TO LOOK on the bright side of the recent oil price increases, at least they reduce the financial risks of the synthetic fuels projects now taking shape. The high price of oil makes it increasingly unlikely that the federal government will ever actually have to make payment on most of the loan and price guarantees that it is offering the synthetics plants. Or, to put it the other way around, the market is getting stronger for synthetics -- and the need for government direction is correspondingly diminished.
The federal synthetics program originated in the gasoline shortages 18 months ago, and Congress wanted to get it under way fast. At the time, production of these fuels -- in particular, oil and gas made from coal -- seemed, financially, a dangerous enterprise. But the world price of oil has nearly doubled since then.
Federal intervention is now moving on threee separate tracks. Congress has established the U.S. Synthetic Fuels Corporation; it's in business and, throughout the winter, will be soliciting proposals. But because Congress was in a big hurry, it also told the Energy Department to go ahead, while the new corporation was getting organized, and launch a first generation of plants. In both cases, the idea is to invite industry to design and build the plants with its own money. The federal loan and price guarantees are to limit, but not entirely cover, the risk of the builders.
Meanwhile, less usefully, the Energy Department is also preparing to give straight subsidies to a variety of smaller projects. Earlier this month, it chose 79 of them, to which it will award $270 million. Some of theses endeavors will be run by oil and chemicall companies. Other sponsors are municipalities, utilities and, in one case, a diary that wants to see whether it can make methane gas from cheese way. The city of Pohenix will get $86,000 for a study of the Public Work's Department's trucks. The Weyerhaeuser Co. in Tacoma, Wash., is in for $4 million to try to use the wood residues from logging to make gas for a lime kiln. The definitions of synthetic fuels here are pretty broad.
Federal support now ought to be concentrated on big projects whose sponsors are prepared to take serious risks with their own money. But for those projects, the case for the federal loan and price guarantees remains strong. These plants will establish the ceiling prices beyond which the foreign oil producers cannot go. When the world knows the cost at which oil can be manufactured from American coal, on a commercial scale, it will know why the oil producers will begin to run into serious competition. Last week's oil price increases alone will cost American consumers about $14 a year. It's very much worth risking a few billion dollars to find out how long these increases can continue.