Alternatives to Oil and Natural Gas

Author(s): Richard L. Gordon

Source: Proceedings of the Academy of Political Science, Vol. 31, No. 2, The National Energy
Problem (Dec., 1973), pp. 74-86
Published by: The Academy of Political Science
Stable URL: http://www.jstor.org/stable/1173571
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Alternatives
to Oil and NaturalGas

RICHARD

L. GORDON

Now, as in thepast,manyare advocatingthe rapiddeto oil and gas. Theirviews are questionable
velopmentof alternatives
for two reasons.First,theygrosslyunderestimate
the difficulties
of
new
coal
and
nuclear
for
which
developing
techniques.Only
power,
utilizationtechniquesare well established,can make a significant
contribution
in thisdecade.Second,theyexaggeratetheeconomicneed
foralternatives.
nuclearpower,coal,and newerapproachFurthermore,
es may not all be viable. Even if thepriceof gas and oil continuesto
rise,thesesourcesmaybe considerably
superiorto coal,nuclearpower,
and thenewersources.
This articlestressestheeconomicforceslikelyto influencethe developmentof variousenergysources.It beginswith a reviewof the
forcesthatlimitrapidchangein marketpatterns.Since theviews presentedhere dependcriticallyon assumptionsabout conventionaloil
and gas supplies,therelevantargumentsare outlined.Thenthespecial
case of coal-basedenergyalternativesis examinedas an illustration
of the difficulties
in securingcompetitivealternativesto oil and gas.
The breederreactoris discussedbrieflyprior to presentingoverall
conclusions.
Complexeconomiessimplydo not make rapid changesin fundamentalprocessessuchas theirenergy-consumption
systems.DevelopThis articledraws heavily on researchsupportedby the National Science Foundation and Resourcesfor the Future,Inc., but the views expressedhere are solely
the author's.

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ALTERNATIVES TO OIL AND NATURAL GAS

i 75

ing a major technologyrequiresmanyyearsof testingand retesting.

Then severalmoreyearsare requiredto build a seriesof plantsof increasinglygreatersize and sophistication.Thus it may take thirty
years to design equipmentsuitablefor commercialoperation.Then
thecommercial
constructing
plantswill takeat leastanotherfiveyears.
In any case, all consumerswill not shiftimmediatelyto the new
Altechnologybecause theyare restrained
by theirpast investments.
this
is
restraint
sometimes
as
a
sinister
desire
to
though
interpreted
it actuallyresultsfroma lack of need.
protecttheirhuge investments,
If one alreadyhas a perfectly
good furnace,he is notlikelyto installa
radicallynew system.The disincentiveis oftenincreasedby the significant
extracostsof installingnew equipmentin plantsnot designed
forit.
Moreover,the various energysourcesdifferconsiderablyin their
abilityto meetdifferent
energyuses. An obviousexampleis transportationin whichenginesusingoil productsare themostpractical.However,mostenergyis consumedin stationaryuses. In thesemarkets,a
varietyof distinctapplicationsranges fromsmall furnaces,heaters,
and appliances in individualhomes to giant plants that generate
electricity.
Many of the techniquesfor using energyare more efficientlyemployedin large-scaleoperations.Some technologiessuch
as thosethatuse nuclearenergyare prohibitively
expensiveexceptin
electrical
The
for
coal
is
less severe.While
large
powerplants.
problem
oil and gas floweasily and createno waste-disposalproblems,coal is
difficult
to move and leaves an ash residue.Since it becomesincreasmore
economicalto deal withtheseproblemsas the size of the
ingly
operationincreases,theuse of coal has tendedto becomeconcentrated
Over halfthecoal producedin theUnited
amonglarge-scaleoperations.
States is used to generateelectricity;
the nextlargestuse is forcoke
for
manufacture-the
employed pig-iron
only case in whichthe solid
stateofcoal is an advantage.
In the next decade,optionsare limitedto commercially
available
sourcesthatinvolvetheuse of coal and nuclearpowerto generateelectricity.In lateryears,moreradicallynew technologiescan be introduced.Those feasibleforthenexttento twentyyearsincludesynthesis of oil and gas fromcoal, synthesisof crudeoil fromoil shales and
tar sands, and the breederreactorsthatproducemore fuel than they
use. All nuclearreactorsuse thereactivematerialin theirfuelloads and
convertsome of the nonreactivematerialto plutonium.Breeders,
however,producemoreplutoniumand convertmoreof theenergyto

