Energy: Setback for Synfuel

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Tosco, though, was not big enough to carry the Colony project by itself. Its net worth is only $259 million, and it was hoping that revenues from oil shale would be large enough to make its investment in time, money and faith pay off. Winston, of course, thinks that Exxon acted too hastily. Says he: "Tosco believes that the project would be found satisfactory if full engineering and other assessment work were completed."

Dissident Tosco shareholders, however, have been threatening to force the company to abandon Colony because of unbearable costs. Led by Kenneth M. Good, 37, a Colorado land developer and owner of 8.8% of Tosco's outstanding shares, those stockholders last week were making plans to put their own directors on Tosco's board at the Tosco annual meeting, to be held this week; later they hope to remove Winston from office. Says Good: "Tosco is a company with tremendous assets that are being mismanaged."

Exxon's departure left Union Oil with the largest stake in shale oil in the U.S. That company has a project not far from Colony's retort, where 1,700 workers are now employed. Union President Fred Hartley vowed to press ahead, calling Exxon's decision "irrelevant" to Union's plans. Says he: "We've always felt ours was the only project really going on. The others were simply going through the motions." The company plans to have up to 700 more workers at the shale works by June. In 15 months, its plant should begin producing 10,000 bbl. daily, and the bullish Hartley sees no reason why that could not be expanded at some point to 100,000 bbl.

The Department of Defense is already committed to buying much of the product refined from the Union Oil output. Thirty percent of Union's shale-oil production will be refined into jet fuel, and 70% will be made into diesel. The Government has agreed to pay $42.50 per bbl. of the product, plus automatic increases that will be tied to inflation, no matter what happens to world crude oil prices. This would channel up to $400 million to Union in price guarantees during the first seven years of the contract, not far from the $550 million it will have spent on the project.

Aside from Union's efforts, the only other major synthetic-fuels project in the U.S. is the partially completed $2.1 billion Great Plains Coal Gasification Project near Beulah, N. Dak. The plant is scheduled to produce 125 million cu. ft. of high-quality natural gas daily, from 14,000 tons of coal, by December 1984.

Even before the Exxon decision, the Federal Government was already getting out of the synfuel business. The Synthetic Fuels Corporation, the agency proposed by the Carter Administration to make federally guaranteed loans for synfuel projects, is off to a slow start. The Reagan Administration's market-oriented philosophy does not foresee a major Government role in synthetic energy production. A large part of the $17.5 billion allotted by Congress for shale under Carter has not been spent. Another $68 billion, envisioned in the original program as being spent on synfuels in a second phase in 1985, probably will not be appropriated at all.