SYNTHETIC FUELS CORPORATION AND NATIONAL SYNFUELS POLICY
ISSUE BRIEF NUMBER IB81139
Science Policy Research Division
THE LIBRARY OF CONGRESS
CONGRESSIONAL RESEARCH SERVICE
MAJOR ISSUES SYSTEM
DATE ORIGINATED 08/17/81
DATE UPDATED 02/18/83
FOR ADDITIONAL INFORMATION CALL 287-5700
The Federal Government and U.S. industry a r e embarking on the largest and
most intensive effort ever undertaken to increase the production o f synfuels,
including o i l an-d gas from coal, peat, tar sands, and oil shale.
consists of two major parts:
a n interim program and a long range program.
T h e interim program was conducted by
the Department of Energy's
Alternative Fuels Production Program, and a joint DOE-Department o f Defense
(DOD) program which allowed funding for syr.fuels projects under amendments to
the Defense Production Act.
Under the interim program which has since been
terminated, three projects -- the Union Oil shale proje.ct, the T O S C O portion
of the Colony shale project, and the Great plains coal gasification project
-- received Federal assistance to proceed with large scale development.
The long range program is being conducted by the United States Synthetic
Fuels Corporation (SFC), a n independent Federal entity which
primarily a s a n investmen.t bank
to accelerate the commercialization of
T o d a t e , SFC has issued three general solicitations requesting
project sponsors to submit proposals for financial assistance. More than 9 0
groups responded with proposals of widely varying quality.
rejected most of these proposals because they failed to meet its criteria f o r
denonstrating project strength and maturity.
However, S F C judged several
projects worthy of support and issued letters of funding intent to two groups
of sponsors that intend to convert tar sands into liquid fuels and to process
peat i n t o methanol.
T h e Corporation has a l s o issued one
solicitation restricted to western oil shale projects and plan's to issue a t
least o n e f o r coal-based synfuels projects.
P.L. 96-294 directs S F C to help achieve the National Synfuels Production
Goals of reaching a daily synfuels production capacity of . 5 million barrels
of sil equivalent by 1 9 8 7 and 2.0 .million barrels by 1992. Although
seeking to implement efficiently Title I of the Energy Security Act, i t i s
unlikely that the Corporation will be able to carry out effectively many o f
the g o a l s a n d objectives of this law. In f a c t , if a n average daily Synfuels
prcduction level of 30,000 to 6 0 , 0 0 0 barrels of oil equivalent i s reached by
1 9 8 7 , industry and S F C wo.uld have achieved a major technological a n d economic
Congress and the Administration can choose from a variety o f options
(1) abolish the Corporation, (2)
regarding the future of the S F C , including:
extend S F C f s authority to include the support of biomass fuels projects a n d
energy-from-solid-waste plants, and
(3) provide additional appropriations
beyond the $14.9 billion now available to the Corporation.
T h e Reagan
Administration has stated that i t does not intend to provide any additional
appropriations to the SFC.
BACKGROUND AND POLICY ANALYSIS
UNITED STATES SYNTHETIC FUELS CORPORATION
Title I o f the Energy Security Act creates a n independent, Federal entity
called the United
States Synthetic Fuels Corporation
authorized to provide several forms of financial assistance to foster the
production of synfuels.
SFC-supported p r o ~ e c t swlll be deslgned
s a n d s , peat, and
c e r t a ~ n heavy
tne K a t ~ o n ' sc o a l , oil
resources i ~ t osynfuels whlck czc be used a s s u b s ~ ~ t u t efor
natural qas Z R ~
s e t r c l e - x ( ~ r c l u d i n gcrzde o ~ l ,~ e t r o i e ~ rpcr ~ d u c t s ,a n 2 chemlcal feedstocks).
The s a c also 1 s authorized to a s s ~ s tfaclllt1es used solely:
mlxtures of coal a n d petroleum
(2) f o r c o m m e r c ~ a l
production of hydrogen from water, and (3) for the commercial production
electricity by a magnetohydrodynamlc (MHD) topplng cycle.
Financial Resources of the Corporation
T h e financial resources available to S F C over
lifetime a r e
limited to a maximum of $ 8 8 billion.
