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BC-ENERGY-SYNFUELS 2ndadd
(Newhouse 008)
Bernstein - WASHINGTON X X X Sawhill.
    Eyeing huge profits, major oil companies already have poured
millions of dollars into oil shale.
    Last year Exxon, the nation's largest oil firm, spent $400 million
to obtain a majority interest in the Colony Development Operation, a
Colorado-based oil shale enterprise.
    ''When you saw Exxon make a commitment to oil shale, you knew
something was going to happen,'' says an energy analyst for a Wall
Street brokerage firm.
    Exxon, in a joint venture with Tosco Corp., plans to build a
commercial-scale plant in Colorado capable of producing 50,000
barrels of synthetic fuel a day by 1985. The plant would consist of
six retorts capable of burning a total of about 66,000 tons of shale
daily.
    But surface retorting literally creates a mountain of a problem. It
takes between one and two tons of shale to produce a barrel of oil,
and disposing of the remaining spent shale is both logistically
difficult and environmentally worrisome.
    Colorado state officials point out that spent shale expands to about
120 percent of its original volume. Thus a surface retorting
operation that produces 50,000 barrels a day will require the mining
of 25 million tons of oil shale a year - twice the tonnage of the
country's largest coal strip mine - and disposal of 30 million tons.
    A much greater cause for concern, officials say, is how to prevent
leaching of salts and possibly toxic and carcinogenic substances into
groundwater and streams. It was partly to solve such environmental
problems that Occidental Peof the shale is mined out of a deposit, creating a
space of perhaps an acre in area and 250 feet deep. The shale around
this hollow is blasplosives. The rubble fills the
mined-out space, forming an underground retort.
    The retort is ignited at the top, and air is pumped in at a
controlled rate to sustain combustion as the flame moves downward a
few feet each week. The oil collects at the bottom of the retort,
where it is drawn off by a sump and pumped to the surface.
    Occidental would burn 60 giant retorts a year to produce 50,000
barrels of oil a day. Although some of these would be 1,000 feet
underground, they would require enormous amounts of water: as much as
4,400 acre-feet per year to keep a major shale plant going.
    Surface retorting consumes twice as much water, and many fear that
agricultural irrigation would suffer.
    Shale mining operations promise to be heavy generators of carbon
dioxide in an industrialized society that already produces
inordinately high amounts of it, raising the possibility of
irreversible climatic changes.
    Environmentalists also are concerned about the destruction of
wildlife habitat in the Piceance Basin. The region is the winter
range of North America's largest migratory deer herd.
    Perhaps more than anything else, many citizens in the sparsely
populated Rocky Mountain region are concerned about the notion of
making it a ''national sacrifice area.''
    State officials in Colorado and Wyoming say that so far the federal
government has done nothing to allay growing regional paranoia that
the West's natural beauty will be sacrificed to satisfy the wasteful
ways of the rest of the country.
    As a protection against excesses, they want the federal government
to provide impact aid in conjunction with synfuel projects in the
same way it assists coastal areas adversely affected by offshore oil
development and other energy-related facilities.
    But these problems don't take away the breath of synfuel advocates.
The potential bounty from shale reminds them of America's greatest
endeavors: the Reconstruction Finance Corporation, synthetic
rubber-making during World War II, the Manhattan project that
produced the atom bomb, and putting a man on the moon.
    Now the oil-rich canyonlands of Colorado's Piceance Basin are seen
as the key to breaking free from OPEC, getting the sluggish American
economy moving again, putting people back to work, and showing the
world that America still has what it takes to produce its way to
victory.
    (TOMORROW: THE NUCLEAR BOTTLENECK) RB END BERNSTEIN
    
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n999  1213  10 Dec 80
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BC-REAGAN-OIL
(Newhouse 003)
By PETER J. BERNSTEIN
Newhouse News Service
    WASHINGTON - As President-elect Reagan takes power, look for the
incoming administration to revamp the Energy Department by abolishing
most of its regulatory functions and reshaping it as an ''advocate
for energy'' within the government.
