Denver — After a 60-year cycle of alternating hope, effort, and disappointment, the oil shale logjam finally appears to have broken. Industry observers believe the recently announced federal subsidies for Western oil shale development ensure that this resource -- estimated at 400 billion to 600 billion barrels of economically extractable liquid fuel, about 10 times the size of Alaska's North Slope -- will now be tapped.Oil from shale, selling from $40 to $60 per barrel, is generally estimated to be the cheapest of the synthetic liquid fuels.
Last week the Reagan administration commited $1.5 billion to two Colorado oil shale projects. This consisted of $1.1 billion in loan guarantees to the Colony Oil Shale project, a partnership between Exxon and Tosco oil companies, and an agreement to purchase $400 million worth of shale oil from Union's Parachute Creek facility when completed.
"It looks as if oil shale's time has finally come," responded Colorado Gov. Richard D. Lamm.
The decision was made by the President himself, overruling objections from Budget Director David A. Stockman who opposed the subsidies, arguing that the industry should stand or fall by its own economic merits.Favoring the support were Energy Secretary James B. Edwards and a number of key congressmen, including Senate majority leader Howard H. Baker Jr. (R) of Tennessee and House majority leader Jim Wright (D) of Texas.
Some industry experts have been saying that oil shale is economically viable without these subsidies, but, having heard similar refrains a number of times in the past, many observers have remained cautious. But there is general agreement that with the federal subsidies the industry will push forward substantially faster than without them.
These awards are among the first made by the Synthetic Fuels Corporation, created by President Carter and Congress after the fall of Iran. (The corporation also agreed to provide $2 billion in loan guarantees to the Great Plains Gasification Associates, which has been trying to set up a plant in North dakota to produce 125 million cubic feet per day of pipeline quality gas from coal.) This quasi-government corporation gets its money from the receipts of the windfall profits tax on petroleum and is expected to have a $17.5 billion budget to spend on oil shale and other synthetic fuels development.
In the summer of 1979, when the nation's capital was in the grips of "synfuel fever," there was considerable talk of mounting a Manhattan-type project -- like the crash program to develop the atomic bomb -- to develope domestic synthetic fuels. Mr. Carter advocated an $88 billion effort designed to produce 2.5 million barrels of synthetic fuels a day by 1990, about one-third of current oil imports. This would have entailed the construction of 40 huge synfuel plants in the West.
This program was considered impractical -- or at least sure to be highly wasteful -- by many experts in the field. Western political leaders opposed it strenuously because of concern over water availability, environmental impacts, and the difficulty of coping with the possible 500 to 600 percent increase in population in rural, largely undeveloped areas. Consequently, the program was scaled down to $20 billion last year and the Reagan administration has pared away another $2 billion to $3 billion.Still, a number of congressmen, particularly Democrats, consider the synthetic fuels program the most significant energy measure adopted during the Carter years and have lobbied strongly in its behalf.
The substantial slowing of the pace of the synfuels program has removed most Western opposition to it. Thus, Governor Lamm's reaction to the recent awards was basically favorable where he had vocally opposed the more ambitious proposals of two years ago. Perhaps because of President Reagan's deemphasis of efforts to reduce oil imports, the pace of shale development has slowed considerably just in the last six months, reports Monty Pacoe, head of Colorado's Department of Natural Resources.
Another reason for greater Western acceptance is the fact that the need for aid in coping with the socioeconomic impact of these projects has been recognized both by the companies involved and in Washington, D.C. Accordingly, the current oil shale agreements include commitments by the companies involved to participate in "front-end financing" and "socioeconomic impact mitigation" programs in the area of their operations.