Congressional appropriations to finance
S F C v s operations a r e deposited in the Energy Security Reserve
Treasury (whi'ch w a s established by the Department of the Interior and Related
The first installment of
Agencies Appropriations Act, 1 9 8 0 , P.L. 96-126).
funding for the S F C , $ 2 0 billion, is authorized a s of J u n e 3 0 , 1 9 8 0 , subject
The second and subsequent installments will be authorized
(up to a maximum of $ 6 8 billion) by joint congressional r e s o l u t i o n s , subject
In P.L. 9 6 - 3 0 4 Congress stated that up
Energy Security R e s e r v e would be available to the SFC. Of
t h e s e funds, $6
billion was made immediately available to cover the commitments and expenses
of the Corporation; an additional $6.2 billion was made a v a i l a b l e for
purposes after J u n e 3 0 , 1982; and
derived from f u n d s appropriated to D O E for
the interim program
a m e n d m e n t s to the Defense Production Act and the Kon-Nuclear Act
-- to the
extent that such f u n d s were not committed o r ccnditionally committed by
In February 1 9 8 2 , President Reagan transferred
to S F C approximately
T h u s , by
$2.7 billion t h a t DOE did not use cnder the interim program.
3 0 , 1 9 8 2 , S F C had a total of about $14.9 Sillion of appropriated funds.
T h e S F C ' s a u t h o r i t y to make n e w awards o r commitments w i l l end after Sept.
3 0 , 1 9 9 2 , a n d S F C must
terminate i t s affairs by
3 0 , 1997.
termination, S F C ' s outstanding contracts for financial a s s i s t a n c e will be
transferred to the Secretary of the Treasury for administration.
Administrative S t r u c t u r e and Expenses of the Corporation
SFC's powers a r e vested in a seven-member Board o f D i r e c t o r s , composed of
a chairman and s i x other directors, t o be appointed
t h e President a n d
The chairman, who
is r e s p o n s i b l e . for S F C v s
management a n d d i r e c t i o n , will be appointed for a 7-year term a n d must
The other six Directors may
on a full-time basis.
The B o a r d , by majority v o t e , appoints S F C v s officers
defines their duties, and
General Counsel a n d a Treasurer),
In a d d i t i o n , the Board
sets a l l major
p o l i c i e s , determines
g u i d e l i n e s a n d c r i t e r i a for soliciting and evaluating
p r o p o s a l s , and makes
f i n a l judgments o n the award of financial assistance to projects.
full-time professionals may work for S F C at any one time.
Through F Y 8 2 , S F C spent $18.6 million o n its administrative
including generic studies to support program
expects its administrative expenses to amount to $23.6 million i n F Y 8 3 , and
$26.9 m'illion in F Y 8 4 , versus authorized levels of $54.1
million in F Y 8 3 and F Y 8 4 , respectively.
Proposed F Y 8 4 increases i n the S F C ' s
administrative budget are incended to s u p p o r t additionai staffing to handle
~ r o j e c tevaluation, negotiaticc, seiection, and monitoring
acd z c develop the comprehensive strategy required
(See section below for additional information
S F C ' s comprehensive
strategy . )
President R e a g a n - a p p o i n t e d and the S e n a t e confirmed Edward
t o be
Chairman of the SFC.
In September 1 9 8 1 f o u r of the six members of the Board
were confirmed by the Senate.
T h o m p s o n , R o b e r t Monks,
Victor Schroeder, and Howard Wilkins.
In August 1 9 8 2 , t h e last two members
of the Board, John Carter a n d Milton Masson, were confirmed
giving SFC's Board for the f i r s t time i t s f u l l complement of seven members.
S F C 7 s Goals and Comprehensive Strategy
a national g o a l of a c h i e v i n g a
In P.L. 96-294, Congress
synthetic f u e l s production capability equivalent to at least 5 0 0 , 0 0 0 barrels
of crude oil per day by 1 9 8 7 , increasing t o a t least 2 million
day by 1992.
Unless a one year-extension i s requested, S F C is required by
June 3 0 , 1 9 8 4 , to develop a n d submit to C o n g r e s s a c o m p r e h e n s i v e strategy f o r
achieving these production goals.
reports on economic, technological, a n d
environmental a s p e c t s
projects granted financial incentives up to that d a t e , a n d will a l s o
S F C 7 s longer-term objectives and its s c h e d u l e to a c h i e v e them.
T h e plan will
emphasize private sector responsibilities a n d will
limitations will be placed o n S F C ' s involvement.
After consultation with the
Secretary of D e f e n s e , S F C must consider the feasibility o f meeting
defense fuel requirements using synfuels produced by SFC-assisted projects.
P.L. 96-294 specifies that Congress must
S F C ' s comprehensive
strategy f o r approval by joint' resolution.
S F C cannot b e
f o r more
than $20 billion until the comprehensive
i s approved
In February 1 9 8 2 S F C ' s Board
production goals would be difficult to meet.
