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The Synthetic Liquid Fuels Program: Energy Politics in the Truman Era

Published online by Cambridge University Press:  11 June 2012

Richard H. K. Vietor
Richard H. K. Vietor
Affiliation:
Associate Professor of Business Administration, Harvard Business School
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Abstract

As the end of the era of abundant natural petroleum oils approaches, the United States finds itself heavily committed to a way of life based on cheap liquid hydrocarbon fuels. Whether such fuels will be available at any price in adequate quantities in the future, is the question today. Professor Vietor shows that it was also a serious question for some years after World War II, and that the United States carried a long way towards definitive demonstration a program for the development of high-volume synthetic liquid fuels production techniques. What that program accomplished; how the interests, public and private, who were responsible for the American fuel supply reacted to it; and why it was shelved for 25 years are among the points Vietor covers. The reader is left to weigh for himself the several reasons why this program was sidetracked, but he can hardly fail to conclude that where such fundamental matters as energy policy are concerned, American planning has been distressingly short range.

Type
Research Article
Information
Business History Review , Volume 54 , Issue 1 , Spring 1980 , pp. 1 - 34
Copyright
Copyright © The President and Fellows of Harvard College 1980

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References

1 New York Times, September 12, 1948.

2 U.S. Congress, Senate, Committee on Judiciary, Subcommittee on Antitrust and Monopoly, Hearings on Interfuel Competition: S 489, 94th Cong., 1st Sess., June–October 1975, pp. 89–90. John O'Leary was with the Mitre Corp. at the time of this testimony. Previously, O'Leary had had 20 years' experience in the Bureau of Mines, Atomic Energy Commission, and the Oil Import Administration.

3 U.S. Congress, Senate, Select Committee on Small Business, The International Petroleum Cartel, Staff Report of the Federal Trade Commission, 83rd Cong., 2nd Sess., 1952.

4 In 1952 the President's Materials Policy Commission estimated U.S. petroleum demand for 1970 at 11 million bbl/day; Koppers Co., Inc., “Coal Products as Raw Materials for the Chemical Industry,” vol. 3 (February 27, 1952), p. B–2, in Box 37, PMPC Papers, Truman Library. Eugene Ayers, a vice-president of Gulf Research & Development Co. and frequent oil industry spokesman, wrote that “the consensus of experts in the petroleum industry … is that … by 1967, production will be no more than a billion bbls a year – about half of our present rate of consumption” (Ayers, Eugene, “The Fuel Problem,” Scientific American, December 1949).CrossRefGoogle Scholar

5 National Coal Association, Foreign Oil Policy Executive Committee, “Policy Statement,” in U.S. Congress, Senate, Interior Committee, Hearings on Stockpile and Accessibility of Strategic and Critical Materials to the U.S. in Time of War, pt. 6, “Petroleum, Natural Gas, and Coal,” 83rd Cong., 1st and 2nd Sess., February 1954, p. 731.

6 Quoted in National Petroleum News, 40 (January 21, 1948), 11.

7 U.S. Congress, House, Committee on Interstate Commerce, Hearings on Synthetic Liquid Fuels, 80th Cong., 2nd Sess., March 1948, pp. 2, 4; also, National Petroleum News, 41 (March 16, 1949), 12; also, C.A. Cogan memorandum to John Steelman, March 18, 1949, File No. 56-E (1949), Box 237, Official File, Truman Library; also, James Boyd to Oscar Chapman, October 3, 1950, Attachment No. 1, Box 4, James Boyd Papers, Truman Library; also, James Boyd, Director of the Bureau of Mines, “Synthetics in Defense,” a speech delivered November 15, 1950, to the American Petroleum Institute, Los Angeles, California (Box No. 13, File – “Speeches and Statements”).

