Syn fuels: are goals hasty and impractical?

The Energy Security Act, passed by the Congress in June 1980 provides for the establishment of the US Synthetic Fuels Corporation. It is to be governed by a board of directors consisting of a chairman and six other members, all appointed by the President with the consent of the Senate. The act also established two synthetic fuels goals. But corporation or no corporation, those goals are unlikely to be met.

The first goal is production of at least 500,000 barrels per day of synthetic fuel by 1987. The second envisions producing at least 2 million barrels of synthetic fuel per day by 1992. Since the most critical domestic fuel shortage today is liquid fuel, these should be treated as synthetic liquid fuel goals.

It is likely that the first commercial synthetic fuel plants -- whether involving coal, oil shale, or tar sands as the source material -- will be of the order of 50,000 barrels per day capacity. The 1987 goal would therefore involve construction of about 10 plants. The 1992 goal would involve somewhere between 20 and 40 plants depending upon whether larger plants of the order of 100,000 barrels per day would be indicated after the operation of the smaller units.

Most of the tar sands deposits in the United States so far considered for synthetic fuels are in Utah. The oil shale deposits of similar potential are in the three-state area of Colorado, Utah, and Wyoming. Coal deposits with potential for synthetic fuels development are found in many states within the country. It is probable from political considerations as well as past and current financial support for technological development that a majority of the synthetic fuel plants will use coal as the source material. Guarantees of the type which must be provided by the federal government in order for a synthetic fuels industry to be born are usually politically motivated.

Considering all the factors, it is unlikely that any commercial plants to produce synthetic oil from coal will be on stream by 1987.

There are now three coal liquefaction technologies in advanced stages of development under federal government support designed to produce synthetic liquid fuels from coal -- the Exxon Donor Solvent Process, the H-Coal Process of Hydrocarbon Research Inc., and the SRC-II Process of Gulf Oil Company. Large pilot plants were placed on stream in June 1980 for the Exxon Donor Solvent Process and the H-Coal Process. Exxon has announced that the pilot plant will operate for a minimum of 2 1/2 years to provide the fundamental data for evaluation, design, and construction of a larger unit.

Exxon proposes that the design of the next size of unit would commence in late 1982. They propose a unit called a "pioneer plant" with a liquids production in the range of 12,000 to 15,000 barrels per day. They estimate that the design and construction of such a plant would require a minimum of 6 years.

A commercial plant to produce 50,000 to 60,000 barrels of synthetic oil per day would consist of about 4 or 5 of these pioneer plant modules. If a crash program is intended by the federal government in an effort to place synthetic liquid fuel plants on stream as rapidly as possible, Exxon estimates that 7 years would be required to build one commercial plant, with the design work beginning in late 1982. This accelerated program would place the first commercial plant on stream probably in 1990.

This projected timetable does not provide for any delays associated with obtaining environmental-impact statements. The legislation which created the US Synthetic Fuels Corporation also was to provide for an Energy Mobilization Board. This was intended to accelerate and simplify such operations as obtaining environmental impact statements. The Energy Mobilization Board concept was defeated by nearly a 2-to-1 margin in one branch of Congress.

This decisive defeat was evidently the result of anxieties relative to impacts upon the environment by synthetic fuel plants. Past history with the nuclear industry, as well as certain other industries, would indicate that without some organization such as the Energy Mobilization Board, a delay of several years in obtaining environmental impact statements preceding plant construction would be very likely. Such delays would move the start-up date for the first commercial coal liquefaction plant well into the 1990s.

To meet the goal of 500,000 barrels of synthetic fuel per day would require construction of some 8 to 10 plants of the 50,000- to 60,000-barrel-per-day capacity.It would not appear to be prudent to build 8 or 10 of these "first plants" all at the same time, having skipped the intermediate step of the pioneer plant, and without more assurance from an engineering point of view that the plants would in fact operate.

From engineering, considerations, it is therefore extremely unlikely that the goal of 500,000 barrels of synthetic fuel per day by 1987 could be achieved if any of that fuel is to be produced from coal. Technological, political, and environmental considerations would indicate that achieving that goal from oilshale and/or tar sands processing would be equally unlikely.

Oil shale technologies have been nearer to commercial scale-up than coal liquefaction technologies in the United States for several years. They could have been in commercial operation today. However, political, environmental, and economic barriers have prevented these technologies from moving toward commercialization at any significant pace. Those same barriers still exist today.

This writer is not aware of any firm public announcement of intent to construct a commercial-size plant to produce liquids from oil shale. There is some private discussion of plans to build a "pioneer" plant of the order of 10, 000 barrels per day. These private discussions would place the first plant of this size on stream about 1985. Wisdom would dictate operation of one of these plants for a period of at least one or two years before the design and construction of full-size commercial plants. The projected scale of construction of oil-shale plants could not produce liquid fuels in amounts even approaching the announced goals for synthetic fuels referred to above.

US tar sands are different from Canadian tar sands to such an extent that technologies in operation in Canada are not considered to be directly applicable to US tar sands deposits. Technology for Utah tar sands is under development. But this is currently funded at a very low level and the technology is still at the bench scale.

One the functions of the proposed US Synthetic Fuels Corporation is to provide appropriate financial assistance. The legislation specifies that the financial assistance will be limited to teh following forms: loans, loan guarantees, price guarantees, purchase agreements, joint ventures, and acquisition and lease-back of a synthetic fuel project. The legislation states that grants of any form cannot be made by the corporation with the exception of certain types o cost-sharing agreements.

The cost of the synthetic fuel plants will be very great. It is estimated by Exxon that a coal liquefaction plant, if built in the mid-1980s with 1985 dollars as a base and with a plant production capacity of 62,000 barrels of synthetic oil per day, would cost $3.7 billion. Eight such plants to meet the coal of 500,000 barrels ofsynthetic fuels per day by 1987 represent a capital investment of about $30 billion.

Such investment represents a major problem in the industrial sector. The financial assistance provisions of loans and/or loan guarantees could help solve that problem.However, the greatest obstacle to the development of synthetic fuels to date has been the absence of any form of guaranteed market for the product. A companion estimate to the $3.m billion capital investment cost for a coal liquids plant of 62,000 barrels per day capacity is a required selling price of $48 per barrel. Curerent OPEC prices are of th order of $32. To date Congress has been unwilling to provide any type of market guarantee.

The US Synthetic Fuels Corporation would be empowered to provide such a guarantee, subject to approval by the Congress as provided in the legislation. Such congressional approval is in no way guaranteed cosidering the reluctance of the Congress relative to this question to date.