Hon. J. A. KRUG, GWALTNEY OIL CORP., Durham, N. C., February 28, 1948. New Interior Building, Washington, D. C. DEAR MR. KRUG: Mr. Hallanan has requested that I, as a member of the NPC, express to you my views on the tentative draft of an act to promote the production in the United States of synthetic liquid fuels from coal, oil shale, and other substances to meet actual and anticipated shortages in the supply of petroleum and petroleum products in the United States, to supply the requirements of the armed forces and the civilian population in times of emergency, and for other purposes. Without going into a lot of detail, I would like to oppose any such move at this time, unless there is an immediate danger of another war. The oil industry has already done considerable pioneering in this field and will I am sure continue to do so. I feel that steel necessary for such a program at this time would rob the industry of materials vitally needed to overcome the present critical shortage of petroleum products, and I am confident that this emergency can be overcome more quickly by additions and repairs to present facilities. Yours very truly, J. P. GWALTNEY, Member National Petroleum Council. Hon. J. A. KRUG, NEW YORK 20, N. Y., March 5, 1948. Secretary of the Interior, Washington, D. C. DEAR SIR: I have received a letter from Mr. Max W. Ball requesting my views on a copy of a draft act for the promotion of production in the United States of synthetic liquid fuels which was enclosed. I do not feel qualified to express an authoritative opinion with respect to the provisions of the proposed act since my knowledge of technology of synthetic fuel production is quite limited. It is my impression, however, that such technology is so fluid at the present time that any commercial plants constructed to use the proposed processes in their present state of development might well be obsolete before completion and that pilot plants can contribute just as much to the rapid development of efficient and economical processes. Very truly yours, D. B. HODGES, Care of Shell Oil Co., Inc., New York 20, N. Y. INTERSTATE NATURAL GAS CO., INC., Mr. MAX W. BALL, Director, Oil and Gas Division, Department of the Interior, Washington, D. C. DEAR MR. BALL: This will acknowledge your letter of February 26, with which you enclosed a copy of a draft statute entitled: "To promote the production in the United States of synthetic liquid fuels from coal, oil shale, and other substances to meet actual and anticipated shortages in the supply of petroleum and petroleum products in the United States, to supply the requirements of the armed forces and the civilian population in times of emergency, and for other purposes." In that letter you referred to the draft as being tentative and subject to revision and you requested that I give you my views and comments thereon. In general, I may say that I concur with the objective of the proposed statute, as I feel that. considerations of national security require prompt and effective development of all practical means of assuring our ability to meet anticipated requirements of petroleum products in the event of a military emergency, and recognize that we probably would be unable to meet anticipated requirements from existing available reserves of crude oil in areas which unquestionably would remain accessible in event of war. Furthermore, since there appears to be general agreement that the production of synthetic liquid fuels from oil shale and coal probably cannot be achieved on a basis commercially competitive with production of comparable products from crude oil, some provision must be made for governmental sponsorship and financial assistance in developing commercial scale plants for the production of such synthetic fuels. At the same time, however, I am convinced that to be most effective such a program must be carried out by the petroleum industry, rather than directly by the Government. I question whether the bill as submitted is adequate to accomplish the desired results, unless its provisions relating to financing and industry cooperation are broadened. In addition to provision for RFC financing of the capital costs of the plants, it seems to me that provision should be made for RFC absorption of higher costs of production of the liquid fuels to be produced by the plants in order that such production could be marketed under normally competitive conditions, or else provide for a commitment on the part of the Government to purchase such production at a price which would assure return to the private operators of their costs plus a reasonable profit. I believe the soundness of the foregoing suggestion is supported by our recent wartime experience in connection with the aviation gasoline and synthetic rubber programs. My second suggestion is that the proposed bill should contain more adequate provision for cooperative participation in the program by competitive units of the petroleum industry; in other words, a provision for adequate protection from possible charges of antitrust law violation which otherwise might arise out of such cooperative action. Also, it seems to me that consideration should be given to provision for