`Crown jewel' of the nation's synfuels program is in jeopardy
A teetering synthetic fuels project on North Dakota's Great Plains is threatening the future of the nation's synfuels program, which was launched five years ago by an enthusiastic Congress as a ticket to energy independence for America. The Great Plains Coal Gasification Plant is a sprawling facility that turns low-grade coal into high-quality synthetic natural gas. Its future hinges on the outcome of negotiations between the five companies that sponsor it and the Synthetic Fuels Corporation (SFC), a quasi-governmental agency set up to administer program funds.
Officials of the SFC have said they will not extend the $820 million in federal price supports demanded by the project's cosponsors. Observers on both sides of the issue say the resolution of the issue will be critical to the whole program's future.
``If Great Plains falls through the cracks somewhere, it could be the death knell for the [synfuels] program,'' says SFC chairman Edward E. Noble.
As the nation's first example of synthetic-fuel manufacturing on a commercial scale, the Great Plains Coal Gasification Plant was to have been the crown jewel of the synfuels program. At full steam, the sprawling operation is designed to pump out gas equal to 20,000 barrels of oil each day and serve as the model for future systems.
But the Great Plains project fell victim to the post-oil-crisis drop in energy demand, which skewed earlier predictions of high prices for fossil fuel.
``The people who designed Great Plains figured on $60 a barrel for . . . crude oil by now, $80 in two or three years, and maybe $100 by 1990,'' says Michael S. Koleda, president of the National Council on Synthetic Fuels Production. On Friday, Saudi Arabian light crude oil, the benchmark grade, sold for $26.70 a barrel.
Congressional opponents of the extended price supports for the Great Plains project have cited an audit by the General Accounting Office that said new subsidies were unnecessary. Administration officials have been also concerned that price guarantees couldn't ensure that the Great Plains partners would not attempt to pull out again anyway.
The sponsors, which have already received $1.5 billion in federal loan guarantees, have said that without the extension, they will be unable to realize a profit on the operation until at least 1990, and then only after years of sizable losses. They had threatened to abandon the project by June 15.
Eleventh-hour negotiations averted a shutdown, and those close to the talks predict that a compromise will be reached. The SFC's Mr. Noble says that under discussion is an assistance package including penalties for on any partner that withdraws from the project before a certain period of time, perhaps 8 or 10 years.
Few private corporations have wanted to have much to do with the fledgling synfuels industry. Although Congress chopped SFC funding by $5 billion last year, the agency still has $8 billion in federal loan guarantees for the taking.
The SFC's problems have been compounded by its own management difficulties. The corporation, for example, agreed to extend $1 billion in additional loan guarantees to the Great Plains project after its members threatened to walk out in 1983. But the corporation board lacked a quorum for months, then got two new members, who were unable to vote on the later-reduced requests because of possible conflicts of interest.
Critics charge that the situation at Great Plains is typical of a program that has funded only two major projects in its five years and offers its synthetic fuel for the equivalent of $92-a-barrel oil.
``The synfuels corporation is going to go down with or without the the Great Plains project,'' concludes Rep. Mike Synar (D) of Oklahoma, who has led a congressional charge to kill the synfuels program.
A proposal in the House would replace the SFC with a $500 million fund to support small-scale, private research in synfuels. Its sponsors say the government should be funding the development of commercial-scale operations.