The synthetic fuels industry--once a major front in the energy independence effort--was struck a crippling blow over the weekend by Exxon's decision to pull out of the Colony Oil Shale project.
Only two years ago in a radically different world of lower construction costs and higher oil prices, a more optimistic Exxon spent $300 million to buy Atlantic Richfield Co.'s 60 percent interest in the massive Colorado project, designed to produce petroleum products from oil-bearing rock.
And only two months ago, Exxon chief executive officer Clifford C. Garvin Jr. told a meeting of securities analysts that the company's interest in shale oil "remains particularly strong." But Exxon dropped out Sunday because it no longer believed it could sell the shale oil products at an acceptable price. Exxon is obliged to buy the 40 percent share of the project held by its partner, Tosco Corp., for $380 million.
Besides killing off the centerpiece of the nation's synfuels effort, the Exxon decision was a crystal clear sign of how fast the energy verities of the recent past have been stood on their heads.
Where once oil prices appeared to be headed into the stratosphere, they are instead declining. Where profits threatened to embarrass oil company officials, their firms are now sustaining modest losses. Where drilling was fast and furious, rigs are now being abandoned in some areas. Where once thousands turned out to greet the dawn of Sun Day and a the promise of solar energy era, the faithful gathered yesterday in a more subdued mood to attack cutbacks in the solar budget.
Only a few skirmishes are still being fought in the battle for energy independence once deemed the moral equivalent of war.
Synfuels is just one example of how things have changed. Less than two years ago, Congress passed the Energy Security Act of 1980, creating the U.S. Synthetic Fuels Corp. and launching what was to be "public-private cooperation at a scale unmatched in peace time," as an industry leader put it.
"We believe that a synthetic fuels industry is vital to the economic and defense well-being of our nation, and we will continue to encourage the private sector to proceed with their plans to develop such an industry," Edward Noble, the chairman of the SFC said yesterday, sounding the old battle cry. Two of three pilot plants aided by the synfuels program, the Great Plains coal gasification project in North Dakota and the only remaining oil shale project, Union Oil's shale project at Parachute Creek, Colo., are still intact.
Noble and congressional supporters of the synthetic fuels industry said the Exxon decision underlines the need for an entity such as the SFC to support synfuels projects when economic incentives fade away. But analysts said that the demise of the Exxon-Tosco project will mean more difficulties in finding private financial backing for the five synthetic fuel projects now contending for federal support.
"This really casts further doubt on the viability of synthetic fuels to make any real contribution to our immediate energy needs," said Robert L. Roach, director of the Environmental Policy Institute, a group that has been critical of projects supported by the SFC.
The death of the Tosco project followed a series of other developments that underline how concerns about replacing the nation's dependence on oil have become less urgent.
Last week, the sponsors of the proposed Alaska natural gas pipeline announced that the $43 billion project would be delayed for two years because of their failure to line up the needed financing.
In the same week, the $11 billion Alsands project in Canada bit the dust when financing could not be worked out. That project had been designed to produce oil from huge tar sands deposits in Alberta.
The oil crisis has been replaced with an oil glut that has sent prices falling dramatically. Official sales prices of internationally traded oil have have fallen from $34.18 on Jan. 1, 1982 to $33.34 at the end of April and spot prices have been running $4 to $5 a barrel below contract prices. Although there are signs that the drop in prices may be at an end, many forecasters expect prices to stabilize rather than to head back up.
In response to that decline in prices, the frantic rush to find new oil sources has abated somewhat; the number of drilling rigs operating in the United States as of late March was down 20 percent from the number operating three months before. The number of active seismic exploration crews in the United States, a figure that predicts future drilling activity, has also declined each month since last September.
Still another major change is the shift, at least in rhetoric, away from government engineering of the nation's energy policies to a hands off policy accompanied by deep cuts in federal funding for new energy technologies. Solar energy supporters said yesterday that the Reagan administration has undermined solar by plans to cut the solar budget 88 percent.
"The only gain I know of that the White House has not dismantled is the solar collectors on the White House," said Solar Lobby director Richard Munson.
In the background of this shift are voices warning that the energy situation could turn again without notice, leaving the nation facing another energy crisis.
"I'm not at all comfortable with the perception that there is no problem and we can all relax because it's all gone away. I don't think it has," said Senate Energy and Natural Resouces Chairman James A. McClure (R-Idaho). McClure has hammered away at the need for preparedness in advance of another supply crisis and been a supporter of synthetic fuels development. "Sometime we're going to again face the fact of the vulnerability of the United States to a supply that is too much based on imported oil."
"What's good for Exxon is not neccesarily what's good for the country," House Majority Leader Rep. James C. Wright Jr. (D-Tex.) said yesterday. "Exxon may not need synthetic fuels production, but the country does if it is to be protected from future supply interruptions."