withdrawal of the Government from a proprietary interest in the plants, if and when their nonsubsidized operation became feasible and units of private industry were prepared to acquire the plants and operate them on a commercially competitive basis. It occurs to me that the statute as drafted may be unduly restrictive with reference to the time element involved in the submission of proposals by private industry for construction and operation of the proposed plants. Likewise, I question the desirability of fixing an arbitrary 10,000-barrel-a-day capacity, and suggest that such provisions be modified to require merely that the plants be of such size and capacity as would be suitable for commercial operation. Although I profess no scientific nor technical competence in the matter, I question the necessity for immediate construction of commercial-size plants for two different types of synthetic production of liquid fuels from coal. It occurs to me that the best available scientific and technical advice should be taken as to the type of synhetic production from coal which appears to give the most promise of being commercially feasible, and then go forward with the construction of that type of plant on a scale envisioned by the proposed bill and proceed with pilot-plant scale experimentation with such other processes as may appear worthy of development. I believe that modification of the proposed bill to cover the foregoing suggestions would be in the public interest, as such modifications would make possible a more prompt and effective participation in the program by the industry, and make available to the program the maximum contribution by industry of its technical knowledge and practical operating know-how. Sincerely yours, Hon. J. A. KRUG, GEORGE A. WILSON. MAX B. MILLER & CO., INC., Secretary of the Interior, Washington 25, D. C. DEAR MR. KRUG: This is in reply to a letter received from Mr. Max W. Ball under date of February 26. It seems to me that it would be a mistake to sponsor the proposed bill to promote the production of synthetic liquid fuels until after the studies which are being made by the Military Petroleum Advisory Committee relative to this subject have been completed. Furthermore, I hesitate to comment on the subject until all of the facts are available. However, in compliance with Mr. Ball's request, my opinion with regard to the matter may be expressed as follows. It would seem to me that if the Government undertakes to develop the production of synthetic fuels from coal, it would be duplicating the work that has already been undertaken by the Standard Oil Co. of New Jersey and the Consolidated Coal Co., of Pittsburgh. Such an undertaking in its primary development would unquestionably involve the erection and operation of a pilot plant and I understand that these two companies at their own expense are in the process of erecting such a pilot plant at the present time. Furthermore, the experience of the two companies who are now erecting commercial plants for the production of synthetic fuels from natural gas should contribute very largely to the eventual success of producing synthetic liquid fuels from coal. It is my feeling that since these various companies are already equipped with engineering organizations and technical staffs, it would be better to leave the matter in their hands for the time being rather than to attempt to expand a Government agency for the purpose. In my opinion, the production of synthetic fuel from shale is impractical. The terrific amount of material that has to be handled, the distance from its proposed source to its possible market, as well as the characteristics of the resultant product lead me to believe that there are a number of alternative methods of meeting the emergency which from every standpoint would be less expensive both in money and materials. As everyone knows, the one thing that is hampering the petroleum industry in its endeavor to increase production is its inability to secure a sufficient amount of steel. The steel companies apparently are disinclined to make further expansion of their facilities for the reason that they feel that in the course of a few years they will have more productive capacity than will be needed. Now, during the war industrial expansions that were required in order to met deficiencies were to a large extent taken care of through the issuance of certificates of necessity and it would seem to me that if we are dealing with an emergency, the cheapest and simplest way of meeting deficiencies would be to issue certificates of necessity to all industries wherein greater production would seem to be necessary. I believe that if the petroleum industry were able to get the materials as rapidly as they could use them, much of the deficiency in petroleum requirements would very rapidly disappear. Furthermore, if certificates of necessity were issued to petroleum companies for the purpose of building plants for the production of synthetic fuels, I believe that the petroleum industry would take care of this problem in a highly satisfactory manner provided their investigation indicated that they could break even on such operations. I should also like to suggest