Some Setbacks for Synfuels

Cloudy days for plans to develop alternative energy supplies

Only a year ago, the Carter Administration and Congress were putting the final touches to an ambitious $88 billion program for the development of synthetic fuels. Carter's grand design would have produced the equivalent of 2 million bbl. of oil per day, an amount equal to almost 40% of current petroleum imports, from abundant American supplies of shale and coal. But now there are major doubts about the whole future of synthetic fuels. Some Reagan Administration officials argue that private industry does not need Government help to develop new energy sources, and lower oil prices are weakening the incentive to produce the expensive petroleum alternatives.

Within the Reagan Administration, Budget Director David Stockman and Energy Secretary James B. Edwards are locked in a megabuck battle over the synfuel program. Stockman argues that synfuels will not make a significant contribution to American energy supplies for decades to come, and that private industry, rather than the Government, should pay for the development of projects to turn shale and coal into synthetic oil and natural gas. Edwards, on the other hand, maintains that synfuels will never become viable without Government support because private companies will not spend the billions of dollars needed for the risky programs. The Energy Secretary also insists that synfuels are needed to decrease American dependence on Middle East energy supplies and "to send a strong message to the Saudis."

In July, Edwards was on the verge of awarding $3.5 billion in loan and price guarantees for three synfuel projects when Stockman tried to cut off the money. After bitter private discussions, the two men had to take the issue to the President for a decision. Reagan surprised some of his closest staffers by agreeing to go ahead with $3.1 billion in loan guarantees for the Great Plains coal gasification project in Beulah, N. Dak., and the Colony shale oil venture near Parachute, Colo. Washington also authorized spending up to $400 million to guarantee the price of oil produced from shale by the Union Oil Co. near Parachute Creek, Colo.

During last year's presidential campaign, Reagan said that he would scrap the Synthetic Fuels Corporation that the Carter Administration had designed to administer the multibillion-dollar program. Once in office, Reagan fired John Sawhill, Carter's nominee to head the corporation, but he decided to keep the agency alive. In Sawhill's place, Reagan appointed Edward Noble, an Oklahoma oilman who is skeptical about synfuels. Says Noble: "I have come to run a very hard-nosed, responsible operation that will require a lot from the private sector. I am not going to shoot the mule that has drawn the wagon, but I'm not going to spread a lot of hay in every direction."

Meanwhile, Congress is going slow on approving the board of directors for the Synthetic Fuels Corporation. Noble is the only one of the seven board members who has received congressional clearance, and the group cannot take any new action until at least four members have been confirmed. Senate Energy Chairman James McClure of Idaho, a strong advocate of synfuels subsidies, has deliberately stalled hearings on other nominees in order to lobby for the appointment of directors who are sympathetic to synfuels.