Government Support for Synthetic Pipeline Gas Uncertain and Needs Attention

EMD-82-23: Published: May 14, 1982. Publicly Released: May 14, 1982.

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Because the Government has already spent millions of dollars and could spend much more assisting research, development, and commercialization of high-BTU gasification technology, GAO saw a need for an independent assessment of the results of this investment to ensure that future funds will be spent wisely.

Converting coal into a substitute for natural gas is one approach that shows promise for supplementing gas supplies and reducing U.S. dependence on foreign energy sources. Some private groups are seeking Government support for U.S. plants using processes which have been used abroad sucessfully for decades. While these research and development efforts have been going on since World War II, no commercial size plants have been built, mainly because of economic and financing problems. These projects will need Government support because of the huge capital investment and uncertain production costs. In the past, the Department of Energy (DOE) has provided most of the research and development support for these efforts. Now, commercial-scale demonstrations must look increasingly to the Synthetic Fuels Corporation (SFC) for financial support. One coal process which is nearing commercial readiness could contribute to the diversity of resources and geographic balance of the SFC program. DOE needs to define its policy of funding only long-term, high-risk, but high-payoff research and establish adequate overall criteria for funding research and development. Until recently, DOE has continued to support other activities that GAO believes could be left to industry. In addition, DOE is moving away from the environmental research which has been recognized as the responsibility of Government in the program.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The recommendation applies to much of DOE research and development work. The high-BTU technology was symptomatic of an overall planning weakness. High-BTU has been cut back. There is little benefit in further tracking and followup, except with respect to the Great Plains project and environmental research and development which would be beyond the responsibility of industry.

    Recommendation: The Secretary of Energy should establish a plan to guide future support of high-BTU coal gasification energy research and development. The plan should be based on clear policy objectives and defined criteria which will set the general limits of Government support in the context of overall energy research and development. Also, the plan should recognize research that is more appropriately funded by industry and should include essential environmental research that is beyond the responsibility of industry.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: The recommendation was most valid at report issuance. DOE had been involved in developing second generation high-BTU processes. There has since been a continued deemphasis of these processes, continued development of the first generation Great Plains project, and further reduction of the DOE role in near term large scale development. The recommendation becomes less valid as this trend continues.

    Recommendation: The Secretary of Energy should evaluate the importance of the high-BTU, second-generation process as a method of using eastern coal and the prospects for accelerating the processes as commercial scale modules. As part of this evaluation, DOE also needs to consider other coal gasification and indirect liquefaction options.

    Agency Affected: Department of Energy

  3. Status: Closed - Not Implemented

    Comments: DOE calls the recommendation inappropriate. SFC was making decisions on diversity based on early sponsors' proposals. GAO asked for a 90-day report since DOE had killed its program, the SFC early stand deterred support, and SFC seemed to favor large-scale early production over technical diversity. SFC now takes a slower approach and urges technical diversity and smaller plants.

    Recommendation: The Secretary of Energy should report, within 90 days of the date of this report, to the SFC Board of Directors on the potential role of second-generation processes in the synthetic fuel program, the availability of information needed for commercialization, product costs and markets, and technical and environmental risks.

    Agency Affected: Department of Energy


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