    But don't expect the nation's energy problems to disappear with yet
another sweeping ''reform'' of the federal bureaucracy. Nothing short
of making Saudi Arabia and Mexico the 51st and 52nd states could
guarantee adequate oil supplies.
    U.S. oil production is likely to decline from the current 10 million
barrels a day to between 6 million and 7 million by 1990, even with
stepped-up leasing of federal lands for exploitation. So if America
somehow managed a decade of economic growth without burning more oil,
it still would have to increase daily imports by 3 million to 4
million barrels.
    That prospect - reduced domestic oil production and increased
dependence on foreign supplies - is a matter of serious concern to
Reagan's advisers. They share a widespread fear among energy experts
that America's vulnerability to an oil cutoff has been heightened by
the unexpectedly long war between Iran and Iraq.
    In an attempt to strengthen the first line of defense against sudden
disruption of the oil lifeline, Reagan is expected to move quickly to
fill up the nation's Strategic Petroleum Reserve. Seven years after
the Arab embargo, the government reserve contains fewer than 100
million barrels of crude oil - stashed away in salt domes in Texas
and Louisiana.
    That's barely enough to replace two weeks' worth of oil imports.
    Congress recently approved adding at least 100,000 barrels to the
reserve each day. But Reagan advisers are insisting on a fill rate of
400,000 barrels a day, both for security reasons and to reduce the
need for federal allocation rules in the event of an oil emergency.
    In addition, the new administration is likely to ease environmental
restrictions on coal burning so that existing oil-fired plants can be
converted to coal or replaced.
    Some Reagan advisers - notably Michel Halbouty, an independent
Houston oilman who heads Reagan's energy transition team - are
calling for further steps to encourage oil companies to find and
produce oil within the United States. These advisers are urging
immediate federal decontrol of domestic crude oil prices instead of
waiting until next Oct. 1, the date set by Congress.
    They also are recommending faster decontrol of natural gas prices.
Under the 1978 Natural Gas Policy Act, Congress set decontrol for
k
1985. But one energy specialist close to Reagan says this timetable
would leave natural gas as ''a resource that is underpriced and
inefficiently used.''
    Some Reagan advisers want the decontrol of gas prices to be finished
by 1982. They cite a recent Energy Department study saying that
faster decontrol of gas prices would cut oil imports 430,000 barrels
a day by 1995 by promoting exploration for and production of natural
gas.
    But the inflationary pressures from such a speed-up would
undoubtedly pose serious economic problems for the new
administration. Reagan aides acknowledge that pragmatic politics may
well force him to continue - at least for a few years - some of the
same Carter administration programs, policies and institutions he
once derided.
    These include the windfall profits tax on oil company revenues, the
fledgling Synthetic Fuels Corporation and even the much-criticized
Energy Department.
    Despite the incoming administration's oft-repeated vow to dismantle
the department, there are increasing doubts among his energy aides
that this is possible or even desirable. For one thing, any move to
abolish the department would require congressional approval - and
that might be unattainable despite widespread dissatisfaction on
Capitol Hill with the 3-year-old agency.
    The Synthetic Fuels Corporation has been assailed by Reagan and his
advisers as an unneeded intrusion into the private sector. But that
doesn't mean, one energy aide says, that Reagan will do away with it.
    The aide suggests another possible course. Reagan, he says, might
allow the corporation to proceed with its $20 billion, seven-year
first phase of providing price and loan guarantees to a variety of
synfuel projects involving coal, oil shale and biomass. But it is
unlikely that he later would seek for the corporation the additional
$68 billion envisioned by Congress for further development programs.
    Instead of disbanding the synfuels corporation, Reagan might replace
its chairman and chief executive officer, John Sawhill, who was
appointed by Carter. RB END BERNSTEIN
    
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n999  1514  10 Dec 80
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BC-ENERGY-SYNFUELS 3takes
(Newhouse 006)
Second of four articles suggested for use beginning Sunday
By PETER J. BERNSTEIN
Newhouse News Service
    WASHINGTON - Producing large amounts of oil from shale seems in many
respects to be a Panglossian proposition: the best of all possible
worlds.