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76 i

RICHARD L. GORDON

By the nextcentury,such vast energysourcesas nuclear

electricity.
withinthe earth,and solar radiationmay be employed
heat
fusion,
on a largescale.
economically
A criticalproblemwithmanyof thesenew sourcesis thattheiremof energyconploymentwould requirea substantialrestructuring
because
are
most
suitable
for
they
sumption
large-scaleuse. Perhaps
an economycouldbe shiftedto one in whichall finalenergy
ultimately
use would be in the formof electricity,
or vast industrialcomplexes
arounda centralheat source.Such developments
couldbe constructed
would takemoretimethana shiftto synthetic
oil or gas. The technologicaldetailsare bestleftto suchsurveysas thatof Hotteland Howon the problemsof electrical
ard.' The presentsectionconcentrates
in
the
next
decade.
powergeneration
A fundamental
limitationis imposedby thelead timerequiredfor
Underfavorableconditionsa largeelectricalpower
plantconstruction.
plant can be builtin less than fiveyears. However,numerousproblemsbothin theconstruction
have
processand in regulatory
procedures
concerns
that
a
nuclear
produced
completing
plant may take as long
as a decade.Therefore,
thenextdecade's nuclearcapacityhas already
beendetermined.
Muchofthecoal-usecapabilityhas alsobeenset.
it
as
is
to changeto nuclearpowerwithoutbuilding
Just
impractical
a newplant,it is also impractical
to changefossilfuels.It is fairlysimple and cheapto switchfromcoal to oil or gas, butshiftingto coal is a
difficult
process.To move to coal, a plantneeds large-sizeboilersand
for
space
installingelaborate coal-storageand -handlingfacilities.
Even if the planthas thesefacilities,the conversionwill be substantiallymoreexpensivethana shiftfromcoal to oil. In thepast,electric
utilitiesthatexpectedto switchfuelsinitiallybuiltplantswitha coaluse capability.As theprobabilityof using coal diminishedin certain
regions,theelectriccompaniesceased installingcoal-usefacilitiesand
removedexistingequipment.
Many environmental
problemsarise in electricalpowergeneration.
the
critical
For coal,
emissions.
problemis regulationof sulfur-oxide
The use of coal in theelectricalpowerindustryhas been concentrated
in areas wherethe cheapestcoal usuallyhas a highersulfurcontent
thanis acceptableunderexistingpollutionstandards.
While manyways to alleviatetheseproblemswereconceived,priSomeFactsand As1H. C. Hotteland J.B. Howard,New EnergyTechnology:

sessments(Cambridge:The M.I.T. Press,1971).

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ALTERNATIVES TO OIL AND NATURAL GAS

77

atleastforthe1970s,wasplacedonstack-gas
stress,
scrubbing,
mary
ofthesulfur
oxides
theexwhich
thedischarge
prevented
bycleaning
haust gases. This engineeringtaskhas takenmuchlongerthanearly

hadpredicted.
of theapproach
Despitetheseproblems,
proponents
thatthesystems
areveryclosetocommercial
somestillinsist
developina substantial
ofthecoal-burning
ment
andcouldbeinstalled
portion
powerplantsin theUnitedStatesby 1980. The electricalpowerindus-

abouttheprospects.
ismuchmoreskeptical
however,
try,

In any case, thereis considerableinterestin processesthatremove

sulfurbeforecombustion.Because theseprocessesrequirea chemical
alterationof thecoal, simplerand cheaperprocessesformanufacturing
forcrudeoil or
fuelsare beingdeveloped.A good substitute
synthetic
to producefromcoal because it is deficient
in
naturalgas is difficult
it is necessaryto upgradecoal gas by addinghyhydrogen.Therefore,
drogen.However,this upgradingis not essentialfor a power-plant
a low-BTUgas at thepower
fuel.The mainoptionsare to manufacture
process,whichproduceseithera
plant or to use the solvent-refining

