The United States Senate soon will vote on proposals to cut funding for the US Synthetic Fuels Corporation (SFC). This government agency exists to provide financial assistance to companies building commercial-scale projects to produce synfuels from oil shale and coal. The Senate action has been spurred by declines in world oil prices, a desire to cut the federal deficit, and serious congressional concerns about management of the corporation.
Synfuels opponents argue that the strategic petroleum reserve, not the SFC, is the appropriate US response to the threat of a disruption in oil imports. The reserve and the SFC are thereby cast as duplicative efforts. But this view fails to separate short-run from long-term threats of growing oil-import dependence.
The oil reserve and the SFC actually are complementary elements of a national program to deal with a stark reality: US petroleum reserves are declining and the vast reserves of the Persian Gulf will have to be called upon increasingly in the future to make up the shortfall. The reserve program, under which a large volume of oil is stored underground, exists to deal with acute problems caused by any limited interruption in oil imports or attempt by exporters to manipulate prices. By contrast, the SFC program, which seeks to manufacture synthetic fuels , can get the US started on a solution to the longer-term problem of declining US petroleum reserves by tapping our vast coal and oil-shale resources.
A new report by the congressional Office of Technology Assessment concludes that declining domestic oil production will increase America's vulnerability to an oil shortfall despite the oil stored in the strategic petroleum reserve and available private oil stocks.
The report concludes that among the steps the United States must take are to produce synthetic transportation fuels, rely more heavily on coal and biomass for chemical feedstocks, and speed up the substitution of other fuels for oil.
Fortunately, in the last three decades industry and government have invested hundreds of millions of dollars in research to develop technologies for liquefying oil shale and gasifying and liquefying coal. Synfuels processes have been tested in the laboratory, in pilot plant facilities, and in small-scale demonstration projects.
Promising synfuels technologies exist and now await the final test - demonstrating cost, environmental performance, and technological feasibility at the commercial scale necessary to supplement the US petroleum supply. Until this test has been passed the US possesses promising synthetic fuels technologies but lacks proven production capability.
This scale-up to commercial size is too costly and too risky for industry to attempt on its own. That's why Congress established a program of price and loan guarantees to encourage construction of commercial-scale projects. Deep cuts in the SFC program sought by the administration would stop scale-up efforts and prevent the US from gaining the technical experience necessary to produce synfuels commercially in the 1990s.
We must not forget that the bulk of the world's oil reserves are in the Middle East. Diminishing the US reliance on imports from that dangerous region requires an effort to replace oil and to shift incremental oil demand toward synthetic fuels. A deep cut in the SFC program at this time would be wantonly shortsighted.