Administration Nixes Further Aid for Synthetic Fuels Plant

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The Reagan administration on Tuesday rejected further aid for the country's largest synthetic fuels plant, sounding what Rep. Mike Synar called the death knell for a multibillion-dollar program to wean the nation from its dependence on foreign oil.

""Oil and natural gas prices simply have not proved high enough to make the project economical,'' Energy Secretary John Herrington said in rejecting a plan that would have provided $720 million in new government subsidies for the Great Plains coal gasification plant near Beulah, N.D.

Herrington complained in a letter to the quasi-government Synthetic Fuels Corp. that the five private natural gas pipeline companies sponsoring the $2.1 billion project had refused to increase their exposure to possible financial losses.

""The government bears all the risks of lower prices until the SFC's $720 million is exhausted,'' he said. ""On balance, the cost of continuing to operate the plant significantly outweighs the benefits under all but highly speculative assumptions.''

That reasoning was questioned by Synthetic Fuels Corp. chairman Ed Noble, from Oklahoma, contacted by telephone in Washington, D.C.

"That's not correct," Noble said. "The idea that this is commercial has been a fallacy from the beginning. Exposure in everybody's judgement can be different. Their out of pocket exposure would be greater two years from now than it is now. They've invested about $500 million.

"You can use any kind of figures you want to but their exposure would have increased along with the government's.

"Their exposure does increase, but not to the extent the government's does."

The Great Plains project is an insurance policy for the future, Noble said, that would allow the nation to use its solid fossil energy resources to manufacture gas in an energy crisis.

"Mike and anybody else can demagogue all over the place," Noble said. "I think it's a mistake."

Allowing the project to be abandoned now rather than attempting to keep it allive for another two years with federal price supports will save the government $200 million, Herrington said.

His decision, revealed just three hours before the SFC's five directors were scheduled to finish work on the $720 million aid package tentatively approved two weeks ago, puts another nail in the coffin for the agency itself.

""This is the death knell for the SFC,'' Synar said. ""This was their flagship.''

Noble disagreed. "This isn't even our project. It's a DOE project. It has been from the beginning. The DOE has already invested over $1.5 billion in the project.

"What we had proposed was price guarantees.

"Mike is given to a little bit of exageraton."

The agency was established by Congress in 1980 and given $20 billion to foster the development of commercial technologies for converting coal and shale into liquid and gas fuel subsitutes for imported oil. …