Federal Funds Cut as Popularity Wanes : Synfuels Programs Sputter On
Twenty months ago, when synthetic fuels programs were still politically popular, Los Angeles-based Unocal had ambitious plans to extract crude oil from Colorado shale deposits--and the Synthetic Fuels Corp. seemed ready to pay for them.
The quasi-governmental corporation tentatively promised Unocal $2.7 billion in price supports for the tens of thousands of barrels of oil that Unocal intended to extract each day from shale ore in a proposed second stage of its plant in Parachute Creek, Colo.
This week, after much delay, the corporation’s board of directors finally took the next step, drawing up an aid contract for the Parachute Creek project that is scheduled to be signed early next month. But this package is worth just $500 million, only enough to provide new technology for the problem-plagued first stage. Unocal said it was “pleased.”
The plight of Parachute Creek, where grandiose dreams have had to be scaled back to a level once considered no more than a starting point, helps to illustrate the effect of Washington’s startling shift in attitude with regard to the federal funding of synthetic fuels production.
Congress, which created the Synthetic Fuels Corp. five years ago with much hoopla and an initial appropriation of $20 billion, is now getting ready to shut it down. With time running out, the corporation has hurried its efforts to sign contracts guaranteeing federal support of synfuels projects--but, recognizing what officials call “the new reality of the synfuels project”--in many cases has reduced their size greatly.
Yet even the relatively small packages--$500 million for Unocal, $182 million for a project in Seep Ridge, Utah, and $60 million for another in Forest Hill, Tex.--are being widely criticized by members of Congress as in “blatant disregard of the public interest.”
“In almost every conceivable way,” said Mike Koleda, president of the Council on Synthetic Fuels and a spokesman for the industry, “the advocates of synthetic fuels have had obstacles placed in their path.”
Synthetic fuels were not expected to be able to compete initially with conventional oil. But it was hoped that with federal aid, industry would develop the capability to produce synfuels on a commercial scale so that they could survive as the price of oil continued to rise.
What no one counted on was the problem that has plagued synfuels programs almost since the beginning: that oil prices would decline, making it less and less likely that synfuels projects could survive without massive financial support. That convinced corporations such as Exxon to abandon their own synfuels projects and made the Synfuels Corp. more skeptical of aid requests.
Strong opposition to funding of large synfuels projects, however, did not crystallize until last spring, after conflict-of-interest scandals surfaced within the corporation’s management and after Parachute Creek--the nation’s only existing oil shale project--encountered problems that prevented the production of oil.
Administration pressure in 1984 persuaded Congress to rescind more than $5 billion in earlier synfuels commitments. And this year, with Parachute Creek yielding only a trickle of oil when it was supposed to have been producing 10,000 barrels a day, the House voted overwhelmingly to take the rest of the corporation’s money away.
In a speech on the Senate floor last month, Sen. Howard M. Metzenbaum (D-Ohio) summed up what observers say seems to be a growing consensus in the Senate, where a vote on the corporation’s future is expected next month.
“We all had high hopes that the (corporation) would allow us to utilize our vast resources . . . to reduce our dependence on insecure foreign supplies of oil,” Metzenbaum said. But the corporation “has not brought us any closer to establishing a viable synthetic fuels industry. There comes a time when we must ask whether or not we are getting what we hoped for. . . . Sadly, the answer is a resounding no.”
About the same time, the White House said in a letter to Synfuels Chairman Edward Noble that, although “the continued appropriateness of the (corporation) is very much in question . . . it would not be unreasonable for the corporation to provide limited support for several small-scale synthetic fuels facilities.”
