The U.S. Synthetic Fuels Corp.'s chairman has endorsed federal backing for a $576 million synfuels project despite a staff opinion that this kind of venture is economically "unpromising" and would not add significantly to the nation's energy capability.
The chairman, Edward Noble, issued a "letter of intent" yesterday approving loan guarantees and price supports of up to $465 million for the project, sponsored by Peat Methanol Associated. PMA intends to produce methanol fuel from peat stripped from swampy North Carolina coastal land. Final approval by the corporation board is required.
The venture, known as the First Colony Farms project, is backed by some prominent Republican investors, including CIA Director William J. Casey and several former high-ranking Ford administration officials, and is also expected to benefit a powerful North Carolina landholder and former shipping magnate, Malcom McLean, whose land contains the peat.
Although the project has powerful patrons, SFC officials said its attraction is in being one of a very few synthetic fuels ventures reasonably close to production. The SFC is required by law to see that a certain amount of synthetic fuels are actually churned out. So far, the SFC has not been able to fund a single project, and several of the biggest have been abandoned because of low oil prices.
In a report six months ago, the SFC staff concluded:
"Commercial experience with peat resources would not, at this time, appear to add significantly to the nation's capability to expand synthetic fuels production rapidly or to a large scale in the future." The staff's position on this point has not changed, officials said, although more recent staff analysis has pointed to potential benefits from the venture, officials said.
The project is expected to be in operation by December, 1985, at a construction cost of $576 million. The SFC has agreed to provide a basic loan guarantee of $341 million toward the construction costs, with the total amount of loan and price guarantees not to exceed $465 million.
The investors are expected to put up between $135 million and $172 million.
The SFC also would guarantee a minimum price for the methanol fuel produced at the plant, starting at $1.05 per gallon in 1983 prices, a figure considerably higher than the current price of methanol, which ranges from slightly below 50 cents to about 75 cents a gallon.
Methanol is an alcohol that is receiving only limited uses as a gasoline additive and for petrochemical and plywood production.
The SFC says the project will provide valuable experience with methanol conversion that can be used with coal as well as peat. It also says the project will provide important marketing experience with methanol, which may some day be a major transportation fuel.
The staff has also concluded that peat may be a valuable resource in the Southeast, where there is enough for several plants.
First Colony had been eliminated from the first competition for government funds and barely (by a 4-to-3 vote) was included among the projects that the SFC chose to consider in its second solicitation for proposals.
"It was a very difficult call," said SFC board member Robert A.G. Monks. Monks initially opposed the project but now supports it, saying it has been improved.
The project has drawn criticism from North Carolina environmentalists and the Environmental Policy Institute, a non-profit research group that is a critic of the Synfuels Corp.
"I really believe that the corporation's selection of this project raises issues which hit to the heart of the most important debate of all--the Synthetic Fuels Corp. itself," said Rick Young of EPI. "Who is it really benefitting and what will we get for the money?"
Critics also cite the potentially costly price guarantees. Although the SFC would guarantee a minimum of $1.05 a gallon in 1983 prices, rising at 2 percentage points above the inflation rate every year, methanol can be bought on the Gulf Coast in bulk quantities for under 50 cents a gallon.
However, SFC strategic planner James Harlan said methanol is likely to be used increasingly as a gasoline additive or substitute, which would boost its price considerably.
"Any reasonable trajectory for methanol prices will result in no price guarantees being expended by the SFC," according to Robert W. Fri, former chief of the Energy Research and Development Administration and one of the investors in the Energy Transition Corp. (Etco) which owns about 9 percent of the project.
Other Etco investors include the CIA's Casey and the Ford officials--former deputy secretary of state Charles W. Robinson, former Federal Energy Administration chief Frank G. Zarb and the former U.S. representative to the Organization for Economic Cooperation and Development, William Turner.
McLean, former head of McLean Trucking Co. and Sea-Land Service Inc. and the developer of containerized shipping, would be a principal beneficiary. His land would become rich agriculture acreage once the peat is removed.
In 1973, McLean's First Colony Farms bought 400,000 acres of North Carolina land for $51 million. A quarter of the land was sold in 1978 for an estimated $30 million. McLean will receive $14 million from the project for land use plus royalties for the peat. No estimate of McLean's total return was available.
Fry said McLean has invested several million dollars in developing peat harvesting techniques.
"If you had been sitting around three years ago and deciding where the first synfuels project was to be built, you probably would not have picked a peat bog in North Carolina," said Fri. "But it's desirable to do it in the East because that's where the markets are. It's desirable to do it on a small scale. And it's desirable to do it with a cheap resource."
The project is a good one, according to the formerly critical Monks. "As a taxpayer, you should feel excellent about this, assuming you share the belief of the Synthetic Fuels Corp. and Congress that the ability to make transporation fuel out of solids is in the national interest."