deashed
solidora liquidfuel.Sulfur
couldberemoved
during
process-

coal. Alreadyvarioussmall-scale
ing of bothgas- and solvent-refined
both
are
under
for
various
It is
plants
processes
phasesofdevelopment.
conceivablethata viable technologycould be developedwithina decade.
Similarly,electricultilitieshave begun to use a combinedcyclein
whicha gas turbine(a stationaryadaptationof a jet engine) is connectedto a conventionalboilerthatuses the waste heat fromthe gas
turbineto powera steamturbine.While technicalprogressin conventionalplantsis difficult,
the prospectsforimprovements
in the combinedcycleare quite good. The main drawbacklies in presentlimitationson lightfueloils and gas, whichare used in gas turbines.Attemptsarebeingmadeto developeitheran economicalprocessforproducinggas ora turbinethatcan use heavierfueloils.
Nuclearpoweris presentlyunderconsiderableattackforits environmentalimpacts.Some of the criticismseemsill-founded;the concerns about routinereleases of radioactivityare based on dubious
statistics.
controlscan be developed.However,it
Besides,moreeffective
has not been satisfactorily
establishedthat large accidentalreleases
can be prevented.Thereare stillissues of ensuringpower-plantsafety
and of storingnuclearwastes for the millenniaduringwhich such
materialwillbe hazardous.

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78

RICHARD L. GORDON

ConventionalOil and Gas Supplies

Advocatesof energyalternativesvalidlypointout that the growing
worldeconomywill some day exhaustthesuppliesof oil and gas unless otherenergysourcesare substituted.
The criticalquestionis the
urgencyof developingsuch alternatives.The typicalscenariopostulatesa needso pressingthatmassiveresearchmustbe startedyesterday.
Anotherview is thatoptionssuch as nuclearfusioncan be developed
moreleisurely.
Amid thebitterdebatespresentlyraging,thereis surprising
agreementthatworldoil suppliescan meetdemandsforat least a decade
withoutsignificant
risesin productioncosts.It is similarlyrecognized
thattheactualpriceofmuchof thisoil willbe affected
of
by theefforts
a groupofmajorproducingcountriesto securegreaterincomesby raisintoworldmarketsat prices
ing prices.MiddleEast oil was introduced
low
to
Western
just
enough displace
Hemisphereoil fromEuropean
markets.A long and fitfulprocesslastinguntil 1971 broughtthese
but leftthemwell above costs.In 1971 the
pricesdown substantially
countries
producing
imposedhigh taxes thatoil companiescould pay
only by raisingprices.These states promiseto continueincreasing
taxes.
The disputeaboutfutureoil suppliescentersupon theefforts
of the
countries.
this
discord
be
smaller
than
However,
producing
may
generallythought.Economichistory,includingthatof the oil industry,
suggeststhat concertedeffortsto limit competitionare difficultto
if consumersare cleverabout exploitinginhermaintain,particularly
entconflicts
aboutoil pricesbelieve
amongsuppliers.Those optimistic
thattheseconsiderations
willultimately
underminetheproducinggovernments'cartel.Some may arguethatthiscartelis so unique thatit
cannotbe overcome;however,othersbelieve that consumingcountriescould formulateeffective
countermeasures
but lack the unityto
such
implement
policies.2
These optimistsare rightthat consumingnations could greatly
benefitfrombetterpolicies.The onlyway to overcomethepresentbarriersto consumer-country
cooperationis to make the resultingbenefitsmoreapparent.Whateverthemeritsof thepessimisticview, it is
too vague to detertheadoptionof alternatives.
Substantialoil and gas
2
See the 1973 Senate Interiorand Insular AffairsCommitteehearings,Oil and
Gas ImportIssues, whichincludesa summaryof theoptimisticview by M. A. Adelman and an outlineof thepessimisticview by JamesE. Atkins.