Accordingly, the Board
to support a diversity o f . p r o j e c t s , i n s t e a d of funding projects
provide only near-term production.
T h i s decision
is c o n s i s t e n t with
the s p o n s o r i n g of
provisions of P.L. 96-294 that emphasize
diversity of projects prior to submission o f
c o m p r e h e n s i v e strategy.
By pursuing this strategy, SFC's ~ o a r dsuggested that a l a r g e r scale synfuels
production could be achieved over the long-term, because t h e private
could duplicate the various technologies t h a t proved successful.
In July 1 9 8 2 , SFC's Board concluded
its d i v e r s i t y
g o a l could
combinations o f synfuels resources and technologies,
offer the greatest potential for large-scale production.
a m o u n t s of
financial assistance would
technological diversity under its first three solicitations:
$ 6 billion
support coal-b.ased projects, $3 billion
f o r oil
s h a l e projects,
balance o f
billion for tar
heavy o i l
authority will be a v a i l a b l e
production objectives, or to fulfill other goals of T i t l e I of P.L. 96-294.
Mechanisms of S F Z ' s Financial Assistance
T5e S X r a y
~ r o v l d e flnanclal asslszance
synfuels p r o ~ e c t s~n the foliowlng order of decreasing p r ~ o r i t i e s :
1) purchase agreements, price guarantees, a n d loan guarantees;
2) l o a n s ; and
3) joint ventures for project modules.
(This last type of
assistance may b"e granted only prior to approval of SFC's
Before awarding loans or participating in joint ventures, S F C ' s Board must
determine that purchase a g r e e m e n t s , price
will not adequately support the construction
operation of a
project or will restrict its available participants.
The SFC's Board
likely result i n the least
commitment of financial assistance by the Corporation
production cost within a given technological process.
In deciding which synfuels projects to support, S F C must also consider the
range of a v a i l a b l e technologies, the overall production
potential of each
for compliance with
9 6 - 2 9 4 , if
products o f a proposed project would be
a t regulated
r a t e s , S F C may
ratemaking decisions a r e likely t o protect the financial interests of
investors a n d SFC.
Whenever judged practicable by SFC's B o a r d , S F C is directed
financial a s s i s t a n c e o n the basis of competitive bids.
If S F C solicits bids
received, o r
received a r e
for a s y n f u e l s project and none are
unacceptable to SFC's Board, the Board can negotiate a financial assistance
contract f o r a specific project after reporting to the appropriate House and
The Board may decide to grant more than one form of
t o a s i n g l e project only if multiple assistance forms a r e required to a c h i e v e
economic f e a s i b i l i t y , a n d if the project is necessary
synfuels program goals.
Investors who are granted more
one type of
incentive must bear "a reasonable degree of risk"
but those solely i n the
position o f being a lender are not required to bear such risks.
A maximum of 15% of S F C t s financial assistance budget may
S F C awards a company
each single company o r person.
financial i n c e n t i v e , S F C may
"at a l l
whatever company records a r e needed to insure compliance with
financial a s s i s t a n c e provided by SFC.
S F C is authorized t o require appropriate security a n d collateral for
repayment of any obligations owed to it.
All forms of
granted b y S F C shall be general obligations of the United
its full f a i t h and credit.
A recipient of SFC's financial assistance must d e v e l o p a plan to monitor a
project's environmental and health-related
T h e plan
of Directors and
i t must
consultation with the Administrator of the EPA, the Secretary of Energy, and
appropriate State agencies.
L!r,der c e r t a ~ nlimited circumstances., S F C
cocld a c q u i r e control of o r
pcrchase a n e leaseSack synfuels projects, subject to c o n g r e s s i o ~ a l review a n d
Such control would have to be disposed of within
5 years a f t e r
When the Secretary of the Treasury transfers requested f u n d s to S F C ,
obligations and outlays incurred will be included i n the U.S.
However, since S F C is a n independent entity, i t s receipts a n d disbursement
will not be included in U.S.
budget t o t a l s , although t h e s e f i n a n c i a l
transactions will be made public in the budget
T h u s , transactions
between S F C and the Secretary of the Treasury w i l l be on-budget i t e m s , while
the transactions between SFC a n d recipients w i l l be off-budget items.
