Coal gas issue: Can this synthetic fuel be priced to compete with natural fuels?

IF NATURAL gas made from coal is going to cost several times more than the real stuff, no one is going to want to buy it, and therefore no one is going to want to put up the considerable sums of money needed to build the synthetic fuel plants in the first place. Now that Illinois has gotten in on the ground floor of the demonstration stages of coal gasification and liquefaction (the conversion of coal into gaseous and liquid substitutes for petroleum), economic and political realities stand in the way of the commercialization of those new industries.

As long as the government regulates energy prices at considerably below free market levels, start-up financing for the new commercial enterprises probably can't be obtained without government assistance. But consumer-voters would rebel at the spurts in energy costs that would surely follow outright deregulation.

Not once but twice the last Congress killed legislation that would have provided federal loan guarantees and eventual price supports for the commercial production of synthetic gas and oil from coal and oil shale. In his 1975 State of the Union address. President Ford proposed special incentives for the production of one million barrels a day of synthetic fuels by 1985. a goal that would require the operation of at least 20 plants by that time. Because of the uncertainty about future world oil prices, the President's Energy Resources Council said the government would have to share the risks of syn-fuel plant investments. The Senate approved the plan without difficulty, but the House proved to be an unsurmountable barrier Four separate committees that claim a piece of the energy policy action in the House — Science and Technology Interstate and Foreign Commerce, Banking. Currency and Housing, and Ways and Means — all had a whack at the bill. Various alternatives cleared the committees and were sent by a fifth committee, the Rules Committee, to the floor for a vote. In September, only a few days before adjournment, the House delivered the coup de grace, voting 193 to 192 not to proceed with the debate. Illinois representatives were divided on the question — 12 for and 12 against; 4 Democrats for, 9 against; 8 Republicans for, 3 against.

Liberals and conservatives denounced the plan for different reasons. The unpopularity and political vulnerability of the oil companies played an important part in the outcome. In effect, the government would be putting up vast amounts of money, argued the liberals, while the oil companies would invest in more profitable ventures and reap "windfall profits" from the new technologies. Several Democrats from coal regions were opposed — Rep. Paul Simon of Carbondale, for example. Simon said he favored price supports, but with the private companies putting up the bulk of the investment funds.

Many Republicans opposed the idea on* philosophical grounds, maintaining that the government had no business becoming involved in the investment decisions of the private sector. Rep. Paul Findley, who represents a coal mining district, voted against the program, and so did Rep. Edward Madigan of Lincoln.

The only Chicago Democrats who supported the legislation (Frank Annunzio and Ralph Metcaife) did so because of their friendship with Rep. Melvin Price of East St. Louis, in whose district one of the federally supported demonstration projects is located.

Although the sponsor of the principal bill was a Texan, many of the oil state representatives, particularly from natural gas fields, criticized the program. Pointing out that loan guarantees tend to hide the true cost of the technology being developed, they described the plan as "a government subsidy to pay for government regulation." Although lower quality industrial fuel gas, such as that used in large quantities by steel companies, could easily be made from coal, freeing the cheaper pipeline supplies for residential use, these congressmen were not about to permit that change in the supply picture. Why control natural gas prices at artificially low levels and then turn around to prop up a substitute technology at prices seven or eight times higher? They really want deregulation.

Shortly before the showdown in the House, the General Accounting Office released a report stating the obvious: synthetic fuels, especially oil from shale, will cost a great deal more than foreign oil does now. If the government has to make up the difference between what the consumer pays and what it costs to extract oil from shale, the permanent drain on the treasury would be enormous. Conservation — reducing demand for energy — would be more cost- effective, the report logically reasoned. It did not take into account what seems equally obvious: that the world price of oil is likely to continue climbing, and U.S. access to foreign supplies is going to continue to be precarious.

For all the BTU's of oratory expended, the last Congress did nothing to increase supplies of energy, synthetic or otherwise, and very little to reduce consumption. The subject of federal financial support for coal conversion will surely come up again. In the meantime, federal energy officials warn of the loss of momentum behind the new technologies and the possibility that in a real energy crunch the only option would be a federally-run crash program of synthetic fuels production. 

December 1976/ Illinois Issues/31