A caption in Sunday's Business and Finance section beneath a coal conversion plant was incorrect. It should have read: Dynalectron Corp.'s H-coal conversion plant sprawls over more than 200 acres near Catlettsburg, Ky. The facility can convert 250 tons of coal into 625 barrels of syncrude daily. CAPTION: (NEW-LINE)Picture, Dynalectron Corp.'s H-coal conversion plant sprawls over more than 200 acres near Cattletsburg, Ky. The facility can convert 250 tons of coal into 625 gallons of syncrude daily. Dynalectron Corp.
President Carter and the Congress are fast committing the nation to a massive, expensive, risky new program to develop energy alternatives to imported oil.
The appeal is undeniable, for the goal is nothing less than to free America from the dictates of an avaricious world oil cartel that is using the "oil weapon" not just to extract dollars but foreign policy concessions as well.
But there is a real chance that the goal will prove elusive and the costs extraordinary high, not just in government spending, but also in the form of higher inflation, added pollution, decreased non-energy investment by business and at least a temporarily lower standard of living for many Americans.
Opposition to some parts of the program has been overwhelmed by the sudden political need to respond to the long lines at gasoline stations and rapidly rising prices at the pump. Now, however, skeptics are emerging even in Congress. They are wondering out loud whether the nation may not be leaping unawares into the synthetic fuels production plans that are the heart of the new program.
Administration officials acknowledge the uncertainties, but say enough is known to push ahead. "There are no substitutes to imported oil other than the range of production alternatives we've proposed," says one.
Today, the Washington Post begins a series of occasional articles that will explore the costs, the risks and the benefits of this mammoth commitment of national purpose for the decade of the 1980s.
The first article deals with coal liquifaction - the process of turning part of the nation's abundant coal deposits into liquid fuel, either crude oil, a form of alcohol called methanol, or directly into gasoline. Five groups of companies with five different processes each claim to be able to do the job - if the government somehow will help to finance a $2 billion commercial-scale plant turning out 50,000 barrels of fuel each day.
No plant of that size using any of the five processes exists. The largest in the United States produces only about 150 barrels a day. there is a 20,000-barrel-a-day plant in South Africa that uses one of the processes to produce gasoline, and a larger plant under construction there will produce an estimated 120,000 barrels daily.
All of the synthetic fuels, like coal luquification, involve changing a source of energy from one form to another. All of them are expensive, with only oil shale likely to cost little more than oil at current prices.
Because something has never been done is hardly a sign that it cannot be, of course. But doing something for the first time, and in a great hurry, can lead to some unpleasant surprises, particularly in terms of costs.
President Carter put the cost of his program at $142 billion over 10 years, but that estimate is not really based on costs at all. Rather it is simply a figure close to the minimum amount of money the administration calculates its proposed windfall tax on domestic crude oil will bring in. "Any reduction to the receipts...will require reductions in these program levels," said a footnore to the White House fact sheet describing the program.
At this point, anybody's figures probably should be taken with a grain of salt. As a recent Rand Corp. study for the Department of Energy put it, "Estimates of capital costs of pioneer energy process plants have been poor predictors of actual capital costs."
Early estimates, even adjusted for inflation, "have routinely understated definitive-design or ultimate costs by more than 100 percent for oil shale, coal gasification and liquefaction (liquids), tar sands, solid waste and nuclear fuel reprocessing plants," the study warned.
Anyone can recall story after story about weapons systems cost overruns. Yet the Rand study concluded that, on average, the actual cost of weapons systems was much closer to original estimates than the actual cost of energy process plants to original estimates. First-of-a-kind plants always cost far more than expected, and building them on a tight schedule - as will have to happen to meet Carter's 1990 goals - "can cause both higher cost and poor system performance," the study concluded.
Building the plants - most of which will have to be located in a relatively remote parts of Montana, Wyoming, Colorado and North Dakota - may strain the nation's supply of skilled construction manpower. Construction wages could soar, adding sharply to the costs not just of the plants themselves but also other projects such as chemical plants and oil refineries. Production of some of the equipment needed in the plants also could mean that other types of process plants might have to do without.
