The Defense Department, looking ahead to the day when conventional motor fuels may be in short supply, has told the embattled Synthetic Fuels Corp. that it would be willing to sign long-term contracts to buy liquid fuels made from coal and oil shale, but only at the same price as conventional fuel.
With the assurance of a guaranteed military market, some financially precarious synfuel ventures would be in a better position to obtain loans needed to develop plants for liquefying coal or extracting oil from shale.
The military would like to begin buying small quantities of synthetic fuels now so that it can expand research on developing engines for airplanes and land vehicles that run well on a variety of fuels.
The Synthetic Fuels Corp., a $17 billion quasi-governmental agency created five years ago when it looked as if the cost of conventional fuels would soon rise enough to make synfuels competitive, has fallen on hard times since the start of the oil glut.
Reps. Howard E. Wolpe (D-Mich.) and Mike Synar (D-Okla.) introduced legislation earlier this month to end the corporation's subsidizing of synthetic fuel plants. House Majority Leader James C. Wright Jr. (D-Tex.), however, has urged that the program remain as an "insurance policy."
Wright and other supporters of synfuels often cite the crucial role played by synthetic fuels in Germany's military effort during World War II.
"We're vitally interested in ensuring the supply of liquid fuels," said William J. Sharkey, acting assistant secretary of defense for logistics and materials development. "We do lots of things to make sure we never lose a battle because the tanks run dry, if you will."
Sharkey said the deal offered the synfuels corporation was that the Defense Department would sign long-term contracts guaranteeing purchase of a given quantity of fuel at a price equal to the then-current price of conventional fuel. The corporation would have to make up the difference between that price and the higher cost of the synfuel.
The corporation's board, in response to the Pentagon's offer, unanimously approved an amendment to its business plan giving "some preference" to projects that would specialize in making liquid fuels from coal.
Sharkey said that in the early years of such a deal, the military would buy only a few hundred barrels of fuel per year, fuel to be used in research and development of engines that can run on synfuels.
He said the Pentagon has done preliminary research on this but has not run synfuel-powered engines long enough to see what problems might emerge.
"If conventional fuels are in short supply some day," Sharkey said, "we'll be ready to use synthetic fuels. Of course, that day is looking pretty far in the future at the moment."