Energy: Setback for Synfuel

Exxon shuts down its shale project

Just three years ago, the plan to develop synthetic fuels was to be another Manhattan Project, a dramatic, accelerated national effort to meet energy needs from American resources and help make the U.S. less dependent on foreign crude. Its cost: up to $88 billion, 44 times the World War II effort to build an atomic bomb.

Last week the U.S. synthetic-fuels program suffered its sharpest blow, one that could prove to be a major setback for large-scale attempts to develop energy alternatives to conventionally obtained oil. Exxon, the world's largest energy company, and the Tosco Corp. pulled out of their multibillion-dollar Colony Shale Oil Project in Colorado, effectively abandoning the most ambitious U.S. synthetic-fuel project.

With $400 million already spent in building a plant, Colony was going to be the most serious attempt ever made in the decades-old dream of wresting energy from northwestern Colorado's rugged Piceance Basin, which contains possibly 1.2 trillion bbl. of oil. The fuel is trapped in a form of limestone that geologists call marl, which is commonly known as shale. Colony's 8,800 acres alone are estimated to contain at least 500 million bbl. of oil, a month-long supply for the entire U.S. at the current levels of consumption. The project's facilities include a huge retort for cooking a compound called kerogen, contained in shale, and extracting oil from it. Authorities projected that by the late 1980s, Colony could be producing about 45,000 bbl. of oil from shale daily.

The grand dreams of Colony were done in by the high costs of the new technology and the prospect of flat, or perhaps even declining, world oil prices. When Exxon joined Tosco in the Colony project in 1980, it estimated that $2 billion to $3 billion would be spent. The latest estimates, which were presented to Exxon's directors in April, ran to a budget-bursting $6 billion.

Two years ago, when the oil giant was deciding to get into the Colony development, oil was shooting toward $40 per bbl. and experts were predicting $50 oil by the mid-'80s. What has happened, of course, is that the price of crude has declined an average of $3 per bbl. during the past year. The shale-oil development that made sense economically with $50-per-bbl. oil was not a good business proposition in a world of $33 petroleum.

Exxon's long-term forecasts still anticipate an increase in oil prices, but not as rapid as previously expected. R.P. Larkins, the manager of Exxon U.S.A.'s synthetic-fuels department, said that shale oil is simply too expensive now and that "nothing over the long term would offset our costs." Adds John Lichtblau, president of the Petroleum Industry Research Foundation: "The fact is that from a market point of view, most synfuel projects are not economically viable."

Randall Meyer, president of the U.S. subsidiary of Exxon, met two weeks ago with Tosco President Morton M. Winston in Los Angeles and told him that Exxon was withdrawing its funding of the project. Tosco exercised its option to sell Exxon its 40% share in Colony. Tosco, with various partners, has been trying to develop shale oil in Colorado for almost 30 years. Along the way, it has become the second largest refiner of gasoline in the U.S., behind Ashland.