Sohio Corp. said yesterday it has decided to drop out of a major synthetic fuels project, writing off millions of dollars invested in the effort and adding to the doubts about the near future of synthetic fuels development.
"Basically it's an economic decision," said a Sohio spokesman. "It doesn't seem that the return on investment is sufficent for the time and expense that we would have to put in it."
Sohio's decision paralleled that of Exxon Corp. six months ago to write off hundreds of millions of dollars invested in the Colony oil shale project. Neither Exxon nor Sohio had requested government assistance, although their partners expected to receive government subsidies. What was at stake was their own money; and neither company could justify continuing the investment, their officials said.
Sohio's decision appeared to endanger the entire venture--a coal liquefaction project in Gillette, Wyo. Project officials said, however, that they plan to realign the partnership and may look for another investor.
Sohio's pullout also leaves the U.S. Synthetic Fuels Corp. in the politically vulnerable situation of sitting around with money to give away but no project sufficiently developed to collect it.
Sohio was a partner in the Hampshire Energy Project, a joint venture that also involved Kaneb Service Inc., Koppers Co., Metropolitan Life Insurance Co. and Northwestern Mutual Life Insurance Co. The developers hoped to receive more than $1 billion in subsidies from the U.S. Synfuels Corp.
The project is designed to produce 19,000 barrels a day of gasoline from coal beginning in 1986. The Synfuels Corp. had set the end of November as its deadline for concluding negotiations.
Hampshire was one of only two projects that far along. The other project, the Breckinridge Project operated by Ashland Synthetic Fuels Inc. and Bechtel Petroleum Inc., would produce liquefied fuel from coal. It has not yet been able to line up enough private sponsors to qualify for government backing.
The two projects were to be the first awards that the Synfuels Corp. would make on its own. Earlier projects, including the aborted Colony oil shale project and a Union Co. oil shale project -- both in Colorado -- were inherited from the Department of Energy.
Since the Synfuels Corp. was created, market conditions have changed dramatically. Instead of an oil and gasoline shortage, the nation has supplies sufficient to force prices down. Many synthetic fuels ventures were predicated on a constantly rising cost for oil and are infeasible as long as prices remain at current levels.
"You are in a very difficult position because the program you have been given the duty to oversee is premised upon the existence of a very different world," Rep. Tom Corcoran (R-Ill.) wrote the Synfuels Corp. earlier this month.
Synfuels Corp. officials, also aware of the new reality, have adopted a more cautious approach toward giving away money to develop a synthetic fuels industry in the past year. Following a closed board meeting earlier this week, Synfuels president Victor A. Schroeder told congressional staff members that the corporation wants to allow private industry to set the pace of development.
The Sohio decision appears yet another indication of how slow that pace may be.
"SFC has tried to expedite development, but we see time and time again that companies with the significant capital have pulled out and have indicated that other areas of investment are a better investment risk," said Robert Roach of the Environmental Policy Institute.
"The technologies are not ripe for commercial development and force feeding them with federal dollars is not going to help.
"It's widely understood that synfuels are not economic at today's oil prices, " said Michael S. Koleda, president of the National Council on Synthetic Fuels Production. "It's also widely understood that today's oil prices are irrelevant since the projects aren't going to come on line for approximately 10 years," he said.
In the past few weeks the Synfuels Corp. has been reexamining its operations to determine if another approach might result in more viable projects. In the past, the government-created corporation has sought projects through general solicitations inviting companies to come in with whatever proposal they had and compete for government assistance.
The corporation now appears headed toward soliciting bids specifying a particular type of project and the type of assistance to be provided or toward projects designed and owned by the government but privately run.