S F C t s Solicitation Process and Activities
The S F C has organized its solicitation a c t i v i t i e s i n t o three phases.
that have best
Under P h a s e I S F C will select synthetic f u e l s proposals
responded to a solicitation and a r e most l i k e l y t o a d v a n c e t h e purposes o f
the Energy Security Act. SFC assesses whether a proposed p r o j e c t is m a t u r e
and has a reasonable prospect of receiving f i n a n c i a l a s s i s t a n c e from t h e
Corporation under its solicitation criteria.
P h a s e I1 w i l l i n v o l v e f u r t h e r
project assessmer!t, proposal r e f i n e m e n t , verification of i n d u s t r y d a t a a n d
plans, and negotiation of appropriate financial assistance.
P h a s e I11 w i l l
include monitoring plant construction and eventual synfuels production.
assist and oversee projects, the S F C has devised a "project matrix
which consists of integrated project teams a s s i g n e d from a l l relevant o f f i c e s
of the SFC. Each team will help guide a project through S F C ' s solicitation
process and will negotiate with the project s p o n s o r s the d e t a i l s of f i n a n c i a l
assistance and methods of project oversight.
T o d a t e , S F C has issued three general solicitations
r e q u e s t i n g project
sponsors to submit proposals
for financial assistance.
industrial groups submitted proposals of widely varying quality i n f o u r
oil shale, coal or p e a t , tar sands o r heavy o i l s , a n d
hydrogen from water by electrolysis.
After a detailed r e v i e w , S F C rejected
most of these proposals because they failed to meet i t s c r i t e r i a for project
strength and maturity.
However, the Corporation
judged s e v e r a l projects
worthy of support a n d conducted negotiations with
spon.sors over the
terms of possible financial assistance.
As a result of these negotiations, SFC signed a letter o f f u n d i n g i n t e n t
i n December 1 9 8 2 with the sponsors o f the " F i r s t C o l o n y u project which w i l l
be designed to produce 4,800 barrels per day o f methanol f r o m peat.
that f i n a l agreements can be r e a c h e d , the C o r p o r a t i o n i n t e n d s to provide
to $465 million in loan guarantees a n d price g u a r a n t e e s to this project,
which is scheduled to be completed by Dec. 3 1 , 1 9 8 5 , n e a r C r e s w e l l , North
In a d d i t i o n , S F C signed a letter of funding i n t e n t with the sponsors of a
project that will b e designed to produce 4 , 0 0 0 barrels of t a r s a n d s o i l per
day near Santa R o s a , New ~ e x i c o . Pending that f i n a l a g r e e m e n t , the
Corporation intends to provide a loan guarantee o f up to $ 2 0 million and a n
initial price guarantee of up to $ 2 1 million.
S F C officials a r e a l s o currently negotiating the final d e t a i l s of a letter
of funding intent with sponsors of a heavy oil refining project proposed
W e s t 3 i z z s b u r 9 , Cadifornia.
This p.roject will Se d e s i g n e e to
2qxivalent cf 5 , 0 5 0 barrels c.f oil per day.
S ? C T s Board of Directors also has approved a competitive solicitation for
western oil shale projects capable of producing at least 1 0 , 0 0 0 barrels
day of oil equivalent.
SFC intends t o issue one o r more
restricted to coal-based synfuels pr0ject.s.
S F C As Part of the Nation's Synfuels Production Program
The Federal Government and U.S. industry
largest and most intensive program ever undertaken to increase the domestic
a key and
T h e Federal Government will play
determining r o l e i n both promoting and' regulating this
The S F C , which is a Federal entity a s defined
l a w , will
primarily with providing economic incentives to stimulate commercialization.
However, S F C will
factors that will
F o r example, S F C officials have stated that they must d e a l with
constraints, including water
availability, material and equipment c a p a c i t y , skiiled
socboeconomic development c a p a c i t y , and
project sponsors able to bear the risks of synfuels commercialization.
has also held meetings with various organizations that will
These groups include Federal regulatory a g e n c i e s , D O E , Department
o f Treasury, a n d environmental and public interest groups.
T h u s , the S F C can
a s o n e of many
An Assessment o f S F C 1 s Progress and Possible Accomplishments
S F C ' s program can be assessed in terms of
measure of the c o s t required t-o accomplish
task; a n d
measure of accomplishments in terms of stated goals a n d objectives.
There is much evidence t h a t S F C wants to carry o u t
and impleaent i t s program efficiently.
Chairman Noble has repeatedly
that S F C will use its financial incentives to expedite the growth
synfuels industry at
the least cost t o
the taxpayer and with
In selecting which
Corporation seeks spcnsors that exhibit strong management capability and that
a r e willlng to back financially a major
~ u r t h e r m o r e ,S F C wants to fund only economically sound and
s a f e synfuels plants.
