Cloudy days for plans to develop alternative energy supplies
Only a year ago, the Carter Administration and Congress were putting the final touches to an ambitious $88 billion program for the development of synthetic fuels. Carter’s grand design would have produced the equivalent of 2 million bbl. of oil per day, an amount equal to almost 40% of current petroleum imports, from abundant American supplies of shale and coal. But now there are major doubts about the whole future of synthetic fuels. Some Reagan Administration officials argue that private industry does not need Government help to develop new energy sources, and lower oil prices are weakening the incentive to produce the expensive petroleum alternatives.
Within the Reagan Administration, Budget Director David Stockman and Energy Secretary James B. Edwards are locked in a megabuck battle over the synfuel program. Stockman argues that synfuels will not make a significant contribution to American energy supplies for decades to come, and that private industry, rather than the Government, should pay for the development of projects to turn shale and coal into synthetic oil and natural gas. Edwards, on the other hand, maintains that synfuels will never become viable without Government support because private companies will not spend the billions of dollars needed for the risky programs. The Energy Secretary also insists that synfuels are needed to decrease American dependence on Middle East energy supplies and “to send a strong message to the Saudis.”
In July, Edwards was on the verge of awarding $3.5 billion in loan and price guarantees for three synfuel projects when Stockman tried to cut off the money. After bitter private discussions, the two men had to take the issue to the President for a decision. Reagan surprised some of his closest staffers by agreeing to go ahead with $3.1 billion in loan guarantees for the Great Plains coal gasification project in Beulah, N. Dak., and the Colony shale oil venture near Parachute, Colo. Washington also authorized spending up to $400 million to guarantee the price of oil produced from shale by the Union Oil Co. near Parachute Creek, Colo.
During last year’s presidential campaign, Reagan said that he would scrap the Synthetic Fuels Corporation that the Carter Administration had designed to administer the multibillion-dollar program. Once in office, Reagan fired John Sawhill, Carter’s nominee to head the corporation, but he decided to keep the agency alive. In Sawhill’s place, Reagan appointed Edward Noble, an Oklahoma oilman who is skeptical about synfuels. Says Noble: “I have come to run a very hard-nosed, responsible operation that will require a lot from the private sector. I am not going to shoot the mule that has drawn the wagon, but I’m not going to spread a lot of hay in every direction.”
Meanwhile, Congress is going slow on approving the board of directors for the Synthetic Fuels Corporation. Noble is the only one of the seven board members who has received congressional clearance, and the group cannot take any new action until at least four members have been confirmed. Senate Energy Chairman James McClure of Idaho, a strong advocate of synfuels subsidies, has deliberately stalled hearings on other nominees in order to lobby for the appointment of directors who are sympathetic to synfuels.
While the Government puzzles over synfuels policy, many projects are falling by the wayside. For instance, a proposed coal liquefaction plant in Morgantown, W. Va., that was to have been built by the U.S.. West German and Japanese governments was dropped after estimated development costs rose in less than a year from $750 million to $1.5 billion.
Even so, some large oil companies, including Exxon, Chevron and Sohio, are investing heavily in synfuels. Says Clifton C. Garvin. chairman of Exxon, which has committed $1 billion to such projects worldwide: “By the turn of the century, we think this country will get about 4 million or 5 million barrels a day of liquids from shale oil and coal. It’s prudent to develop a reasonable-sized synthetic industry, in part because of national security, and in part because of economics.”
Oil executives say that synfuel development will now be easier because the red tape attached to Government subsidies under the Carter Administration has largely been removed. Explains J.F. Trautschold Jr., general manager of Mobil’s synfuels division: “If we had solicited money from the Government, we would have had to hire probably ten more auditors just to meet the Energy Department’s demand for information.”
Nevertheless, synfuel projects often cost $1 billion or more, and some developers are deciding that they are too expensive. Conoco’s proposed coal gasification project in Noble County, Ohio, has been stopped because the Reagan Administration refused to subsidize it.
Energy companies are also looking particularly closely at the high costs of all synfuel projects because of the declining price of oil. A shale oil or coal liquefaction proposal that might have been economically viable a year ago, when oil seemed to be heading toward $50 per bbl., might not make sense now, when the price is dropping toward $30 per bbl.
Moreover, oil industry skeptics point out that the proponents of synthetic fuels have been arguing since the days when oil was only $2 per bbl. that synfuels would be profitable if the price of petroleum went up another dollar or two. Yet every time the price of oil goes up, the estimated price for synfuel development also seems to increase. Those doubters predict that the cost of crude will have to go much higher before synthetic fuels are truly competitive with petroleum. Thus many of the ambitious plans for turning coal into oil and gas may stay on the drawing boards for years. —By Edward E. Scharff. Reported by Robert T. Grieves/New York and Gary Lee/Washington
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