The U.S. Synthetic Fuels Corp., openly defying Reagan administration energy officials, awarded$500 million in new federal subsidies to the Unocal Corp. yesterday for an oil shale project in Parachute Creek, Colo.
The action comes two months after the House voted 312 to 111 to cut off funding for the agency and just a few days before the Senate is scheduled to take up the issue. In addition, Energy Secretary John S. Herrington recently launched a campaign to head off any new synfuels grants.
Herrington yesterday called the Synfuels board of directors a "small group of unelected men" who had committed "nearly $1 billion on a project that most experts say . . .America does not now need. I am disappointed by the board's decision."
But members of the Synfuels board ridiculed their administration critics yesterday and insisted that they had full legal authority to approve the contract, which increases the federal stake in the Parachute Creek project to $900 million. The Synfuels board is an independent body whose members are nominated by the president.
Synfuels chairman Edward E. Noble said yesterday that Herrington's facts were "virtually all wrong." He also disputed earlier claims by Department of Energy officials that Herrington was speaking for the Reagan White House in his attacks on the Synfuels projects.
"To my knowledge, the administration, as such, has not spoken," Noble said. "This has been on the president's desk and, to my knowledge, no decision has been made . . . . This awarding the subsidies was done strictly by the book."
White House spokesman Albert R. Brashear said: "For budgetary reasons, we are obviously concerned . . . . But the White House has no position on this. The Secretary of Energy is entitled to make his own judgments."
According to one administration official, Herrington had been given the green light to speak out against the Synfuels projects after a Cabinet Council meeting last month, but some White House officials were worried that a more direct stand by the administration would antagonize key Synfuels supporters on Capitol Hill.
Moreover, DOE officials have acknowledged that they were powerless to prevent the Synfuels Corp. from acting. Last August, Herrington canceled a $1.5 billion synfuels project in Great Plains, N.D., an action that he was able to take because it was a DOE project still under his authority.
Although Unocal's contract originally was signed by the department, the project was transferred to the Synfuels Corp. in 1982 and now is beyond Herrington's reach.
The Unocal award is the fourth project that the Synfuels Corp. has funded since it was created in 1980 and the second since the House voted to strip the agency of its funding. The agency originally was launched to oversee an $88 billion crash program to wean the country away from foreign oil. But falling oil prices have undercut much of the agency's justification, making large-scale projects increasingly uneconomic, according to critics.
The Unocal project was cited by Herrington as a prime example. The Synfuels contract will guarantee Unocal a price of $67.87 a barrel for oil extracted from Colorado shale deposits, a figure far above current market prices of about $25 a barrel for oil. Unocal originally received $400 million in federal subsidies for the project in 1981, but has been unable to operate the plant for more than a few days because of technical problems.
The new $500 million worth of loans and price guarantees, which critics called a "bailout," would help Unocal pay for a new fluidized-bed combuster that is supposed to make the facility work. But Herrington contends that the combuster is "an unproved and untested" technology.
Synfuels officials yesterday cited numerous examples of successful combusters. They also said that the "maximum risk" to taxpayers is only about $327 million from a loan default, noting that the price guarantees will not kick in unless the project is successful.
Noble predicted yesterday that the backers of synfuels projects will be remembered "as true pioneers and statesmen who held fast against the shifting winds of political expediency and shortsighted thinking."