    Oil shale is America's most abundant energy resource - even bigger
than coal. An estimated 28 trillion barrels of oil are locked in
shale deposits in at least 13 states, enough to supply the United
States with vital liquid hydrocarbons for hundreds of years.
    This bountiful resource, in one region alone - the Green River
Formation of some 17,000 square miles in Colorado, Utah and Wyoming -
represents 2 1/2 times all the oil reserves in the Western world and the
Mideast.
    Extracting oil from the shale rock requires no modern-day alchemy or
dazzling leaps of science. The basic technology for large-scale
production has been known for several decades, and the U.S. Navy has
successfully demonstrated the use of shale oil as a diesel and jet
aviation fuel.
    For all its promise, though, the reality of an alternate source of
energy from shale has floated just beyond reach - a tantalizing
dream, much discussed but frustratingly elusive. Something - usually
the abundance and low price of conventional crude oil - always has
stood in the way of a full-scale, commercial oil-shale industry.
    Today that industry seems closer to a reality than ever. Most energy
experts say only a sharp reversal of current political and economic
trends can thwart the long-awaited development of oil shale.
    President-elect Reagan is expected to let the new Synthetic Fuels
Corporation provide financial aid in the form of government price and
loan guarantees to shale-oil producers, though he expressed some
campaign doubts about the wisdom of federal subsidies for private
energy projects.
    The synfuels corporation now has vast financial resources at its
disposal to help in building commercial-sized synthetic fuel plants.
A large share is expected to go to oil shale.
    Serious technological, environmental and economic questions still
confront shale-oil producers, but the consensus is that a
multi-billion-dollar industry turning out 500,000 barrels of oil each
day by the early 1990s is both feasible and probable. Oil industry
officials say shale oil is the least costly synthetic fuel on the
horizon, and the one closest to commercial production.
    Armand Hammer, chairman of the board of Occidental Petroleum Corp.,
sums up the case for shale oil. ''Remember,'' he says, ''you cannot
drill a dry hole in shale. The oil is there.''
    Hammer says that if political and bureaucratic obstacles are
overcome, the United States could have a shale-oil industry producing
far more than 500,000 barrels a day. He says the technology is so
well developed that 2 million barrels a day could be achieved by 1990.
    But most local and state officials in Colorado, where the richest
shale deposits are located, say they prefer far slower development.
They are particularly upset about an Exxon Corp. proposal to build
150 shale-oil plants in Colorado capable of producing a total of 8
million barrels a day by the year 2010.
    U.S. daily oil conswmption now is about 15 million barrels, 7
million of which are imported.
    Richard D. Lamm, the conservation-minded Democratic governor of
Colorado, says he is concerned about the social and economic
consequences of rapid growth in his state. Lamm is urging a phased
approach, in which only a handful of shale-oil plants would be
operating in Colorado by 1990, and perhaps only 10 to 20 by early in
the 21st century.
    Sharp differences over the pace of development of shale and other
resources in the energy-rich Western states have been a major factor
in blocking a congressional measure that would establish an Energy
Mobilization Board with sweeping powers to speed up key energy
projects.
    Rep. Tim Wirth, an influential Colorado Democrat, played an
instrumental role in the recent defeat of a House energy mobilization
bill that would have allowed the proposed three-member board to waive
any federal, state or local law that prevents the timely completion
of an energy project.
    Oil shale is governed by scores of laws. It is one of the most
controversial energy sources this country ever has tried to exploit.
    There currently are no commercial-scale shale plants in operation.
Four major oil-shale projects are either in the construction stage or
ready to begin operation on short notice. Shale-oil producers say
they already have the necessary government permits for the four
projects. The first plant is slated to open in 1985 with a refining
capacity of 50,000 barrels a day.