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ALTERNATIVES TO OIL AND NATURAL GAS

79

suppliesare outsidethe cartel'scontrol.At one time,it was believed

thatoil and gas discoveriesin Alaska and the Canadian Arcticmight
eventuallyliberateNorthAmericafromthe need to importoil. The
long delaysin developingAlaskan oil have apparentlynot eliminated
thislong-rangepotential.The vision has simplybeen suppressedby
the curious agreementof the otherwisebitterlyopposed environmentalistsand oil companies.DowngradingAlaskan sourcesmakes
seemless damaging;theconservatism
oppositionby environmentalists
about Alaska is also usefulto oil companiesin buildingsupportfor
otherprojects.
Fromthisdiscussion,theveryleast thatshouldbe concludedis that
energypriceswill probablynot be highenoughto make manyalternativesviablewithina generation.
It can be contendedthatmorelikely
this century.Howoil will remainthe world'sbasic fuel throughout
ever,thisviewis notcriticalto thepresentargument.
Coal as an EnergyAlternative
Forgenerations,
observershave misuseddata on coal reservesto argue
thatcoal is the only fuelcapable of meetinglong-termworldenergy
supplies. Actually, the only valid inferencethat can be drawn
fromcoal-reservedata is thattheyare compiledquitedifferently
from
thoseforotherfuels.Oil and gas reservesare computedonlyafterthe
oil has been found,facilitiesfor its productionhave been installed,
and engineershave carefullymeasuredthe portionof its contents
recoverableat prevailingprices.Coal reservesare based on geological
surveysin which the indicationsprovidedby surfaceoutcropsare
extrapolatedto provideestimatesof totalphysicalsupplies.Thus the
validityof thesefiguresis doubtfuleven as measuresof physicalendowments.Moreover,thecompilationpays littleattentionto the economicviabilityof these coal resources.It is not known how much
cheapercoal reallywouldbe to mineand use thaneven themostcostly conventialsourcesof oil and gas. Therefore,it is uncertainthat
coal reallycan expand its marketsin the foreseeablefuture.Indeed,
thereis a distinct
dangerthatcoal mayalso lose itspresentmarkets.
coal productionhas been centeredeast of theMissisTraditionally,
sippi. The main productionarea is AppalachiafromPennsylvaniato
Alabama. West Virginia,Pennsylvania,Ohio, and easternKentucky
are the principalproducers.A secondmajor coal regionencompasses
Illinois,Indiana, and westernKentucky.While substantialreserves

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80

1 RICHARDL. GORDON

also existin the RockyMountainstates,a lack of marketshas long

limitedcoal production
in thisregion.
A numberofimportant
differences
prevailbetweeneasternand western coal mining.Westerncoals are typicallylowerin sulfurcontent.
and stillmeet
Many westerncoals can be burnedwithouttreatment
air-pollution
regulations;mosteasterncoals are toohighin sulfurcontentto meetsuchrequirements.
Generally,increasedwesterncoal productioncan moreeasilybe securedthroughstripmining,althoughin
somespecificminingareas-especially Coloradoand Utah--strippable
reservesare limited.East of theMississippithepotentialforstripmining has neverbeen greatenough to permitcompleteeliminationof
underground
mining.In addition,coal- and electrical-power
industry
sourcesindicatethatmost of the best strippablereservesin the East
have been committedto mining.However,in many of the western
statessubstantialuncommitted
reservesremain.
strippable
The maindrawbackofwesterncoal is thatitis expensiveto transport
to market.It is locateda thousandmilesor morefrommajor centers
such as Chicago.To make mattersworse,the coal is usually a lower
gradethaneasterncoal so thata largertonnagevolumeis requiredto
replaceeasterncoal. Forexample,to shipa tonof westerncoal to Chicentsa millionBTUs.
cago costsat least$6, whichis aboutthirty-five
Coal could be shippedfromdownstateIllinois forabout ten centsa
millionBTUs.
The difference
in miningconditionshas a profoundimpacton the
comparativeeconomicsof the two sections.It is unlikelythateastern
costs fornew mines will be less than those forunderstrip-mining
groundmining.If stripminingcould meetdemandsat lowercosts,it
would have done so long ago. Verylittleis knownabout coal-mining
costs,butevidencepiecedtogetherfroma limitedamountof published
data and interviewswithofficialsof the coal and electricalpowerindustriessuggeststhatin 1973 easterncoal for electricutilitiescosts
cents a millionBTUs to mine by underground
thirtyto thirty-five
methods.Concreteevidenceis providedby reviewingthe deliveredfuelpricesreportedby electricutilitiesand makingroughadjustments
fortransportation
costs.The impressionis confirmed
by information
securedin interviews.
In 1969 the prevailingcost was eighteencents a millionBTUs.
The sharpincreasesare theresultof a varietyof difficulties
thathave
substantiallyraised wage rates and loweredoutputper worker.The
essenceof the problemis a reactionto the difficult,
dangerous,and
unhealthyworkingconditionsin undergroundmining.Some of the

