Contributing to the poor return from coal investments throughout the 1980's was a steady decline in the minemouth price of coal (adjusted for inflation) (Figure 48). Conservation, growth in nuclear generating capacity, and a reduction in the growth of electricity demand curtailed the growth in demand for coal relative to production capacity, lowering coal prices. Conservation partially offset growth in energy demand, leading to lower growth in the demand for coal and other fuels. In spite of the Three Mile Island accident, many nuclear power plants, which were both planned and at least partially constructed much earlier, came on line during the late 1970's and early 1980's, resulting in an 8 percent annual increase in nuclear power generation between 1981 and 1992. Meanwhile, electricity consumption increased by only 2 percent annually over the same period, half the annual growth during the 1970's.264

-10

1978 1980 1982 1984 1986 1988 1990 1992

Source: Energy Information Administration, Form EIA-28. Figure 48. Average Coal Prices per Million Btu by Category, 1970-1993

mining techniques, leading to an increase in supply capability.265

The combination of a strongly competitive market structure, productivity-enhancing investments, and technological progress tended to put downward pressure on U.S. coal prices. Beginning in the 1980's, coal mine efficiency increased. Productivity nearly doubled between 1981 and 1993 (Table 47). Competitive pressures tended to transform productivity-enhancing investments into lower coal prices. Falling prices, in turn, encouraged consolidation of the coal industry. Marginal coal producers exited while FRS and other surviving coal producers shut down marginal coal production facilities. While the number of mines fell by 27 percent, output per mine rose by more than 60 percent after 1981 and coal sales continued increasing (Table 47).

bought BP America's Mingo Logan Coal Company in 1990. Rheinbraun AG, a German company, bought a 50percent share of Consolidation Coal Company (renamed Consol), a subsidiary of the FRS company DuPont, in 1991. Zeigler Coal Holding Company of Illinois bought the U.S. coal assets of Shell Oil Company, with Shell Oil gaining a 25-percent equity share of Zeigler in 1992. Sun sold its coal operations in the western United States to RTZ Kennecott Corporation in 1993. Occidental began to exit from the industry by discontinuing coal operations in 1992, selling its coal subsidiary, Island Creek Coal Corporation, to Consol in 1993.270

Alternative and Nuclear Energy

To reduce the reliance on uncertain foreign supply sources in the context of oil price escalations, the Federal Government initiated various efforts to encourage energy conservation and develop alternative fuels. The 1977 National Energy Plan and the Energy Security Act of 1980 were enacted to make Federal dollars and subsidies available for alternative energy industry investments. In 1977, FRS companies' investment base in alternative energy was $1.9 billion.271 By 1982, assets rose to a peak level of $5.3 billion. Thereafter, as oil prices declined and then collapsed, net assets declined virtually every year. By 1993, the FRS companies' asset base in alternative energy had diminished to $2.9 billion.

The FRS companies ventured into the alternative energy industry partly on the premise that oil prices would remain high or rise even further. However, the continued increase in oil prices did not last, making investment in many alternative energy pursuits no longer economic. The elimination of most subsidies and the oil price crash in 1986 further reduced the incentives for alternative energy development.

The 1974-1989 period saw FRS company activity in nuclear energy flourish and then diminish. Most FRS

268 See Glossary for definitions of coal regions.

activity in nuclear energy involved uranium production. The FRS companies' involvement in uranium production has contracted sharply since the late 1970's. In 1977, FRS uranium production accounted for over 50 percent of total U.S. production. However, in 1986 (the last year in which FRS data on uranium production were col-lected), FRS uranium production accounted for only 12 percent of total U.S. production. By 1989, all FRS companies except Chevron had exited the uranium. production industry. Two years later, Chevron sold its Panna Maria mine in Texas and its Mount Taylor mine in New Mexico, ending the FRS companies' involvement in uranium mining operations.272 Contributing to the near demise of the U.S. uranium industry was the entry of relatively cheap foreign uranium imports into the U.S. markets. For example, purchased U.S. imports of uranium declined 10 percent in 1978, while domestic production increased 24 percent, compared with the previous year. However, in 1992, purchased U.S. imports of uranium grew 43 percent, while domestic production fell 29 percent, compared with 1991.273 Also, the decline in the completion of nuclear power plants resulted in a reduction in the demand for uranium. Uranium prices fell nearly continuously from $42.20 per pound in 1977 to $7.95 per pound in 1992.274