8 Bruce K. Brown, Petroleum Administration for Defense and Member, Military Petroleum Advisory Committee to Walter S. Hallanan, Chairman, National Petroleum Council, May 8, 1950, in Department of the Interior, National Petroleum Council Records, File 017, “NPC Committee on Synfuel Liquefied Fuels Production Costs,” 1950 (hereinafter referred to as DOI, NPC). See also, Frame, A.P., Chairman, Military Commerce Committee, Synfuels Hearings, 1948, p. 88.Google Scholar Frame argued that the proposed expansion of the synfuels program was not justified by National Security, and he recommended against the bill.

9 H. Truman to J. Krug, May 3, 1946, quoted in preface to “The National Petroleum Council: A Unique Experience in Government-Industry Cooperation,” DOI, NPC, 1961.

10 Since its creation, the NPC has repeatedly been the object of antitrust investigations and advisory council reform measures. In 1946, Attorney General Tom Clark allowed the NPC only the most narrowly denned immunity from antitrust laws. Moreover, he informed his friend Julius Krug that of his suggested candidates for the NPC, 51 had been or were currently involved in antitrust suits, several of which included criminal, as well as civil charges. T. Clark to J. Krug, June 6, 1946, DOI, NPC, 1946–17, “Correspondence with the Attorney General.”

11 For a discussion of American Lurgi, as well as other early synfuel developments, see U.S. Congress, Senate, Subcommittee on Public Lands and Surveys, Hearings on Synthetic Liquid Fuels, 78th Cong., 1st Sess., August 1943.

12 Krammer, Arnold, “Fueling the Third Reich,” Technology and Culture, July 1978, pp. 394–422CrossRefGoogle Scholar; also, Hughes, Thomas, “Technological Momentum: Hydrogenation in Germany, 1900–1933,” Past and Present, August 1969.Google Scholar

13 United States v. Standard Oil Company of New Jersey, Exhibits 440 and 441, U.S. Congress, Senate, Hearings on Investigations of the National Defense Program, 77th Cong., 1st Sess., pt. 11, “Rubber,” March-April 1942, pp. 4677–87 and 4693–4721 (Justice Department charge on p. 4702).

14 Vesting Order No. 1, 7 F.R. 2417 (March 31, 1942); Supplemental Order No. 1, 9 F.R. 5613 (May 25, 1944).

15 H.L. Ickes to M. Straus, January 29, 1943, in National Archives Record Group 48 (hereinafter NA, RG48), Department of Interior, Central Classified Files, 1937–53, Box 3762, File No. 11–34, “Synthetic Fuels,” pt. 3. Ickes's very first response to Straus's proposal of a synfuels program was concern about oil company opposition.

16 M. Straus to H. L. Ickes, January 28, 1943, Box 3762, NA, RG48.

17 Ibid.

18 H.L. Ickes to R.R. Sayers, September 9, 1942; also, H. L. Ickes to M. Straus, January 29, 1943, Box 3762, NA, RG48.

19 M. Straus to R. K. Davies, February 1, 1943, Box 3762, NA, RG48.

20 R. K. Davies, quoted in U.S. Congress, Senate, Subcommittee on Public Lands, Hearings on Synthetic Liquid Fuels, 78th Cong., 1st Sess., August 1943.

21 H. L. Iokes to G. Lloyd, April 5, 1943, Box 3762, NA, RG48.

22 M. Straus to H. L. Ickes, April 3, 1943; and H. L. Ickes to C. O. Brooks, May 14, 1943, Box 3762, NA, RG48.

23 M. Straus to J. Guffey, January 27, 1944, Box 3762, NA, RG48.

24 M. Straus to H. L. Ickes, August 20, 1943, Box 3762, NA, RG48.

25 Solicitor to M. Straus, September 9, 1944; and H. H. Sargent to M. Straus, October 10, 1944, M. Straus to H. H. Sargent, November 7, 1944, Box 3762, NA, RG48; also, U.S. Congress, Senate, Interior Committee, Hearings on Synthetic Liquid Fuels: S.134, 80th Cong., 2nd Sess., January 1948, p. 60.Google Scholar

26 M. Straus to H. L. Ickes, July 7, 1945, Box 3763, NA RG48. Straus had even more difficulty finding exotic gasification equipment. He finally submitted an order to the Army's occupation command in Europe for eighteen pieces of captured hydrogenation equipment, including a 125-ton gasifier and an entire Fischer-Tropsch pilot unit: M. Straus to Army Intelligence, October 25, 1945, Box 3763, NA, RG48.