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ALTERNATIVES TO OIL AND NATURAL GAS ! 81

A muchstricter
federal
changehasbeenimposed
administratively.
minehealth
andsafety
lawwaspassedin1969inresponse
toa particcoal-mine
severe
disaster.
worker
eviHowever,
unrest,
ularly
general
andwildcat
dentin official
strikes
andgreatly
increased
transfers
tothechange.
Theriseinwages,of
jobs,hasalsocontributed
among
was
the
result
of
worker
An influx
ofincourse, entirely
pressures.
workers
hascreated
additional
difficulties.
experienced
inlaborcostspertonhavebeensupplemented
Theseincreases
by
costsofmaterials
andconstruction.
Thesecostincreases
will
rising
continue
atleastto1980.So longas coalmining
remains
an
probably
unattractive
itswageratesarelikely
torisemorerapidly
occupation,
thanthosein otheroccupations.
To restore
oldlevelsofoutput
per
worker
willbedifficult.
Evenifinflation
vanishes
eastern
tomorrow,
coalforelectric
utilities
willprobably
a million
costforty
tofifty
cents
BTUsby1980.Thereafter
Someenpricerisesmaybemoremodest.
thusiasts
believe
thatadequate
research
willensure
thedevelopment
of
newtechnologies
of
coal
costs
Howcapable lowering mining by1980.
thisbelief
isbasedonlittle
morethanfaith.
Thesources
ofthese
ever,
newmethods
arevaguely
ingeneral
sketched
toautomated
references
mining.
In contrast,
western
coalcostsas littleas fifteen
centsa million
BTUsandmayonlyrisetotwenty-five
centsby1980.Suchcostincreases
wouldlargely
reflect
extra
ofa morerapidexpansion
expenses
andtheneedtouseslightly
lessattractive
resources.
Thefuture
ofwestern
coalwillbeaffected
costs,
bytransportation
thetypeof consumers,
technological
developments,
publicpolicies,
andmany
other
factors.
Because
there
aresomanyfactors,
itisimpossibletodetermine
thegeneral
effects
ofthedevelopment
ofwestern
coalreserves.
Butan examination
ofeffects
in a fewspecific
areas
maybeofsomevalue.
Thefirst
iselectric-utility
fuelinChicago,
which
a crucial
represents
market
forwestern
coal.It willbe assumed
thatstack-gas
scrubbers
willbe available
forcoal-fired
thatstripmining
in theWest
plants,
andnuclear
willnotbebanned,
thatwestern
coalwillstillmeet
power
without
andthatoil-imnport
pollution
regulations
specialprocessing,
continue
to
fees
rather
than
policies
impose
import
quotas.Itwillfurtherbe presumedthat,whateverthedelays,by 1980 uncontrolled
burncoal will be prohibited.It is prohibitedalreadyin
ing of high-sulfur
thecityof Chicagobut couldbe burnedin a plantlocatedsomewhere
downstate.
The initialfuel-priceassumptionsare that westerncoal will cost

