US Alternative-Fuel Prospects Dim as Unocal Quits Shale Move Seems Sure to Fan Smoldering Debate over Bush Administration's Energy Policy
Scott Pendleton, writer of The Christian Science Monitor, The Christian Science Monitor
EVEN as the third crisis in two decades runs its course in the oil-rich Middle East, efforts in the United States to develop a vast domestic energy resource have received a setback.
Unocal Corporation, a Los Angeles-based oil company, last week announced plans to suspend production of synthetic crude oil on June 1 at its money-losing shale oil project in Parachute Creek, Colo.
The decision is sure to be grist to feed the debate over the Bush administration's energy policy, which emphasizes that "wherever possible, markets should be allowed to determine prices, quantities, and technology choices," according to the policy document.
The Western US contains 600 billion barrels of shale oil, dwarfing the nation's conventional oil reserves of 25 billion barrels and equaling the combined reserves of all 13 members of the Organization of Petroleum Exporting Countries (OPEC).
Parachute Creek, armed by the Carter administration with a federal subsidy, was intended to pioneer the production of "syncrude" from shale oil. Completed in 1983, the project has produced 4.5 million barrels to date, making it the largest such project in US history. But despite receiving an average $25.44 per barrel from taxpayers on top of the syncrude sales price, the project still could not make money.
"This was way at the end when it came to competitiveness, and was showing no sign of improving," says Daniel Yergin of Cambridge Energy Research Associates, a Cambridge, Mass., consulting company. "There are better paths to go down."
Technical difficulties and breakdowns prevented Unocal's $654 million facility from operating at its design rate of 10,000 barrels per day, 330 days a year. The project lost $22 million in 1989. Last year was its best, producing 1.5 million barrels of syncrude, less than half of what was intended, for a loss of $7 million.
Unocal had no reason to hope the situation would improve further, chairman Richard Stegemeier said in an interview. "We'd sort of run out of ideas on what is the next quantum jump that we could make that would turn this thing into profitability. We just can't tolerate endless loss in any project."
The suspension seems particularly inauspicious, coming when the potential for a disruption of imports from the world's most oil-rich region has just been reconfirmed. Imports provide half of the 6 billion barrels of oil consumed in the US annually.
However, President Bush's national energy strategy (NES) is based on the premise that "popular opinion aside, our vulnerability to price shocks is not determined by how much oil we import. …