27 M. Straus to R. R. Sayers, August 6, 1945, and R. R. Sayers to J. Krug, July 3, 1947, ibid. Among the advisory group's members were employees of eight of the major oil companies. Moreover, it included the research directors of Standard Oil (N.J.), Standard of Indiana, M. W. Kellog, The Texas Co., and Shell Oil – all of which were party to the hydrocarbons patent pool in 1941. It should also be noted that several of the individuals eventually served on the National Petroleum Council's Synthetic Liquid Fuels Committee, which discredited the BOM program in 1952. Standard's E. V. Murphree chaired the NPC subcommittee on synfuel production costs; C. C. Kemp (Texas Co.) chaired the NPC synfuels engineering subcommittee; and Eugene Ayers (Gulf) was a member of the NPC production costs subcommittee.

28 For descriptions of the bureau's progress between 1946 and 1948, see, U.S. Bureau of Mines, Synthetic Liquid Fuels, Annual Report of the Secretary of the Interior (Washington, D.C.: GPO, 1949)Google Scholar, Pub. No. R.I. 4456, pp. viii–xvi; see also, Boyd, James, “Summary of Appropriations Requests, Appropriations Made, Obligations and Expenditures for Synthetic Liquid Fuels Funds,” in U.S. Senate, Interior Committee, Synfuels Hearings, 1948, pp. 25–65.Google Scholar

29 R. Patterson telephone memo to J. Krug, July 2, 1947, and R. R. Sayers to H. C. Wolfe (Army Eng. Corps), July 11, 1947, File 11–34, pt. 4, Box 3763, NA, RG48.

30 U.S. Congress, Senate, Special Committee Investigating Petroleum, Final Report, No. 9, 80th Cong., 1st Sess., January 1947, pp. 30–31; also, J. Krug to J. O'Mahoney, December 27, 1946, File 1–322, pt. 1, Box 3177, NA, RG48.

31 M. Ball (Director, Oil & Gas Division) to J. Krug, January 7, 1948, ibid., Box 3177, 1–322, pt. 3; and J. Krug to J. Hamon (oil consultant and NPC member), February 18, 1948, ibid.

32 National Petroleum News, 40 (January 28, 1948), 19.

33 U.S. Congress, Senate, Interior Committee, Hearings on Synthetic Liquid Fuels, 80th Cong., 2nd Sess., January 1948, p. 3.

34 U.S. Congress, House, Commerce Committee, H.R. 5475: Committee Print, March 1948.

35 Bland, William F., “While Government Talks About What To Do About Synthetics, the Oil Industry Does It,” National Petroleum News, 40 (February 18, 1948): 22–23.Google Scholar B. H. Weil, Gulf R&D Co., wrote in 1943 that shale oil was nearly competitive with petroleum and was “approaching an era where large-scale use may be possible,” in “Oil Shale and Shale Oil–A Survey, Part II,” The Oil and Cas Journal, April 29, 1943, pp. 73–79. Fred Dennig, President, Koppers Co., predicted in 1942 that synfuels from coal would become competitive around 1960; Dennig, F., “The Manufacture of Motor Fuels and Synthetic Petroleum, Especially from Coal,” in U.S. Senate, Synthetic Liquid Fuels Hearings, 1943, p. 239.Google Scholar E. V. Murphree, President, Standard Oil Development, predicted in 1948 that synfuels would become practical after 1958, in U.S. Senate, Synthetic Liquid Fuels Hearings, 1948, pp. 15–16.Google Scholar