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82

RICHARD L. GORDON

sixtycentsor moreper millionBTUs in Chicago,easterncoal fiftyto

sixtycents,and oil eightycents.The firsttwo figuresare derivedby
costestimates.The oil figure
combiningtheminingand transportation
oil totheMiddleWest.
is basedon 1972 deliveredcostsoflow-sulfur
To completethe analysis,it is necessaryto consideralso the costs
controlsystems.
of different
typesof powerplantsand of sulfur-oxide
An elaboratesystemof simplifying
has
assumptions been developed
to ease the comparisonof thesedifferent
costs.The most convenient
approachis to showtheequivalentvaluespermillionBTUs of coal disbetweenthetotalcostsperkilowatt-hour
of nuplaced.The difference
clear power and the costs excludingthose for fuel and sulfur-oxide
emissioncontrolof a coal-fired
themaximumcostper
plantrepresents
thatcan be paid for coal and emissioncontrolif the
kilowatt-hour
use ofcoal is nottobe moreexpensivethannuclearpower.Multiplying
thismaximumallowablecost permillionkilowatt-hours
by thenumberof kilowatt-hours
producedby a millionBTUs of coal producesan
allowablecostpermillionBTUs. Availabledata suggestthattheallowable costwilllie in thefortytofifty-cent
range.
In dealingwithcoal-oilcomparisons,
it is preferable
to indicatethe
in fuelprices.Severalcases can be distinguished.
allowabledifference
With old plants,the highestoil-conversioncost may be equivalent
to increasingoil pricesby fivecents a millionBTUs; however,this
difference
may be offsetby saving thecostsof installingsulfur-dioxide scrubbingfacilities.In new plants,the advantage lies with oil.
Avoiding the installationof coal-handlingequipmentis equivalent
to an eight-to sixteen-cent
reductionin fuel prices.This advantage
be
added
to
the
coal pricesrequiredto remaincompetitivewith
may
nuclearpower,whichwillcostroughlyfifty
to seventycents.
The cost of sulfur-dioxide
facilities
is subjectto considscrubbing
erable uncertainty.Figuresproducedby United States government
agenciessuggestthatcostswouldrunas low as tento twentycentsper
millionBTUs forscrubbers
installedin newplantsand twentyto thirty
centsforretrofitting
old plants.3However,otherestimatesrun much
higher.A studyby the CommonwealthEdison Companyof Chicago
pointsout that the low-costestimatesof governmentsourcescover
onlythescrubberitselfand omittheadditionalconstruction
required,
thecostofwaste-disposal,
and interest
costsduringconstruction.
When
these costs are included,scrubbingcosts in a new plant lie in the
" U.

S., Sulfur Oxide Control Technology Assessment Panel (SOCTAP), Final

Report on ProjectedUtilization of Stack Gas Cleaning Systems by Steam Electric
Plants,1973.

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ALTERNATIVES TO OIL AND NATURAL GAS

i 83

offorty-five
tofifty-eight
cents.
Commonwealth
Edison
believes
range
thatthismethod
further
understates
thecostsbyassuming
ophigher
eratingrates than can be sustained.It suggestsa range of fiftyto

cents.
theearlylifeofa newplant,
themostprobDuring
sixty-three

able figuresare betweenfifty-four

and fifty-seven
cents.Retrofitting
costsseventy-five
to eighty-five
scrubbers
cents.
Given the assumptionsstatedforChicago,the choice forexisting
cost would be less than
plantswould be westerncoal. The sixty-cent
to sixty-cent
the fiftydeliveredcost of Illinoiscoal and the scrubber
costof at least twentycents.Westerncoal is less thantheeighty-fivecentcostof oil and conversion.However,it is conceivablethatevenin
centsbecause
Chicago,westerncoal will cost more than eighty-five
of a risein rail ratesand limitson theamountof stripminingallowed.
Moreover,thecostadvantagewoulddecline,perhapssharply,as westeast. Should oil be cheaperthanwesterncoal,
erncoal movedfurther
easterncoal could surviveonly if the cost of scrubberswere as low
as theUnitedStatesgovernment
contends.When it becomespossible
to build new fossil-fuelplants, oil will have an effectiveprice of
aroundseventycentsbecause of the savingsin capitalcost. Again it
would appearthatifoil costsstayin thespecifiedrange,oil wouldcerto sixty-cent
easterncoal
tainlybe cheaperfornew plantsthanfiftywithscrubbercostsof twentycentsor more.However,unlesswestern
coal weresignificantly
moreexpensivethaninitiallyassumed,it would
be competitive
in the Midwest.Of course,thispositioncould be underminedif thepracticebeingadoptedin westernstatesof requiring
scrubberswithwesterncoal werealso imposedeast of theMississippi.
However,nuclearpowerwould be the preferablealternativewhen
coal or sixty-to
comparedto thosealreadynoted.Forty-to fifty-cent
oil
be
hard
to
obtain.
The
introduction
of a comseventy-cent may
bined cycleusing low-BTU gas fromcoal or oil appears to improve
coal and oil's positionconsiderably
butuntiltherequisitetechnologies
are employedthe improvement
to stave offthe
may not be sufficient
nuclearthreat.
of the combined
Moreover,oil could prove the actual beneficiary
cycle.If publishedfigureson low-BTU gas are updatedto removethe
creditsforunlikelysulfursales and to accountfora doublingof capital
costs,coal gas would have a cost per millionBTUs of 1.15 timesthe
costof a millionBTUs of coal plus thirty-one
cents.The corresponding
oil gas figuresare I.I timestheoil priceplus twenty-two
cents.Morecostsincludedesulfurization.
over,thegasification
When theoil itself
is desulfurized,
about17 centsis added to thecostof oil. Thus,instead

