Within the Reagan Administration, Budget Director David Stockman and Energy Secretary James B. Edwards are locked in a megabuck battle over the synfuel program. Stockman argues that synfuels will not make a significant contribution to American energy supplies for decades to come, and that private industry, rather than the Government, should pay for the development of projects to turn shale and coal into synthetic oil and natural gas. Edwards, on the other hand, maintains that synfuels will never become viable without Government support because private companies will not spend the billions of dollars needed for the risky programs. The Energy Secretary also insists that synfuels are needed to decrease American dependence on Middle East energy supplies and “to send a strong message to the Saudis.”
Energy companies are also looking particularly closely at the high costs of all synfuel projects because of the declining price of oil. A shale oil or coal liquefaction proposal that might have been economically viable a year ago, when oil seemed to be heading toward $50 per bbl., might not make sense now, when the price is dropping toward $30 per bbl.
Moreover, oil industry skeptics point out that the proponents of synthetic fuels have been arguing since the days when oil was only $2 per bbl. that synfuels would be profitable if the price of petroleum went up another dollar or two. Yet every time the price of oil goes up, the estimated price for synfuel development also seems to increase. Those doubters predict that the cost of crude will have to go much higher before synthetic fuels are truly competitive with petroleum. Thus many of the ambitious plans for turning coal into oil and gas may stay on the drawing boards for years.
Some narratives never die.
Three changes over 20 years – (1) price of oil which may see $80/bbl but more likely to settle in the $100-$120 range, (2) pattern of intractable terrorism emerging from OPEC nations, and (3) sharp change in estimated Peak Oil date from mid 21st century to either the next decade or the one after, couple with hyper-growth within People’s Republic of Profit. Coal-to liquid is proven technology. Extraction of oil shale is difficult but commercial. And Fred is absolutely right about density and reliability of renewables. They are neither.
To the extent that government subsidies become part of the answer depends on the collective judgment of the American people for sending $600B to $700B out of country for oil. Under Reagan, Stockman reduced it to a very narrow issue of market economics. Twenty years later, the issue may have assumed a broader footprint.
