Top Oil Firm Executive Sees Future in Synfuels

Development of costly synthetic fuels, halted in recent years because of cheap, abundant petroleum supplies, will become commercially viable again when world oil prices top $30 a barrel, a top Exxon Co. executive said Monday.

Joe McMillan, a senior vice president of the world’s largest oil company, said that Exxon was continuing to fund research and development of alternative fuels and will spend about $15 million in 1987 on synfuels, he said.

“We obviously think it’s an important part of our future,” said McMillan, who addressed a Houston meeting of the American Institute of Chemical Engineers. “By early in the next century, synthetics should play a significant role in this country’s energy supply.”

Synthetic fuels include shale oil and liquefied coal, energy sources that McMillan said would become economic to develop when world oil prices reached the $30 to $40 a barrel price range.

Crude oil is currently selling for around $19 a barrel, up from less than $10 a barrel earlier this year.

“You’re talking about a 50% increase in crude oil prices, but I think that time is coming, and we’ve got to be prepared,” McMillan told reporters at a news conference here.

He predicted that U.S. demand for petroleum would increase by about 1% annually during the next few years while the nation fails to replace its oil reserves through exploration.

By the turn of the century, world oil prices will be “significantly higher” because of declining supplies, McMillan said.

Until last year, the federal government had subsidized synfuels development through the U.S. Synthetic Fuels Corp., a research program created during the Carter Administration with the goal of developing replacements for up to two million barrels of oil.

The corporation was shut down last April when Congress refused to continue funding its $8-billion budget.

Ashland Oil Inc. Chairman John Hall, who also spoke at the meeting, advocated some form of federal tax incentives to help spur development of synthetic fuels.

“We need more research to get the costs down,” Hall said. “The lead time on that (kind of project) is so long it is difficult for a private company or a company with shareholders to pay for the research.”

The United States, Hall said, has nearly 500 billion tons of demonstrated coal reserves, more than triple all the world’s known oil reserves.

“We must encourage research now in order to make synfuels competitive later,” Hall said. The average lead time for development of a shale oil or liquefied coal project is between five and 10 years.