that before fabulous sums of money and material are expended in connection with the production of synthetic fuels, the matter of exploiting the tidelands be straightened out so that the petroleum industry either through agreements with the States or the Federal Government could be permitted to develop these reserves on an equitable basis. Some years ago the oil properties of the American oil companies in Mexico were expropriated. I judge that as a result the Mexican Government have lost vast sums that they could have collected in royalties and that both this country and Mexico do not have available proven reserves that might otherwise have been developed. It is also my understanding that the Mexican Government has recently been putting out feelers as to the possibility of having certain American producing companies resume explorations and I should think that since Mexico is shy of American dollars, since our emergency is also their emergency, it might be possible to make arrangements of a dependable nature with the Mexican Government by which reserves could be established in their country. Finally, it would seem to me that any emergency which might develop could be partially met by the better use of petroleum through the substitution of coal as a fuel in both the industrial and domestic fields. The Military Petroleum Advisory Committee is making an earnest effort in analyzing what will be required for the production of synthetic fuels. The report resulting from these studies should be available within the next 60 days. Consequently, in conclusion I should like to express the opinion that nothing be done with regard to this bill until after the results of these studies have become available. Sincerely yours, MAX B. MILLER. Mr. MAX W. BALL, SOCONY-VACUUM LABORATORIES, RESEARCH AND DEVELOPMENT DEPARTMENT, Paulsboro, N. J., March 9, 1948. Director, United States Department of the Interior, DEAR MR. BALL: This is in reply to your letter of February 26 concerning the proposed legislation to promote the production in the United States of synthetic 73161-48-7 liquid fuels from coal, oil shale, and other substances to meet actual and anticipated shortages in the supply of petroleum and petroleum products in the United States, to supply the requirements of the Armed Forces and the civilian population in times of emergency, and for other purposes. Aside from economic and policy matters, it is my opinion that a project of this type has considerable merit and should be undertaken in the near future. The technical problems involved in developing a sound large-scale synthetic fuels industry are too great to hazard their solution when an emergency occurs. Ι feel that the problems should be solved today through a combination of research and development, and that the erection of commercial test plants is a logical step in the planning of such work. The eventual savings in critical materials, time, and manpower will more than pay for such a program. Very truly yours, T. P. SIMPSON, SOUTHEASTERN OIL & AFFILIATES, INC., Hon. JULIUS A. KRUG, Secretary of the Department of the Interior, Washington, D. C. DEAR CAP: I am responding to your request routed from Mr. Max W. Ball through the National Petroleum Council for an expression of opinion by individuals in the petroleum industry concerning the Interior Department's proposal for at least three synthetic liquid fuels plants in the United States, and for comment on Representative Charles A. Wolverton's bill covering such a program. I am very happy, indeed, to write you my approval of the plan and of the broad principles of House Resolution 5475 intended to effectuate it. It has been pointed out with increasing urgency by many Government and some industry leaders that in the national interest some concrete action should be taken promptly for the development of a synthetic liquid fuels industry. Without pretending to discuss the technical problems involved in the project or the specific provisions of the pending legislation, the plan sketched in the House resolution appears to be a minimum requirement toward the initiation of this extremely important program. With the precarious position of some of our oil ventures abroad, and the still undeveloped stage of much of our western hemisphere reserves, our future reliance on synthetics may be greater than we can now estimate. Further, I think it is proper and desirable that the Federal Government should make loans available for the synthetics work, which as a new and as yet somewhat experimental effort, might not be given adequate financial assistance by private banks. However, it goes without saying that the Government's first concern should be to encourage management and eventual ownership of the plants by private industry. And in this respect I feel one other observation is in order: The synthetics program should be sponsored so as to make possible the entry into the work of the smaller units in the petroleum industry. Clearly, it would be unwise to allow work of such character to be handled so that only a few of the largest companies could contribute to its success. So important for the future security of our country, and eventually, too, for its civilian