Congress kills the U.S. Synfuels Corp

Science News, Jan 11, 1986 by J. Raloff

Congress kills the U.S. Synfuels Corp.

President Reagan's recent signing of a bill abolishing the U.S. Synthetic Fuels Corp. (SFC) gives the agency 120 days to pack up its files, to lay off its 130 employees and to transfer the administration of its five financial awards to the Department of the Treasury. By May the Synfuels Corp. will be history.

Launched by President Carter with fanfare in 1980, SFC's mission was to shepherd in a new industry -- one that would tap unconventional resources like coal, tar sands, oil shale and heavy crude to meet future U.S. oil and natural gas needs.

As a sign of its commitment to this mission, Congress had empowered the new investment bank to spend up to $88 billion. While the price tag was high, public sentiment in the wake of Arab-oil embargoes suggested that the independence from foreign oil supplies that it promised was worth every penny.

But dissatisfaction with SFC developed quickly. The Reagan administration complained that the new agency's charter -- providing subsidies to private industry for commercial-scale projects-ran counter to free-market principles. Congressional supporters of the agency in turn challenged the good faith of officers President Reagan nominated to run the bank. (For example, prior to chairing the agency, Edward Noble is widely reorted to have advised President Reagan to abolish the agency.)

Before long, complaints developed over SFC's sluggish activity. The agency had initially been expected to approve up to $20 billion in financial backing of loans and product prices to reach its first milestone: the production of 500,000 barrels of crude-oil equivalent daily by 1987. As of July 1985, however, SFC had committed only $1.2 billion toward three projects--and they would yield less than 2 percent of that 1987 production target Congress had set. Then there were scandals, charges of lavish spending and mismanagement by SFC officials (SN: 8/4/84, p. 74).

In retrospect, it's no surprise SFC died, says Michael Koleda, president of the Washington, D.C.-based trade association, Council on Synthetic Fuels. The Synfuels Corp. was envisioned as a program on the scale of the Manhattan Project. But to succeed, he says, a program this massive and coordinated would have needed the active support of the President, the energy industry and the Congress. In fact, President Reagan's support for the program "was always weak at best," he says, and the unlikely prospect that industry would reap any immediate financial benefits garnered it only lukewarm support there. It was in the Congress that SFC's support was initially strongest. And there dissatisfaction has been growing steadily, Koleda observes -- "fueled originally by mismanagement issues, and increasingly by falling oil prices."

Despite SFC's checkered record, Koleda believes on [synfuels development] activities within the private sector." How much it will slow investments in these technologies remains to be seen, he says, but the measure has certainly sent a chill through the energy production community.

Several members of that community were frozen by the move, which took place Dec. 19. Gilbert Shale Oil Co., based in Omaha, Neb., and Geokinetics, based in Salt Lake City, were to have been partners in the commercial-scale Seep Ridge Oil Shale Project. While small-scale tests of the technology it would employ indicated promise, says Kenneth Stinson, president of Gilbert Shale Oil, SFC support was essential for its commercial-scale development. And after three years of reviewing the request, SFC had agreed to provide that support.

Signing of the contracts, postponed in Sept., was rescheduled for SFC's Dec. 17 board meeting. "But the meeting was called off in light of what was going on on Capitol Hill," explains SFC spokesperson Karen Hutchison. Before it could be rescheduled, the agency was dead.