275

Synthetic crude oil was an important focus of the Federal Government's alternative energy policies. The National Energy Plan envisioned producing 2.5 million barrels of synthetic crude oil per day by 1990.276 The Energy Security Act established an independent Federal agency, the United States Synfuels Corporation, which set a synfuels production target of 500,000 barrels a day of synthetic liquids by 1987 and 2 million barrels a day by 1992. To show its commitment to this mission, Congress authorized the corporation to spend up to $88 billion.277 However, since 1982, the synthetic fuels industry has virtually collapsed in

response to depressed oil prices and the elimination of actual and prospective subsidies of the Synfuels Corporation.278 In 1980 ARCO sold its 60-percent ownership interest in the Colony Oil Shale Project in Grand Valley, Colorado to Exxon.279 Two years later, Exxon shut down this project.280 In 1981, Chevron traded its 30-percent ownership interest in oil shale operations at Clear Creek, north of Grand Junction, Colorado for some coal properties owned by Conoco.281 In 1990, Occidental abandoned its oil shale research program. 282 Unocal suspended oil shale operations at its Parachute Creek, Colorado mining operation in 1991 to study possible alternatives for the project's future. In January 1992, the FRS companies completely abandoned oil shale operations when Unocal shut down this eight-year project.2

283

Although solar power fared poorly in the 1980's, the future of this industry in the 1990's appears strongly dependent on subsidies from the Federal Government. In the 1980's, both Exxon and Shell entered the solar power industry and later exited. In 1990, ARCO sold off its solar power subsidiary to Siemens,284 leaving Amoco and Mobil as the two remaining FRS companies with solar power manufacturing facilities. Due to the concern over the longevity of the solar power industry in the United States, the Department of Energy announced in 1992 that it would award $22 million over the next three years to seven solar energy producers. Of the money awarded, Solarex, Amoco's solar power subsidiary, will receive $5 million, and Mobil Solar will receive $4.1 million.285 However, by 1993, Mobil announced the sale of its solar manufacturing subsidiary.2

In the 1990's, FRS companies maintain a significant involvement in geothermal energy and tar sands operations, in addition to a fairly new investment— cogeneration. Unocal is the world's largest producer of

278 Science News, Volume 129 (January 11, 1986), p. 22.

279 The New York Times, August 4, 1980, p. 1.

280 The New York Times, May 9, 1982, p. 1.

geothermal power and has been in geothermal operations for more than 20 years. In 1990, Unocal operations provided the world with one-third of all geothermal electrical generating capacity.287 Unocal's U.S. operations are concentrated in California with overseas operations in the Philippines (and a development project in Indonesia). In 1992, Unocal announced the sale of its geothermal energy assets in the Imperial Valley of California (three geothermal power plants with a combined capacity of 80 megawatts of geothermal capacity); this sale, however, accounted for only 9 percent of Unocal's geothermal operations. Unocal also announced its intention to sell its interest in the Glass Mountain/Medicine Lake prospect in Northern California.288 Overall, Unocal's capital expenditures for geothermal operations rose to $37 million in 1992 from $24 million in 1991, in part, due to its overseas expansion in Indonesia.289

Production of oil from tar sands is another area where FRS companies, mainly Exxon and Sun, maintain a significant investment. In 1992, Canadian tar sands was the largest alternative energy investment among the FRS companies. Exxon reported a record level of tar sands production of 45 thousand barrels per day in 1992, while Sun reported 59 thousand barrels per day.290 In 1992, Suncor, Sun's Canadian subsidiary, sold 4 million shares in the company's synthetic crude oil operations, reducing the company's ownership share from 75 percent to 68 percent. Sun reported that it intends to further reduce its ownership interest in Suncor to 55 percent.291

Cogeneration is a relatively new alternative energy investment target in the 1990's. Two companies, Coastal and Enron, a recent addition to the FRS group in 1992, own a large share of FRS company investment in cogeneration facilities. Cogeneration, which is the simultaneous production of steam and electricity from a single fuel source, is one of the largest growth

287

292 Enron Corporation, 1992 Annual Report, p. 60.