Synfuels: some projects falter but program goes forth

Like a piece of soft coal, the synthetic-fuels program has begun to crumble around the edges now that the Reagan administration has started handling it. And, as with the piece of coal, the projects under scrutiny are leaving a residue even after they are scrubbed.

Probably the first synfuels program to be scrapped will be a $1 billion project Conoco had proposed for Noble County, Ohio. According to the Department of Energy (DOE), the program is likely to die because Conoco has indicated in its press releases that it doesn't want to go ahead with it.

William B. Carter, vice-president of Conoco Coal Development Company, a subsidiary of Conoco Inc., says Conoco wrote a letter to the House Science and Technology Committee saying that it supported President Reagan's spending cutbacks and that "if that means this project fails, so be it." Mr. Carter, added, "It's DOE's decision," since Conoco is an Energy Department contractor in the project.

A high department official, Carl Guidice, points out, however, that the government still wants companies such as Conoco to be partners in synfuel deals. (Conoco received a $37 million grant for the design phase of the project.)

"Let me emphasize," he told the Monitor, "the government never intended to go it alone in these projects."

Despite the probable cancellation of the Conoco project, the basic core of the US synfuels program appears to be intact, although it is changing shape. Some projects will no longer receive direct federal grants but will try to get guaranteed loans from the US Synthetic Fuels Corporation. Sixty-one projects have applied for either loans or price guarantees with US Synfuels. Still others are being deferred or reevaluated, based on the Reagan administration's new guidelines for such projects.

"Things aren't as bleak as they first appeared when the new administration took over," Mr. Guidice says.

Washington sources indicate that the new administration's guidelines call for a cost-sharing partnership, with the government paying for 60 percent of a project, a smaller share than was usual previously, and the private sector, 40 percent. The administration is also known to favor projects that will stand on their own once they are built and will not need continued government subsidies or assistance when they become operational. Commercial readiness and assurance of a market are also important factors in receiving government aid.

The need for government subsidies may create problems for some of the projects. For example, W. R. Grace & Co. says it is continuing with its DOE-backed coal-to-gasoline feasibility study (funded at $12.6 million), but will need either government price guarantees or government loan guarantees to proceed with the $3 billion project.

The giant $2 billion coal liquefaction plant (known as SRC-II, for solvent-refined coal) planned for Morgantown, W.Va., is also under review, with the 40 percent private funding a major issue. Gulf Oil, the private backer of the plant, has said it will commit only $100 million toward it.

At the same time the West Germans, who are partners in the project with the Japanese and the Energy Department, are also having budget problems. But high-ranking department sources say the Germans have not yet decided whether to back out of the project despite press reports to the contrary.

A high-level DOE team, headed by Roger LeGassie, deputy director of the Office of Fossil Fuels, has been talking to the Japanese and Germans about the project's future. Mr. Guidice says that "no determination has been made to terminate that project."

In fact, Burkey Lilly, chairman of the Monongalia, W. Va., County Development Authority says, "I've talked to people in contact with Ruhr Kohle [the German private sector involved with the project], and if the US could move and not procrastinate and reinvent the wheel, they say they are ready to go." In addition, he notes, "the Japanese are saying that if the US can't move, they already have plans to build a plant in Australia."

And Mr. Guidice says the administration has made the "special step" of trying to keep the SRC-II group together. Nor has the Energy Department asked SRC-II to return its funding to the Treasury, as it has most of the other programs. Instead, he says, the funding has been placed in "deferral status" until the plans of the other participants are known.

The delays, however, are costly. Mr. Lilly says they are adding over $1 million per day to the cost of the project. In fact, one reason that Gulf Oil is reportedly unwilling to invest more than $100 million in the project is such delays and cost overruns. These overruns, Mr. Lilly says, are the result of DOE design and procurement practices. And, he notes, "the cost figures are a figment of the DOE's imagination. The cost figures were pulled out of the air. So to say there are overruns is begging the question. . . . I don't blame Gulf Oil in the least. They don't want to be a whipping boy for a project that they have no control over."

A $830 million coal gasification plant (SRC-I) planned for Memphis is also in a holding pattern while it changes the nature of its funding. According to an Energy Department official, SRC-I has requested a loan guarantee from the US Synfuels Corporation. SRC-I was allocated $22 million in fiscal year 1981.

Still other coal-to-fuel projects are continuing despite the changes the program is going through. Mobil Oil, for example, is making tentative plans to build a 40,000-barrel-a-day coal-to-gasoline facility near its Buffalo, Wyo., coal properties. Mobil has applied to the Energy Department for funding of up to $25 million for a cooperative study to bring the project up to the construction phase. Mobil expects that the facility, when it is completed in 11 years, will cost $3 billion to $4 billion (in 1980 dollars) -- most of it privately financed. The project is not listed among the 61 proposals filed with the US Synfuels Corporation seeking loan or price guarantees.

Among those 61 projects, 14 are for oil shale projects, 17 for coal gasification, 19 for coal liquefaction, and one for coal and oil. Thus, 37 synthetic-fuel projects asking for federal loan or price guarantees involve coal.