S F C has deliberately taken its time in defining its
objectives, establishing i t s procedures and policies, a n d i n seeking to hire
the best staff available.
c a u t i o u s l y , S F C hopes
making costly mistakes.
In order to choose
strongest and maturest
projects, S F C has developed
designed selection process.
Under Chairman Noble's g u i d a n c e , S F C a l s o h a s ' taken
actions designed to improve its organizational efficiency.
has revised its salary structure to be more acceptable
to Congress and t o
a l l o w the Corporation to compete better with the private sector for qualified
H o w e v e r , so.me Members are concerned that salaries of two o f S F C ' s
senlor offlclals are st111 too h ~ g h ,e.g., those ln the $ 5 0 , 0 0 3 to
Over the iast two y e a r s , S F C has funct-one3 wlth apprcxlmately 70 t o
123 professional s t a f f , fewer than
t h e rnaxlinum number allowed
Security Act (30C). in a C d ; t ~ o c , S F C haas realigned ~ t s
to a p r 0 1 e c t matrlx syscern that 1 s deslgned to maxlmlze Corporat;on
efflclency and p r o ~ e c tmonltorrng.
I of the Energy
Although S F C is seeking to implement efficiently T i t l e
Security A c t , i t i s unlikely that the Corporation will be a b l e to carry
effectively many of t h e various goals a n d objectives of this law.
first f o u r o r f i v e solicitations, S F C i s expected to commit m o s t , if n o t a l l ,
of its appropriated f u n d s , which
roughly $ 1 5 billion.
monies, S F C might fund a b o u t 8 to 1 2 p r o j e c t s , including both small a n d l a r g e
(In l i g h t of the Reagan Administration's policy to request n o
additional f u n d s f o r the Corporation a n d the current budgetary s i t u a t i o n , i t
seems that S F C ' s program will be limited to its currently appropriated f u n d s ,
unless there a r e major
changes i n national policies affecting
T h e r e f o r e , S F C may be stimulating a much smaller s y n f u e l s
industry t h a n was envisioned in the Energy Security Act.
In f a c t , if a d a i l y
synfuels production l e v e l of 3 0 , 0 0 0 to 6 0 , 0 0 0 barrels of
reached by 1 9 8 7 , industry and S F C would have acnieved a major
and economic accomplishment. With this size of a n industrial b a s e , there
little c h a n c e o f meeting the Act's g o a l of having the capacity to produce
million barrels of synfuels per day by
S F C 7 s current
pro7sain i s likely to be ineffective i n stimulating the growth of a s y n f u e l s
indxstry c a p a 3 l s o f "improving the Nation's balance o f p a y m e n t s w or " r e d u c i n g
the threat o f economic disruptions f r o m o i l
t h e U.S.
Another 10 to 2 0 years is likely to be required before
synfuels industry will be a b l e to contribute significantly to either o f t h e s e
broad g o a l s embodied i n the Energy Security Act.
t o proceed
Instead o f implementing a crash p r o g r a m , S F C has
cautiously with the f u n d i n g o f projects that a r e designed to a d v a n c e a w i d e
F o r those
assistance, another f i v e to seven y e a r s a r e likely to be
required to r e a c h
full production and t o collect reliable information o n these operations.
a result of this lead t i m e , i t may well be into the 1 9 9 0 s before many o t h e r
ccmpanies start investing i n n e w synfuels plants.
T h u s , the S F C program, a s
it is n o w unfolding, is making only limited progress
towards a s s u r i n g
f l o w of c a p i t a l f u n d s to those sectors of
important to the d o m e s t i c production of synthetic fuels."
On the other h a n d , the S F C may be maximizing the u s e of
$ 1 4 to
billion appropriated for its program by
strongest a n d
By assisting i n the commercialization of a f e w s u c c e s s f u l
synfuels projects, the S F C may a i d the
synfuels industry more
than if a less
carrying o u t i t s
on a s p e c i f i c
timetable, determining i n a d v a n c e the s u m s to be s p e n t o n different
competition, a n d expediting its negotiation
p r o c e s s , S F C is beginning
demonstrate to the private sector its commitment t o a i d the emerging synfuels
Policy Options Regarding the F u t u r e of the S F C
Congress a n d the Administration can
regarding the f i t u r e of the S T , inclcdlng:
(1) aSollsh the Corporation (see
ieglslacive s e c t l o n , e - g . , S . 250), ( 2 ) extend s r c ' s authority to include t r . e
,mof blonass fuels pro;ects asd energy from s o l ~ ewaste plants, and (3)
a e d ~ t l c n a l appi?cpr:at:or.s
beyond = h e $14.9 billion now
tne corporation. Some of he possrble advantages and disadvantages of
of these optlons a r e discussed Selow.