36 National Petroleum News, 40 (February 4, 1948), 20–B; and February 25, 1948, 21.

37 U.S. Congress, Senate, Interior Committee, Hearings on Synthetic Liquid Fuels: S.134, 80th Cong., 2nd Sess., January 1948, p. 5.Google Scholar

38 Ibid., 37–39, 53, 61, 86–103. Union Oil and Southeastern Oil were exceptions. Union Oil of California did not have foreign petroleum supplies and was frequently short of crude for its refineries. It had acquired significant oil-shale properties, done a great deal of research, and believed that a shale-oil refinery would be profitable if the federal government would subsidize the cost of transporting the product from Colorado to California. Gordon Duke, president of Southeastern Oil, favored synfuels as an alternative source of supply for independent oil companies, such as Southeastern Oil, that did not have their own sources of crude petroleum. In his recommendation, Duke cautioned that any synfuels project should include participation by the independents.

39 W. L. Ware to J. K. Krug, December 12, 1948, File 11–34, pt. 5, Box 3763, NA, RG48.

40 C. A. Cogan to J. Steelman, March 18, 1949, File 56-E (1948), Box 273, Official File, Truman Library; Bureau of the Budget to W. J. Hopkins, September 21, 1950, Box 79, White House Bill File, Truman Library; also, National Petroleum News, 41 (March 2, 1949), 11.

41 H. G. Slusser to O. Chapman, June 26, 1950; also, C. G. Davidson to H. G. Slusser, July 7, 1950, File 11–34, pt. 6, Box 3763, NA, RG48. A. C. Rubel, Vice President of Union Oil, complained to his friend, W. C. Schroeder, about pressure from the industry to join in “attacking the Bureau for its ‘misleading information’.” (A. C. Rubel to W. C. Schroeder, March 28, 1950, File 11–34, pt. 6, Box 3763, NA, RG48.)

42 National Petroleum News, 41 (June 1, 1949, 11; also June 8, 1949, p. 22; also October 12, 1949, p. 20).

43 U.S. Bureau of Mines, Annual Report of the Secretary of the Interior, 1949, Washington, D.C., 1950, p. 143.Google Scholar

44 U.S. Bureau of Mines, Annual Report of the Secretary of the Interior, 1951, Washington, D.C., 1952, pp. 17–19.Google Scholar

45 U.S. Bureau of Mines, Annual Report of the Secretary of the Interior, 1948, Washington, D.C., 1949.Google Scholar

46 J. L. Krug to K. Wallgren (draft), February 9, 1949. Robert Friedman, from the Oil & Gas Division, balked at this statement and suggested that “the Department should be more cautious in its assertions as to costs.” However, James Boyd and Robert Day (Krug's secretary) overrode Friedman's advice, assuring Krug that “we can back up the statements made”: R. Friedman to R. Day, February 23, 1949, and R. Day to J. C. Krug, February 24, 1949, File 11–34, pt. 4, Box 3763, NA, RG48; also, W. L. Ware to J. L. Krug, August 9, 1949, ibid., pt. 6.

47 U.S. Bureau of Mines, Report of Investigations, 4564, Washington, D.C., 1949.Google Scholar

48 O. Chapman to W. S. Hallanan (NPC Chairman), April 21, 1950, in File 106.61, DOI, NPC, 1951.

49 B. Brown to W. S. S. Rodgers, June 27, 1950, File 017, DOI, NPC, 1950. Three months after making his recommendations, Brown resigned from the NPC Synfuels Committee to become deputy administrator of the Petroleum Administration for Defense, where he continued to oppose synfuels development by blocking PAD authorization of federal loan funds.

