From Panic to Complacency : Forgetting the Painful ‘70s, We Rashly Let Synthetic Fuels Die
Wise governments, like prudent individuals, hope for the best but prepare for the worst. That’s the reason we have things like police and fire departments, unemployment compensation and an army and navy. And it’s why we used to have a synthetic fuels development program.
Not any more. Congress and the Reagan Administration, influenced by the present oil glut and the softness of world oil prices, are managing between them to abdicate the federal responsibility in this area.
Two weeks ago, Energy Secretary John Herrington pulled the plug on the nation’s first operating, commercial-scale synthetic fuels plant--the Great Plains coal gasification plant at Beulah, N.D.--by withdrawing government financial support.
Two days later, the House voted to strip the U.S. Synthetic Fuels Corp., which was created to encourage the development of alternative, non-petroleum fuels, of virtually all its remaining spending authority for other projects. Meanwhile, the big energy companies themselves have pulled back from significant involvement in synthetic fuels development work.
As a result of these and related actions, it is a near-certainty that America will have no synthetic fuels capability worthy of the name for the remainder of this century. And that means that the U.S. economy will remain dependent on foreign energy sources which are subject to possibly lengthy interruption in times of political upheaval.
The near-collapse of interest in synthetic fuels is understandable. With oil prices trending down instead of up, the day when synfuels might be cost-competitive with oil and natural gas has seemingly receded further into the future. Estimates of the tax dollars needed to keep a large-scale development program going have soared.
But where the national interest requires activities that private industry, with its short-term concern for profits, cannot or will not support, it is government’s responsibility to make things happen.
That view is not currently in fashion, as evidenced by the total absence of public outcry over what’s happening to the synfuels program. Which goes to show what short memories we have.
At the beginning of the 1970s, the world was even more awash in oil than it is in 1985. Then, as now, there was no physical shortage of petroleum. Crude oil was selling for $3.40 per barrel. Then came the 1973-74 Arab oil embargo, gasoline shortages, the quadrupling of oil prices, and a painful global recession.
The long lines at service stations went away, but they came back for a while in 1979 when the upheaval accompanying the overthrow of the Shah of Iran produced another oil supply scare. The situation also triggered a new doubling of oil prices to more than $30 a barrel.
In the renewed atmosphere of alarm that prevailed for a time, Congress created the Synthetic Fuels Corp. and bestowed upon it a $15-billion line of credit to provide loan guarantees, price supports and other forms of financial assistance to make synfuels development a practical proposition for private enterprise.
The United States is blessed with enormous reserves of coal and oil shale--enough, if tapped, to meet this country’s needs through the next century. The problem is that synfuels are needed to hedge against future shortages of oil and natural gas, but are too expensive to compete with conventional fuels at present price levels without government help.
The challenge seemed manageable when the synfuel program was launched in 1980. The Organization of Petroleum Exporting Countries was riding high, and economists were predicting oil prices of $60 to $80 per barrel. It didn’t happen.
Thanks to conservation and mediocre economic growth, U.S. oil consumption is 15% lower than in 1979. New natural gas supplies have entered the market. Imports as a share of U.S. petroleum supplies are down by one-third.
Oil production has increased substantially in non-OPEC countries, especially Mexico. The result is that OPEC is losing its power to control prices; the selling price of crude oil may drop to $25 a barrel, possibly less, in the months ahead. Meanwhile, the Strategic Petroleum Reserve now has close to 500 million barrels stored away.
All of this means that the United States would be better able to withstand an oil embargo now than it was in 1973. Accordingly, it has become harder to justify taking large chunks of money from the pockets of taxpayers and consumers to subsidize synthetic fuels development.
Of course, the problem is that the good times may not last. Conservation can’t be pushed much further; energy demand is turning up again. The results of domestic oil exploration have been disappointing; nuclear power is bogged down; windmills and solar power are making significant contributions, but not enough.
The outlook is for rising imports of foreign oil. And while we are no longer so dependent on the volatile Middle East as we were, the wars in Central America and unrest in Mexico itself are reminders that oil supplies from our southern neighbor could be subject to political interruption, too. Meanwhile, President Reagan proposes to stop adding to the Strategic Petroleum Reserve, leaving it far short of original goals.
Synfuels alone would not have provided anything approaching energy independence in this century, and the Synthetic Fuels Corp. went through a period of mismanagement that hardly encouraged trust. But the extra production available in the 1990s would have helped, and in the long term, the accumulated experience and growing capacity could have been vital.
This is an area where blind faith in the marketplace is gambling with the nation’s future both in economic and national security terms.
Maybe we will luck through. But it’s worth pondering the words of James Schlesinger, ex-energy secretary and former boss at the Pentagon and the Central Intelligence Agency.
When it comes to energy policy, Schlesinger says, “this country vacillates between panic and complacency.” Right now we’re in a period of complacency, but he warns that complacency, being unrealistic, merely helps pave the way for trouble down the road.