economy, do I consider synthetic fuels that I stand ready to testify in behalf of the plan at the committee hearings, if I am called on to do so. I am sending a copy of this letter to the Honorable Charles A. Wolverton, to Mr. Max W. Ball, Director of the Oil and Gas Division of the Department of the Interior, to Mr. Walter Hallanan, Chairman of the National Petroleum Council, and to other interested persons. I appreciate the opportunity you have given me in communicating my views to you. Yours sincerely, Hon. J. A. KRUG, GORDON DUKE, CHICAGO, ILL., March 3, 1948. Secretary of the Interior, Washington, D. C.: Replying to your invitation for comments on Interior Department bill on synthetic fuel plants: As you know, I have consistently supported the increased research program of the Bureau of Mines in this field for several years and I agree that the time has come to accelerate the research and development program. However, I urge strongly that you cannot get benefit of industry technology and considered opinion by giving a few days for individual members of the industry to write you or prepare testimony. As Bureau officials have stated, it will take more than a year just to design the proposed plants, so we should certainly take a reasonable period to get the advice of a competent industry technical group before authorizing a $400,000,000 expenditure. Even without such study I am sure that building a hydrogenation plant would be a complete waste of money, as both steel requirements and operating costs will be much higher than for Fischer-Tropsch type of operation. In that field I believe large-scale development of coal gasification should probably be undertaken fairly soon. but conversion of that gas into liquids might well await the experience on large-scale synthesis from natural gas, which information will cost the Government nothing. As to oil shale, believe much more pilot-plant work on continuous retorting and finishing is necessary before a successful plant could be designed even apart from question of comparative costs, which depend largely on large-scale mining costs. Interior Department really wants industry cooperation in construction and operation of these plants, they should make some provision for a plant to be built and operated by a group of companies, and they would have to make some provision to cover losses during operation. Such operating subsidies must be considered in analyzing the projects whether they are built by Government or industry. Hon. J. A. KRUG, ROBERT E. WILSON. STANDARD OIL OF CALIFORNIA, If Secretary of the Interior, Washington, D. C. DEAR SIR: Please refer to Mr. Max W. Ball's request of February 26 that I submit to you directly, with copy to Mr. Bruce K. Brown, any comments I may have on the draft act: "To promote the production in the United States of synthetic fuels from coal, oil shale, and other substances to meet actual and anticipated shortages in the supply of petroleum and petroleum products in the United States, to supply the requirements of the armed forces and the civilian population in times of emergency, and for other purposes." The Synthetic Fuels Committee of MPAC, of which I am a member, will submit its first formal report early in April. While I appreciate that only my personal views are desired with no particular relation to my work under MPAC or other connections, I will nevertheless be in a better position to comment when all our data have been assembled and correlated. For this reason I will limit myself at this time to some general comments. The general objectives of the act are in my opinion constructive. A systematic study of potential reserves of raw materials, plant locations, the problems of water supply, housing facilities, roads, construction of prototype plants, etc., will be useful irrespective of the ultimate structure of the synthetic fuel industry. As to prototype plants, their primary objective-I feel-should not be production of liquid fuel but advancement in the technology of liquid fuel production. From this viewpoint neither the size nor type of plants should be specified. Proper integration with industry activities will insure efficient and economic progress. With shale oil, perhaps two or three plants employing different processes, each having a capacity of a few thousand barrels per day and designed by different companies would seem a logical choice. Also with shale plants the mining problem will be a very important one. Development of at least one large mine would therefore serve a twofold purpose: Supply of shale for the prototype retorting plants and demonstration on a convincing scale that low-cost mining of shale is practical. Coal plants employing the Fischer-Tropsch process will differ from natural gas plants now under construction only in the method of producing synthesis gas. The conversion of synthesis gas to liquid products, and yield and quality of liquid products will be identical irrespective of the source of synthesis gas, that is natural gas or coal. On this basis prototype plants for conversion of coal should be limited to production of synthesis gas. The further conversion to liquid products will be of no technical advantage. |