Abolish S F C
If the S F C w e r e abolished, there is the possibility, but
guarantee, sf substantial near-term budgetary savings, assuming
funds a r e not used for other purposes.
The actual costs of
S F C ' s progFam
will depend upon t h e success of the projects i t supports a s well as the terms
of any contracts signed by the Corporation.
T h u s , if a SFC-supported project
defaults on a l o a n guarantee or requires a
public treasury would
funds to cover
S F C ' s obligation.
Although it is too premature to predict the probability of a n y
outlays, o n e
can estimate that the range of possible outlays might be between a total of
$4 and $6 billion for the FY85 through F Y 9 0 budgets.
who want to
abolish S T C can a l s o argue that i t is no longer needed
energy supply demand situation has become much more
f a v o r a b l e and
Those supporting S F C can a r g u e that its program is still essential to the
Nation's long-term economic stability and national security a n d
Nation cannot afford to have synfuels
investors delay o r
projects if S F C support were eliminated.
They can point out that without S P C
this Nation would have little of the technical infrastructure to construct
reduce o r
viable synfuels i n d u s t r y , a n d that abolishment of SFC could a l s o
delay any downward pressure that synfuels might place o n the price
T h e Reagan Administration wants
t o continue SFC's program
fundinc levels, although this policy i s under
Cabinet Council o n Natural Resources.
Extending SFC's Authority
With the authority to support biomass fuels projects o r energy from
wast'e plants (ESW), S F C would have a much wider range of
to choose from.
With S F C backing, many ESW and gasohol projects
that a r e
still in the i n i t i a l planning
political constituency would also be expanded and the prospects for achieving
additional near-term synfuels production increased. However, this extension
of responsibilities could diffuse SFC's senior management
result i n additional budgetary o u t l a y s , and leave less f u n d s available t o
support SFC's major
activities in coal liquefaction
Additional Appropriations for S F C
With additional appropriations, S F C could fund a variety of
projects that eventually might help this Nation reach the National Synfuels
Production Goals contained i n P.L. 96-294. These additional funds could be
U P D A T E - O ~ / ~ ~
used to contlnue development of the rnfrastrucrure of experienced people,
know-how, and manufacturing capablllty needed to ensure a successful synfuels
~ n d c s t r y . A large-scale lndustry brollght z b o u t wlth
S F C support would
~ r 3 v - e et h e Unlked Staces w ~ t 3a s u S s t a n t ~ a l l y proved posltion to deal wlth
- - - n
prlclng pollcies a s well as orner dislocations caused ~y dlsruprlons of
lmported 011 supplies.
On the other h a n d , i t can be argued t h a t a n y additional F e d e r a l f u n d s
spent on S F C f s program might be better used f o r other purposes, e.g.,
social programs o r f o r energy conservation m e a s u r e s , and that additional
Federal g u a r a n t e e s administered by S F C might create distortions in the credit
F u r t h e r m o r e , s o m e maintain that the f u n d s already appropriated to
S F C should be a d e q u a t e to stimulate the i n i t i a l growth of a domestic synfuels
industry a n d t h a t a l l f u t u r e risks should be assumed by the private sector.
Development of S y n f u e l s Under Amendments to the
In creating S F C , Congress recognized that some indeterminate period of
time would be required before S F C could become operational.
Given this lead
time and the c o n g r e s s i o n a l m a n d a t e to expedite the production of synfuels f o r
national d e f e n s e purposes, P.L. 9 6 - 2 9 4 provided the President with
new authorities which a r e specified i n the f o r m of amendments t o the Defense
Production Act o f 1950.
Before S F C b e c a m e o p e r a t i o n a l , the P r e s i d e n t had authority t o offer
(through the D e p a r t m e n t of D e f e n s e a n d o t h e r Federal agencies)
agreements, l o a n s , a n d loan guarantees to stimulate synfuels development f o r
national d e f e n s e needs.
Up to $ 3 billion, subject to appropriations, w a s
~ a d ea v a i l a b l e f o r this purpose.
Once S F C w a s declared operational by the
President i n F e b r u a r y 1 9 8 2 , t h e s e authorities were converted to a standby
Prior to the S F C becoming operational, D O E issued s o l i c i t a t i o n s . u n d e r the
Defense P r o d u c t i o n Act (DPA) amendments of P.L. 96-294, inviting interested
parties to s u b m i t proposals f o r f i n a n c i a l assistance to expedite the
commercial production of s y n f u e l s fcr national defense needs.