    What may seriously inhibit the development of America's shale
resources, experts say, is the huge scale of production capacity and
mining that would be necessary to produce the synthetic fuel in large
quantities. RB (MORE)
    
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n999  1524  10 Dec 80
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BC-ENERGY-SYNFUELS 1stadd
(Newhouse 007)
Bernstein - WASHINGTON X X X quantities.
    Federal energy officials say that building only 20 commercial-scale
plants to supply 5 percent of the nation's current liquid fuel needs
is an undertaking similar to emptying Lake Michigan with garden hoses
- each hose costing up to $3 billion.
    Fred D. Dennstedt, a senior vice president of Exxon USA, says that
rapid development of shale oil and other synthetic fuels will require
''a national resolve'' and a degree of cooperation among government,
industry and various civic groups that ''probably is without
precedent in peacetime history.''
    So far up to $88 billion in federal production incentives has been
assigned to the synfuels effort, though the sum actually committed is
only a quarter of this.
    The government's initial offer of $5 billion in loan guarantees to
developers of commercial-scale synfuel plants has drawn 18 proposals,
six involving shale.
    Actually, oil shale is neither oil nor shale. The rock is marl, a
type of limestone that contains waxy material known as kerogen. To
extract it, the shale is broken into small pieces and then heated to
about 900 degrees Fahrenheit either in large ovens called retorts or
while still underground in what is called the in situ process.
    The high temperature turns the kerogen into gases that cool and
distill into a thick, black liquid with the consistency of cold
molasses. In this state, shale oil can be used only for boiler fuel.
Before it can be refined into more valuable products, it must be
treated with hydrogen to remove nitrogen and arsenic.
    Once upgraded, however, its refined products can be superior to
those of the best Saudi Arabian crude oil. It yields large quantities
of diesel and aircraft fuel.
    The richeection of Colorado, Utah
and Wyoming about 100 miles east of Salt Lake City. These deposits,
which run more than 1,000 feet deep in spots, contain an estimated
200 billion barrels of commercially recoverable oil.
    The United States now uses about 7 billion barrels of oil a year.
Its known reserves of conventional free-flowing crude amount to 28
billion barrels.
    Oil shale has been on the verge of commercial development so many
times that some people still aren't convinced it's going to happen
now.
    Ever since World War I, some American oil companies - finding
themselves short of conventional crude supplies - have been eager to
mine the shale. But the economics of producing oil from the shale
always have stymied its development.
    In the mid-1960s when crude oil was less than $2 a barrel, shale
advocates claimed they could produce synthetic fuel for $3 a barrel.
But inflation and more sober cost appraisals of the technology
involved have raised projected shale oil prices almost as fast as
prices of imported crude.
    It is generally thought that a barrel of shale oil would cost $40 to
$45 a barrel in 1980 dollars. The current average world price of
crude oil is about $35 a barrel.
    What potential shale producers now have from the federal synfuels
enterprise that they previously lacked is a commitment to the shale
program in the form of price guarantees, a safety mechanism through
which the government would make up a difference between the market
price and the cost of producing shale oil. This is intended to
protect nascent shale-oil developers in the unlikely event that world
oil prices suddenly plummet.
    Such economic incentives are designed to let small shale developers
capture a piece of the action. But they present some risks.
    ''If the government agrees to buy synthetic fuels at a fail-safe
price, what incentives do producers have to keep down costs?'' asks
Theodore R. Eck, chief economist at the Standard Oil Co. of Indiana
(Amoco).
    ''How should the Synthetic Fuels Corporation choose projects in a
new industry where there are no benchmarks?'' Eck says. ''The
opportunities for political favoritism are rampant in this complex
process of handing out goodies.''
    John C. Sawhill, chairman of the synfuels corporation, says action
is being taken to avert possible project failures. ''What we don't
want - and what I think would be a serious mistake - would be for us
to create a bunch of white elephants, projects that maybe are
technically capable but are not commercially viable.''
    That's why all synfuels corporation programs must contain a healthy
dose of private capital, says Sawhill. RB (MORE)
    
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