Synthetic Fuels Corporation
The Synthetic Fuels Corporation (SFC) was established in the United States during the energy crises of the 1970s, a period marked by soaring oil prices and a search for alternative energy sources. The SFC aimed to develop a synthetic fuels industry capable of producing significant quantities of fuel from domestic coal resources, driven by national policy concerns and the potential for energy independence. This initiative was catalyzed by fears of oil shortages and the desire to lessen reliance on OPEC oil. Despite the initial optimism, the SFC faced several challenges, including a lack of interest from major oil companies, a sudden drop in oil prices, and significant budget cuts from Congress. These factors ultimately led to the corporation's dissolution in 1986 after it failed to achieve its ambitious goals. The SFC's history reflects the complexities and challenges of transitioning to alternative energy sources amid fluctuating economic conditions and political landscapes.
Subject Terms
Synthetic Fuels Corporation
- DATE: Established June 26, 1980; dismantled in 1986
In 1980, Congress passed the National Energy Security Act, creating the Synthetic Fuels Corporation to help private industry manufacture oil and gas from coal and shale. The Synthetic Fuels Corporation fought a losing battle against numerous hostile conditions before closing without producing a single oil-from-coal plant.
Background
The technologies for synthetically producing gas and oil have long been known. Likewise, U.S. interest in the technologies has been long-standing, dating from President Woodrow Wilson’s 1916 decision to set aside public oil-shale lands to provide synthetic fuel for the Navy in the event of shortages. Thereafter, twice between 1925 and 1973 a fear of inadequate supplies of oil caused the United States and other countries to consider producing oil through coal liquefaction. On each occasion, however, the oil scare was short-lived, and most countries abandoned the high-cost schemes. Germany was an exception; the country built a network of synthetic fuel plants to run its war machine during World War II. Germany’s success with synthetic fuel proved the large-scale efficacy of the technologies. It did not, however, demonstrate the commercial viability of synthetic fuels, because cost was no object to the Nazi regime. Hence, as of the 1973 oil embargo by the Organization of Petroleum Exporting Countries (OPEC) and the ensuing oil crisis, synthetic fuels remained unproven in the marketplace.
The energy crisis of the 1970s dramatically ended the era of cheap oil. Soaring oil prices suddenly made synthetic fuels appear commercially feasible, even as the double-digit inflation and unemployment rates that they generated were sending oil-importing states in search of alternatives to OPEC oil. Given the deep coal in the United States, coal liquefaction had great appeal to US policymakers facing an unhappy public—and national elections in 1980. Thus, the proposal to launch a synthetic fuels program capable of producing the 500,000 barrels of oil per day used by the US military metamorphosed into an $88 billion government commitment to foster the birth of a large commercialized synthetic fuels industry that intended to produce 2 million barrels a day by 1992.
However, in 1980, Ronald Reagan, who was hostile toward government involvement in the marketplace, was elected president. His appointee to preside over the Synthetic Fuels Corporation (SFC) was Edward Noble, who had promised, in his failed campaign for a Senate seat, to dismantle the SFC if sent to Washington, DC. Others appointed to SFC managerial positions had their competency questioned because of involvement in failed banking operations. Even had the SFC administrators had impeccable credentials, however, they could not have shielded the organization from the three fatal blows it quickly absorbed.
Impact on Resource Use
First, few qualified applicants sought SFC assistance. The major oil companies, who had the expertise and finances to pursue synthetic fuels on their own, shunned the SFC, lest federal funding jeopardize their exclusive ownership of any research breakthroughs they might make. The lesser companies who sought SFC money lacked the capacity to develop the large synfuels plants envisioned in the National Energy Security Act.
Second, oil prices crashed. The commercial feasibility of synthetic fuels rested on the assumption that the price of oil would continue to increase. Instead, the global recession that was ignited by the rising cost of OPEC oil resulted in a steep drop in the demand for oil and a crash in oil’s price—to a low of approximately $7 a in the mid-1980’s.
Finally, while oil prices were falling, tax cutting and enhanced military spending by the Reagan administration were producing high budgetary deficits. The SFC’s multibillion-dollar budget became an inviting target for budget cutters. In 1984, Congress rescinded $7.2 billion of the SFC’s initial $20 billion authorization. The following year, Congress voted to close the corporation altogether and rescinded its remaining funds. On April 18, 1986, the SFC closed its doors for the last time.
Bibliography
National Archives
Executive Order 12346—Synthetic Fuels.