All that could add to inflation generally.
Nevertheless, Carter has earmarked $90 billion with which to spur production of the energy alternatives. About half of the remaining $50 billion is supposed to be used to help low-income families bear the burden of higher energy costs. More than $16 billion will be used for mass transit and some as yet unspecified program to increase automobile mileage efficiency. The remainder is destined to aid utilities in switching power plants from oil to coal, to speed energy conservation measures in residential and commercial buildings, and to give new incentives to use of solar energy.
Little of the $90 billion would be used directly by the government to construct the coal, oil shale and "biomass" - a catch-all phrase covering organic materials ranging from wood chips to corn to garbage - conversion plants. A new Energy Security Corp. is supposed to use a combination of loans, loan guarantees, price guarantees and purchase agreements to entice private industry to build the 30 to 40 plants with 50,000-barrel-a-day outputs needed to meet Carter's goal.
Even at $2 billion each, that's $60 billion to $80 billion. If the Rand study is right, the total could be far more. In addition, the continuing cost to the government as a result of its price or purchase guarantees could run into the billions of dollars every year once a plant starts operating.
Outgoing Energy Secretary James Schlesinger predicted last week, "It will be a hard struggle to get the Energy Security Corp. passed on Capitol Hill." Other administration officials are resigned to the fact that Congress will be making major changes in the ESC proposal. Those officials are worried that Congress may try to tie the new group's hands and require specific appropriations for the guarantees extended each plant.
Ironically, if the Organization of Petroleum Exporting Countries imposes big oil price increases in coming years, it will swell receipts from the windfall tax - unless Congress fails to make it permanent, as it well may do - and reduce any future outlays as a result of price and purchase guarantees.
In short, no one knows what the costs of Carter's program will turn out to be.
No one knows, either, what the environmental bill will add up to in the end.
A DOE study released July 12 found that only 41 counties in the entire country have coal reserves adequate to supply a 100,000-barrel-a-day plant for 25 years, with enough water resources within 50 miles, and with sufficient room under present federal air quality standards that the plants could be built.
Most of the sites are in the West where water is already in short supply, obtaining enough rights to water use for the plants probably would mean buying large blocks of ranch and farm land whose owners now control those rights.
The coal and oil shale supplying the plants would come largely from surface mines in semi-arid areas in which reclamation is still highly uncertain.
And most of the counties have only very small populations that might be overwhelmed by the influx of workers needed to build and operate the plants. Including workers, employees of support facilities and their families, a 100,000-barrel-a-day plant would mean a 20,500-person increase in population, the DOE study said. Some of the 41 counties have populations as low as 1,000 people.
To cope with the population influx associated with a single 50,000-barrel-a-day plant, the added community facilities could cost more than $70 million.
Beyond that sort of impact, the range of unanswered environmental questions is still enormous. The same DOE study cautioned:
Th e accelerated commercialization schedule (set by Carter) may require that the first commercial plants be constructed before environmental concerns are assessed fully.
If problems exist, the number of these first commercial plants in specific locales can lead to an increased risk that a primary health standard will be violated.
Small laboratory and pilot plant facilities may fail to indicate pollution problems that would surface in the larger scale of a commercial operation.
Carter is counting on displacing 500,000 to 1 million barrels of oil imports with such gas, which is locked so tightly in rocks that they generally must be fractured in some way before the gas will flow in any quantity. The gas dissolved in deep reservoirs of brine along the Texas and Louisiana coasts also falls into this category, but that gas carries with it far more uncertainties than that held tightly in the Devonian shales of West Virginia.
All of the energy alternatives - liquids from coal, "natural" gas from coal, oil shale, gasohol, garbage, wood, wind, geothermal, heavy oil and tar sands, and solar - will be covered in the articles to come. Some of the questions raised will be answered. Some will not be, because for them there are as yet no answers.