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L.GORDON
84 RICHARD

of competing
witheighty-cent
oil, coal wouldcompetewithsixtythree-cent
oil Coal priceswouldhave to be belowfifty-two
centsa
million
BTUstobecompetitive.4
Givenboththeconsiderable
uncertainties
aboutactualcostdevelopandthepossibility
ments
thatonereaction
tosuchdevelopments
would
be a changein policies,
thesecalculations
shouldbe takenonlyas indicators
offuture
No onefamiliar
withtheissueswould
developments.
that
actual
will
to theestimates
argue
prices closelycorrespond
presentedhere.
It canbe argued,
thatitis veryimportant
todeveloppolihowever,
ciesto resistrisingoil prices.Thedoubtsthatoil cancompete
against
either
coalornuclear
ifoil werepriced
powerwouldvanishovernight
closerto itstruecosts.In thecaseofcoal andoil,theintroduction
of
additional
environmental
considerations
favorsoil.Itsenvirongreatly
mental
arebothmilder
andeasiertocontrol
thanthoseofcoal
impacts
It
is
not
clear
whether
the
environmental
ofoil are
mining.
problems
worse
than
those
of
nuclearpower,mainlybecausenucleardantruly
gershavenotbeendetermined.
it appearslikelythatoil is goingto provesuperior
Moreover,
at
leasttoeastern
coalas thefuelin conventional
fossil-fired
Beplants.
causetheCommonwealth
Edisonestimates
ofscrubbing
costsareprobthanthoseof theUnitedStatesgovernment,
oil
ablymorerealistic
costscouldriseconsiderably
andstillbe competitive.
Western
on
coal,
theotherhand,mayindeedpenetrate
markets
eastofChicagoso long
as transportation
costscanbekeptdownandstripmining
is notseverelylimited.
Nuclearpoweris likelyto becomethemainsourceof electricity
ifcoalpricesriseas predicted
hereandoilpricesdo notfall
generation
In thenearterm,
oil orwestern
coal and thennuclearpower
sharply.
willdisplaceeastern
coalsas thebasicpower-plant
fuels.A comeback
is possibleonlyifthecombined
and
coal
cycle
gasification
provesuccessful
andmining-cost
risesarelimited.
Publicpolicywillbe ableto playonlya limited
rolein preventing
theshiftawayfromeastern
coal.It is conceivable
thatcoalmightnot
be competitive
withnuclearpowerevenif sulfur-oxide
control
rules
werecompletely
eliminated.
is
it
clear
that
However, quite
temporary
suspensionof therulesmightslow down thedeclinein theconsumptionof easterncoal by theelectricalpowerindustry.
The wisdomof the
'F. L. Robson at el., Technologicaland EconomicFeasibilityof Advanced Power
Cycles and Methods of ProducingNonpollutingFuels for UtilityPower Stations,
Va.: National TechnicalInformationService,1970).
PB 198 392 (Springfield,

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ALTERNATIVES TO OIL AND NATURAL GAS

