that water it's going to hurt everyone out here."

In a statement to Fox News, the BLM says it is not against oil shale and tar sands deveopment, but will restrict the amount of public lands available for leasing until the processes are proven, and proven safe. If shown to be viable in coming years, the agency says more federal lands may be opened up to oil shale and tar sands development.

Kish said the decision will effectively put an end to the development in America of a resource with massive potential because the energy industry will simply go elsewhere.

"The Chinese are inviting companies in, companies that may have done business in the United States if we'd had a better approach. And we don't even know the total extent (of the potential for oil from shale in America) but it's basically around a trillion barrels...which would be as much as the world has used since the first oil well was drilled 150 years ago."

Some conservation groups applaud the administration's move to limit development now. "Think about the multi-billion dollar natural resource economy that Colorado and the West has," said Malmsbury. "Why in the world risk our heritage, our hunting and fishing traditions and all of the sustainable economy that comes from that on something that's speculative. It doesn't make sense from a dollars and cents standpoint."

But the BLM's plan has certainly not made all environmentalists happy. A coalition of seven groups has notified the agency of their intent to sue, saying BLM did not take into account the impact of oil shale and tar sands development on endangered species.