The Energy Department next week will propose a regulatory program to provide millions of dollars in subsidies to the oil industry to spur the development of synthetic fuels such as shale oil and "gasahol," motor fuel from grain.
The announcement will mark the department's first formal move into the second phase of the president's energy plan, the portion designed to increase domestic energy supplies.
The subsidies, amounting to about $2 a barrel, ultimately will come from consumers. They will be paid to the companies through the DOE's complicated oil regulatory program.
A proposal by Energy Secretary James Schlesinger for $368 million in direct government spending this year to support development of alternative energy sources was turned down by President Carter two weeks ago.
Schlesinger is appealing that decision.
The new proposal "won't make a revolution, but this cures the regulatory gap between synthetic crude (oil) and regular crude oil," Energy Under-secretary John F. O'Leary said.
The subsidies would be provided for synthetic oil products produced from high-cost technology converting oil shale, coal, tar sands, or solid waste into liquid fuels.
DOE officials are hopeful that the subsidy, administered under the department's oil entitlements program which equalites the cost refiners pay for oil, will provide impetus to companies, such as Union Oil, that are weighing plans to operate small commercial plants producing shale oil.
In recent months Union Oil Co. has held informal talks with DOE outlining plans to construct a 10,000-barrel-a-day shale plant. Atlantic Richfield Co. and Occidental Petroleum Co. also have made some commitments to developing shale deposits in Colorado, Wyeming and Utah or federal lands.
Ashked how much new production would result from the subsidy program, O'Leary said, "We haven't made any projections yet."
Other DOE officials said it was too early to prepare estimates of how much the subsidy would raise consumer prices.
The subsidy would also benefit companies readying plans to produce gassbol, which is now being produced in limited quantities in some of the grain producing states, Gasahol has attracted a number of enthusiastic supporters in Congress, including Sen. Charles Percy (R-Ill.), and Sen. Wendell Ford (D-Ky.).
David Bardin, head of DOE's Economic Regulatory Administration, argued within DOE in favor or applying the entitlements subsidy to alternative fuels. Some DOE officials, who were later overruled by Schlesinger opposed extending the entitlements subsidy to synthetic fuels because it would extend the life of the entitlements program.
DOE's proposed ruling marks the first time the entitlements program has been used to subsidize energy production.
Carter's proposed crude oil equlisation tax - which has been declared "dead" by Sen. Russell B. Long D-La.) - would eventually eliminate the entitlements program if it were en-to get Congress to enact the energy bill now stalled in conference.
DOE officials say that Schlesinger has held up a package of other regulatory incentives for the oil industry worth up to $1.5 billion as a part of the administration's political strategy to get Congress to enact the energy bill now stalled in conference.
These incentives include higher oil prices for tertiary oil production - oil produced using high-cost chemical injection techniques, production of so-called marginal oil wells, and oil brought into production from wells developed since April 20, 1977.
Asked when the package would be announced, one DOE official said, "It all depends on the Hill."