85

suspensionclearlycan be disputed,buttheissuesarefarfromclear-cut.
The regulationof sulfuremissionsappears to be designedto solve
problemsin heavilypollutedregionsand may be excessivein many
partsof thecountry.Thus in thecoal industrymoreturmoilthannecessarymaybe createdbypollutionregulations.
Even less is knownabout gasificationand liquefactionthan about
electricalpower.All thatis reallyknownis thatwhenusingstrippable
westerncoal,high-BTUcoal gas is likelyto costat least$1.25 a million
BTUs. Althoughsuch gas is moredifficult
to manufacture
than that
is
in
this
essential
used by powerplants,
upgrading
providinga satisfornaturalgas. Oil fromsimilarcoals mightcost as
factorysubstitute
littleas $6 or as muchas $8.
One criticalproblemis thatadequatesuppliesof cheaplystrippable
industries.The
coals may not be available formassivecoal-synthesis
knowncheaplystrippablecoals onlymeeta modestportionof America's oil and gas needs.Since further
explorationmay not unearththe
oil
additionalreservesneeded,the economicalproductionof synthetic
and gas fromcoal is subjectto exactlythesame uncertainties
of other
sources.
is
The
situation
the
energy
aggravatedby
growingresistanceto stripminingin theWest.The vast amountof miningrequired
forproducingall oil and gas suppliesfromcoal may not be tolerated.
The questionremainsof whetherwesterncoal will be the cheapest
sourceof oil and gas. Forexample,oil shale and tarsand mightprove
as a sourceof oil. Consumersmightshiftto oil ratherthan
preferable
use high-costgas.
Is theBreederan Inherently
Alternative?
Inferior
An economicargumentagainstthe presentAtomicEnergyCommission (AEC) case forthebreederhas deservedlyattractedconsiderable
attention.The breederappearsto be inferiorto conventionalnuclear
reactors.
of the breederimplythatit has
Briefly,the special characteristics
lower fuel costs than a conventionalreactor.However,these lower
fuelcostswill be obtainedby investingin an expensivedevelopment
programthatwilllead to commercial
plantswithhighercoststhanorof thebreederemdinarynuclearplants.The officialAEC justification
the
ploys several dubious assumptions.5It not only underestimates
' U. S. Atomic EnergyCommission,Updated 1970 Cost BenefitAnalysis of the
U. S. Breeder Reactor Program, Wash. 1184 (Washington, D.C., Government
PrintingOffice,1972).

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86

RICHARD L. GORDON

domesticsupplyof uranium,but assumesa continuedban on uranium

imports.It can be arguedthatthe only purposeof such a ban is to
justifythebreeder;it is hard to imaginewhat riskstheUnitedStates
runs in buyingAustralianuranium.In addition,the benefitsof the
breederprogramare exaggeratedby use of a more optimistictimetableandlowercostofcapitalthanseemsplausible.
Ironically,theonly way to save the argumentinvolvestotallydisAEC's analysis.It couldbe arguedthatcostswillbe so much
crediting
lower than expectedthat the breederwill be viable even if uranium
pricesdo not rise. Some nuclearengineerscontendthatthisexpectation is quite reasonable.While this hypothesisis questionable,its
acceptancewould indicatethateverymajor AEC premisewas incorrect.One would thenwonderwhy such large sums of moneywere
devotedtosucha projectand be skepticalthattherevisedargument
had
anygreaterplausibility.
Conclusion
In thenextgenerationonlynuclearpowercan be a reasonablealternativeto conventionalsourcesof oil and gas. Data indicateonlythatexto promotecheaperproductionand utilizationof alterpensiveefforts
nativesfortherelativelynear futuremay provefutile.The uncertainties are so greatthatresearchsupportshould be designedso that it
iffailureshouldoccur.
mightbe terminated
The greaterdangerof stressingalternativesis thatit will lead to
abandonmentof efforts
to rationalizetheworldoil marketand to unmeasuresto save the UnitedStates fromthe
necessaryprotectionist
to inferior
fuelsources.This is no
consequenceof unwisecommitment
meretheoretical
The
of
conjecture. history energypolicyis fullof exof
amples preciselythiserror.The UnitedStatesOil ImportProgram
was originallydesignedto protecthigh-costdomesticoil producers
and was quite ineffective
in preventingthe real threatof a cartel.
has
billions
of
dollarsto protectan ill-adviseddecision
Europe
spent
topreserveitshopelesslyhigh-costcoal industry.
On an instinctive
basis, it can be suggestedthatthe morequickly
suchas oil shale and coal synthesisare too undevelopedalternatives
to waste moneyon. It may be betterto skip themand conattractive
centrateupon ensuringthat fusionor a similartwenty-first
century
optionis madeeconomicalas rapidlyas possible.Publicpoliciesshould
recognizethe drawbacksof shiftingfromconventionalsourcesof oil
and gas.

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