OIL: Ersatz, Texas Style

Texans, who are audible on most topics, have been loud on the subject of Texas’ natural gas. They didn’t like the way it was being handled. Much of the state’s natural gas has been either 1) wasted or 2) piped outstate. What Texas wants is new industries in Texas, new uses for its gas. This week Texas got both.

The Reconstruction Finance Corp. lent $9,000,000 to Carthage Hydrocol, Inc., to build a $19,000,000 plant near Brownsville to make gasoline from natural gas. Behind Carthage Hydrocol are eight large companies,* which were willing to risk $10,000,000 of their own cash, and Texas-born Percival Cleveland (“Dobie”) Keith, the red-faced, hurry-up man who bossed the construction of the famed atom-bomb plant at Oak Ridge.

In the gas-from-gas plant, Carthage will use a variation of a method which Dobie Keith became familiar with during a visit to Germany in the thirties. With the Fischer-Tropsch method, the Germans made gasoline out of coal. But the gasoline was only 40-octane, and the method was too expensive for commercial use in this country. Keith worked out a similar method of making gasoline from natural gas, thinks he has made it commercially feasible. In brief, natural gas is burned with oxygen to produce carbon monoxide and hydrogen, which can then be reacted to produce liquid hydrocarbons, i.e., gasoline.

To test his method, Keith raised $1,250,000 from oilmen, built a pilot plant at Olean, N.Y. It produced only ten gallons a day. But this was enough to sell to RFC and the oil companies. Carthage will get Keith’s patents royalty-free, but will pay his research firm $100,000 a year for engineering advice on running the plant.

Within 18 months, Carthage expects to make over 246,000 gallons of gasoline a day. Carthage will be gambling a lot on a slim profit margin. It will cost slightly more than 4¢ a gallon to produce gasoline, which now sells wholesale for 6¼¢. The company will be able to keep its cost of making gasoline down by selling the by-products of its process—1,164 barrels of Diesel oil and 70,000 pounds of alcohol a day. But if the price of gasoline should fall far enough, the profit may well disappear. RFC and the oil companies think the gamble well worth while: if the venture succeeds, it may eventually increase the potential gasoline production of the U.S. by 25%.

*The Texas Co., Forest Oil Corp., Niagara Share Corp., United Gas Corp., La Gloria Corp., Gulf States Oil Co., Stone & Webster, Inc., Chicago Corp.