Under the D P A program, D O E awarded a $1.1 billion loan guarantee t o TOSCO
to help build t h e Colony oil shale plant a n d $400 million in price
to encourage U n i o n Oil Co. t o produce shale o i l for use by the DOD.
February 1 9 8 2 , S F C accepted the responsibility for overseeing the management
of the Federal f i n a n c i a l a s s i s t a n c e for these projects.
S F C has since
terminated the l o a n guarantee to TOSCO because the Colony project has been
OTHER F E D E R A L ASSISTANCE FOR S Y N F U Z L S COMMERCIALIZATION
In addition t o P.L.
9 6 - 2 9 4 , the C o n g r e s s passed
several other laws
designed to promote the commercialization o f synfuels projects. Among these
a r e P.L.
9 6 - 1 2 6 and P.L.
96-304, which appropriated funds f o r D O E ' S
Alternative F u e l s Production Program.
This program allowed D O E to provide
fun.ds to e n c o u r a g e industry g r o u p s to conduct project feasibility s t u d i e s , to
enter into cooperative a g r e e m e n t s , to receive loan and price g u a r a n t e e s , aswell a s to r e c e i v e purchase commitments for their synfuels products.
its aut'horities under this p r o g r a m , a s well a s those under the D P A , D O E was
the major Federal agency promoting the commerclallzatlon of synfuels prolects
?r=gr&?, 335 c3npleted the ~ s s u s n c eof more t 9 a r 1 C C awards
s z - 2 : ~ s a - Z cc3perat;-~e a g r e e ~ > e n t s . In
a 5 e . l r ~ c n , 295 also
lsan guarantee co a
Resources Co. to build a high-Btu coal gaslflcatlon plant.
T h e Reagan Administration does not intend for the D O E to provide any
additional f u n d s to help commercialize synfuels plants beyond the approximate
that have already been
the DPA and the
Alternative F u e l s Production programs.
this p o l i c y , P.L.
9 7 - 1 2 rescinded $300 million previously appropriated under
9 6 - 3 0 4 for
the support of preliminary alternative fuels commercialization activities.
OVERVIEW AND ASSESSMENT OF REAGAN ADMINISTRATION'S
THEIR RELATIONSRIP T O THE FUTURE PROSPECTS FOR SYNFUELS COMMERCIALIZATION
In the National Energy Policy Plan I11 submitted to Congress i n July 1 9 8 1 ,
the Reagan Administration outlined a variety of policies and objectives
if implemented successfully
important objective of the plan
i s "to establish
s o u n d , stable public
policies that will encourage individuals and groups in the private a n d public
sector to produce and use energy resources wisely
Reagan Administration wants to inventory the Federal lands and
determine the quantities of energy resources so that wise resource decisions
can be made.
In addition, the ReagaR Administration's
t.o end oil
price c o n t r o l s has provided additional capital for the petroleum
Some of this capital could be funneled into synfuels projects.
Adninistration and enacted a s part of the Economic Recovery T a x Act of
could a l s o spur new investments in synfuels projects.
If these policies work
a s projected by the Reagan Admicistration, a business
created over the long-term that will
projects than is forthcoming a t present.
T h e Administration has restructured those aspects of the National Synfuels
Production Program pertaining
to the demonstration
It wants . t o terminate direct D O E funding
As evidenced by rescissions and deferrals contained
i n P.L. 9 7 - 1 2 , the Congress has
largely agreed with
Under its new policies,
research a n d development projects that industry would not be i n a position to
Thus f a r , the Xeagan Administration has not proposed
S F C be
abolished o r that i t s appropriations be reduced.
that responsiblity for commercializing synfuels technolog.ies will
the private sector, with potential support from the SFC.
H o w e v e r , when a n d
if the private sector will make substantial financial commitments of its own
f u n d s t o construct a large number of synfuels projects remain uncertain.
I t i s premature to assess the eventual outcome of these policies
'growth of the synfuels industry.
However, to date the Federal Government has
only made limited progress towards implementing the large-scale
public support for synfuels commercialization that were enacted by
the 9 6 t h
T h e f a s t tract program envisioned under the Defense Production Act
Amendments of P.L. 96-294 resulted in the issuance of only
a w a r d s to
D O E ' S loan
authority under the F,ederal Non-Nuclear Energy Research and
has only recently Seen u t l l ~ z e d - t oaid. cr.e large
scale synfuels p r o ~ e c t .