50 National Petroleum Council (NPC), “Subcommittee on Synthetic Production Costs,” July 7, 1950, ibid.

51 NPC Meeting Transcript, December 5, 1950, ibid., 80.

52 The NPC cost estimates for Fischer-Tropsch processing of coal were:

NPC, “Final Report of the NPC's Committee on Synthetic Liquid Fuels Production Costs for Oil Shale,” February 26, 1953, File 106.61, DOI, NPC, 1953, p. 8.

53 BOM, “Comments on Reports of the NPC Subcommittee on Synthetic Liquid Fuels Production Costs for Oil Shale,” October 25, 1951. “Synthetic Fuels File,” DOI, NPC, 1951; NPC, “Report of the NPC's Committee on Synthetic Liquid Fuels Production Costs,” ibid.; “Synthetic Fuels File,” October 31, 1951, p. 12.

54 NPC, “Interim Report of the NPC Committee on Synthetic Liquid Fuels Production Costs,” January 29, 1952, File 106.61, DOI, NPC, 1952.

55 NPC, Meeting Transcript, July 29, 1952, “Synthetic Fuels File,” DOI, NPC, 1952, p. 155.

56 BOM, “Cost Estimate for Coal Hydrogenation,” October 25, 1951, “Synthetic Fuels File,” DOI, NPC, 1951, pp. 11–16.

57 NPC, Meeting Transcript, October 31, 1951, “Synthetic Fuels File,” 49–50.

58 BOM Press Release, March 31, 1952, Program Staff Central Files, 1947–53, Box 51, NA, RG48.

59 At the time, there was one other source of cost data relevant to the synfuels controversy. Shortly after the Ebasco study appeared, the Paley Commission (President's Materials Policy Commission) released its report, in which it forecast a tremendous increase in oil imports and offered surprisingly low cost estimates for synfuels. Based on a Koppers Company study, the PMPC pegged the cost of synthetic gasoline at 12.6 cents/gallon from oil shale, 17.3 cents/gallon from coal hydrogenation, and 26.6 cents/gallon from Fischer-Tropsch synthesis, in Koppers Company, “Coal Products as Raw Materials for the Chemical Industry,” a report prepared for the President's Materials Policy Commission, September 1, 1951, Box 37, File, “Executive Secretary Miscellaneous Reports and Studies,” PMPC Papers, Truman Library, pp. B–8, B–9.

60 NPC, “Final Report,” February 26, 1953, File 106.61, DOI, NPC, 1953, pp. 10–11.

61 National Petroleum News, 44 (December 17, 1952), 7.

62 U.S. Congress, House, Committee on Appropriations, Hearings on Interior Department Appropriations for 1954, 83rd Cong., 1st Sess., pt. 2, March 11, 1953, p. 627.Google Scholar

63 Ibid., 628.

64 Ibid., May-June 1954, p. 1006.

65 Congressional Record, 1953, vol. 99, pt. 3, pp. 3355, 4022–4026, 4120, 4145.

66 The petroleum industry has never, as a matter of policy, calculated unit costs for the production of gasoline from crude petroleum. So for the purposes of. comparison, the bureau and the council agreed that to be competitive, synthetic gasoline would have to meet the average bulk price of gasoline at the refinery. That figure, based on quotations for October 1, 1951, was 12 cents per gallon.

67 Compiled from 1976 Keystone Coal Industry Manual, (New York, 1976); Department of the Interior, “List of Outstanding Coal Leases on Federal Lands,” 1974; Federal Trade Commission, Concentration Levels and Trends in the Energy Sector of the U.S. Economy, NTIS, 1974Google Scholar; American Petroleum Institute, The Performance of Oil Firm Affiliates in the Coal Industry, Washington: API, March 1977Google Scholar; and General Accounting Office, The State of Competition in the Coal Industry, EMD-78–22, GAO, December 1977.Google Scholar

68 National Petroleum Council, U.S. Energy Outlook – Coal Availability, Washington, D.C.: NPC, 1973, p. 10.Google Scholar