Business: Synfuel Success

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Thumbs up for ersatz oil

For over three years Jimmy Carter has been bedeviled in his attempts to have Congress pass a coherent national energy policy. But last week he moved an important step closer to succeeding in the effort. After nearly six months of haggling and bargaining, House and Senate conferees finally agreed to the broad outlines of the third, and in some ways most important, part of Carter's 1979 energy package: a $20 billion program of federally subsidized synthetic fuel plants, plus close to $6 billion in related energy spending.

Even while the conferees were acting, foreign oil producers were once again showing the U.S. just how vulnerable it is to the pricing whims of the 13-nation OPEC cartel. After a four-month calm, price-raise fever broke out anew among cartel members, as one nation after another began tacking $1 and $2 premiums to the cost of various grades of crude.

The leader this time was Saudi Arabia, which unilaterally added $2 to the $26 per bbl. that it already charges. The largest OPEC producer argued that with worldwide demand for oil weak, such an increase would somehow restore "order and unity" to the crazy-quilt patchwork of global oil prices. Yet hardly had the Saudis acted than Libya, Kuwait, Iraq and the United Arab Emirates announced matching increases of their own.

Together, the rises are expected to drain at least $20 billion out of the treasuries of oil-importing nations. They will also add anywhere from 1¢ to 2¢ per gal. to U.S. gasoline prices. That in turn is beginning to raise some doubt as to whether inflation, which the White House hopes will show substantial improvement by late summer, will actually decline by that much after all.

The synfuel legislation does nothing to ease the immediate OPEC squeeze, but its long-range effect will be important. Initially, Carter had called for a ten-year, $88 billion effort to construct a network of synfuel plants that could produce up to 2.5 million bbl. of crude oil per day out of coal, shale rock and tar sands. That would enable the nation to cut its projected consumption of imported oil about one-third by 1990. The House-Senate conferees accepted the ultimate goal of the program as set by the President but slowed the pace of spending. Instead of a crash effort that would probably lead to waste and contracting boondoggles, the synfuel project is now to be broken into two stages. The first will be a four-year period, with up to $20 billion in federal spending. In a second phase, as much as $68 billion more in federal money could become available.

The entire $88 billion will be used, in effect, as a "sweetener" in the form of loan, purchase, and price guarantees to lure private industry into the synfuel business. Though more than two dozen small-scale synfuel projects are already either being constructed or operated around the country, many oilmen remain unenthusiastic about starting up plants of their own. The technology for synfuels is expensive and cumbersome, and even though petroleum prices seem to climb higher almost daily, synfuel continues to be one of the costliest and least competitive of all energy sources.