Ashland Oil yesterday withdrew from one of the last remaining synthetic fuels projects, writing off millions of dollars and suggesting that existing government attempts to develop a synthetic fuels industry are dead.

Unless the government wants to move more forcefully into the development of a synthetic fuels industry, such an industry may not materialize, Ashland's chairman, John R. Hall, said yesterday. Hall made his comments announcing the decision to suspend a project that Ashland has worked on in Kentucky for more than 10 years.

"The nation faces a dilemma," he said. "If we rely on the free market with only limited government assistance, synthetic fuels may not be available in the next crisis when they will be badly needed," he said.

Even the U.S. Synthetic Fuels Corp. conceded that market conditions have changed so dramatically that large commercial synfuels projects, such as Ashland's Breckinridge coal conversion project, would be doubtful.

"The suspension of the Breckinridge project demonstrates that, even with maximum federal assistance, which is limited under the Energy Security Act, the current oil market and other economic conditions dictate serious problems for projects as large as Breckinridge," the SFC said in a release "regretting" the cancellation.

The Breckinridge project fell victim to the same economic realities that forced Exxon Corp. to write off approximately $800 million by shutting down the Colony oil shale project in Colorado and caused the Sohio Corp. last month to write off millions of dollars invested in a synthetic fuels project in Gillette, Wyoming.

A combination of uncertainty over crude oil prices, the massive capital investment needed to build the project, the possibility of construction cost overruns on such a large project and tax law changes that made the project less attractive led to the decision to suspend the Brekinridge project, Hall said.

The Breckinridge project and Sohio's Hampshire project were finalists for the first financial assistance that the SFC would have awarded on its own. The SFC inherited two shale oil projects, including Colony, that had won support from the Department of Energy before the SFC existed.

The scrubbed projects and the Synthetic Fuels Corp. itself were born in a time when oil prices were skyrocketing, and it seemed that synthetic fuels would soon become an economic alternative.

Instead, conservation and the recession combined to drive oil demand and prices down, leaving the nascent industry poised in thin air.

"Conservation is here to stay," said Rep. Tom Corcoran (R-Ill.). "Conservation has beaten synfuels." He has suggested Reagan "pull the plug" on the Synthetic Fuels Corp.

Supporters of a strong synthetic fuels industry argue that responding to passing market condtions is short-sighted and that to abandon support for synfuels now will cost the nation dearly in the future. The current softness in the oil market will not last, Michael S. Koleda, president of the National Council on Synthetic Fuels Production, has often said.

There are 12 synthetic fuels projects still seeking financing from the Synthetic Fuels Corp., the agency noted yesterday.

"The future development of a synthetic fuels industry, so vital to national security, must remain a priority with our government," Ashland's Hall said yesterday. Ashland had owned 20 percent of the project, which was to convert Kentucky coal into crude oil and chemicals.

The company had invested $7.5 million in the Breckinridge project and $13 million in developing the technology. The research data will continue to be valuable, a spokesman said.

Bechtel had been a 10 percent partner. But the project had trouble attracting enough other private supporters.

A Bechtel spokesman said yesterday the company would accept Ashland's decision.