Pas seen delayed
: ~ p l e m e n ~ a t ~ oof
o f installing a new
AZnlnistration a s weil a s the Clme consuming
Chalrman and Board of Directors of the SFC.
In a d d l t l o n , $ 3 0 0 mllllon
financial a w a r d s under P.L.
9 6 - 3 0 4 , which
p r e - c o m m e r c ~ a l i z a t i o n a c t i v i t i e s , have been rescinded.
With respect t o industry's involvement, only a
small number of private
corporations have committed substantial a m o u n t s o f their
o w n capital to
commercialize synfuels projects.
Industry still faces t h e potential
major delays a n d increased project c o s t s caused by lawsuits a n d uncertainties
regarding environmental re.gu1ation.s and other
f a c t , over the l a s t year'about eight major synfuels projects
o r delayed their commercialization e f f o r t s , a n d
S F C has
projects from i t s
progress to d a t e , i t appears that t h e prospects
Synfuels Production G.oals have diminished substantially.
Additional information on two of the major
synthetic f u e l s technologies
that will be a f f e c t e d by D O E and S E C programs is provided
i n the following
C R S issue briefs:
IB 7 4 0 6 0
IB 7 7 1 0 5
Oil Shale Development:
O u t l o o k , C u r r e n t Activities
Coal Gasification and Liquefaction
Committee on Banking, Finance a n d
S.ubcommittee on Economic Stabilization.
Synthetic fuel oversight hearing.
H e a r i n g s , 9 7 t h Congress,
1 s t session.
Mar. 3 , 1981.
Washington, U.S. Govt. Print.
"Serial No. 97-2"
Committee on Government Operations.
Synthetic F u e l s Corporation oversignt.
Hearings, 9 7 t h
C o n g r e s s , 1 s t session. Feb. 1 9 , 1981.
U.S. Govt. Print. Off., 1981. 1 6 9 p.
REPORTS A N D CONGRESSIONAL DOCUMENTS
Committee on Government Operations.
Oversight o f the Energy S e c u r i t y Act: Imple'mentation
of the S y n t h e t i c Fuels Corporation.
U.S. Govt. Print. Off., 1981. 148 p.
(97th C o n g r e s s ,
1 s t session.
House. R e p o r t no. 97-123)
U.S. Congress. Jolnt Economic Committee. Pursulng energy
supply options: cost effective R&D strategies. Washlngzon,
352 p . ( 9 7 t h Zongress,
Senate. Committee on Energy and Natural
Resources. Synfuels from coal and the national
synfuels production program: technical, environmental,
and economic aspects. January 1981. Washington,
U.S. Govt. Print. Off., 1981.
At head of title: 9 7 t h Congress, 1 s t session.
CHRONOLOGY OF EVENTS
S F C issued a targeted solicitation for western oil shale
S F C received 46 proposals for synfuels projects under its
U.S. Senate confirmed the nominations of J o h n Carter
and Mike Masson to S F C ' s Board of Directors.
Opening of SFC's second s o l i c i t a t i o n . f o r proposals
from industrial projects seeking SFC support.
applications will be received until Nay 3 1 , 1982.
0 7 and 08/81
-- As authorized under the Federal Non-Nuclear
Research and Development Act and the amendments
to the Defense Production Act, the DOE provided
loan guarantees and purchase commitments to a variety
of companies to spur the commercialization of
House Committee o n Government Operations issued its
report entitled "Oversight of the Energy Security
Act: Implementation of the Synthetic Fuels Corporation."
Edward Noble was confirmed a s Chairman of the the SFC
by the U.S. Senate.
- - John McAtee, Jr., Acting Chairman of the S F C , arinounced
that 5 1 proposals for .financial assistance were
received by the Corporation.
ADDITIONAL REFERENCE SOURCES
ESCOE (The Engineering Societies Commission on Energy, Inc.).
Synthetic fuels summary. Prepared for the U.S. Department
March 1981. 1 4 7 p.
(Publ. no. FE-2458-82-A)
U.S. Library of Congress. Congressional Research Service.
Synthetic fuels commercialization.
Research Service Review, January 1 9 8 1 , pp. 16-19.
C h a l l e n g e s f a c i n g t h e U.S. s y n f u e l s i n d u s t r y a n d t h e s t a t u s of
- o u r n a t i o n a l s y n f u e l s policy.
S p e e c h g i v e n a t CRS s e m i n a r by
Feb. 3 , 1 9 8 2 .
1 0 p.