Whatever happened to the synthetic fuels program?

By , Staff correspondent of The Christian Science Monitor

US synthetic fuels projects are down, but not out. Just two years ago, several score of multibillion-dollar plans for turning coal, oil shale, and tar sands into more usable petroleum-like fuels were among the nation's hottest industrial properties.

Then world recession, oil glut, and declining petroleum prices rubbed the economic glow from these projects. Many were abandoned. The final blow came last year when the giant Exxon Corporation decided to drop its Colony Oil Shale Project in western Colorado.

But a few hardy firms held on. For instance, Union Oil Company, with the aid of federal price guarantees, has continued doggedly with its moderate-scale oil shale operation in an area neighboring the now-abandoned Colony Project. And now there is evidence of a renewed, but substantially more modest industry interest in synthetic fuels projects.

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In the two years since it was formed, the US Synthetic Fuels Corporation (SFC) has had trouble spending the $14.8 billion allotted by Congress. Two projects - a Kentucky coal-to-oil plant and a Wyoming coal-to-gasoline plant - were canceled after winning the Corporation's first round competition. Thus far it has committed only $465 million in loan guarantees to a company in North Carolina which plans to produce 4,600 barrels of methanol per day from swampland peat.

In the near future, however, SFC chairman Edward E. Noble plans to issue letters of intent for two more projects: a New Mexico oil sands conversion plant and a California heavy-oil conversion project.

Still, that leaves the SFC with $14 billion in unallocated assets. And GOP synfuels critics in Congress have been advocating that these billions would better be spent for such things as mortgage subsidies and energy assistance to the poor. So there is added pressure on the SFC to commit its remaining money.

This week was the closing date for applications in the corporation's latest round of solicitations. It reported receiving 46 proposals from 14 different states. Of these, 17 are new while 29 are resubmissions.

''Clearly, this response demonstrates the private sector's continued commitment to synthetic-fuels development,'' Mr. Noble commented. He describes these proposals as substantially more mature than those submitted to the SFC earlier.

However, they are also smaller scale. The earlier projects were extremely large - the $6 billion Colony plant would have produced the equivalent of 50,000 barrels per day - in the effort to take advantage of the economies of scale in order to keep the price of the synthetic fuel they produced below $50 per barrel.

Thus, smaller scale plants may mean more expensive fuel. But, with the SFC willing to provide price guarantees of up to $67 per barrel - double today's price for oil - this appears to be less of an impediment to companies than raising the larger amounts of money required for the larger operations.

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