The Floor Price: A Synfuel Subsidy?

In early November 1974, the New York Times reported that “alternative supplies will take years to develop” and that conservation was the more rapid approach. But at the end of November, when the floor price was introduced, the focus shifted from conservation to increasing supply.

The Federal Energy Administration had confused matters by misestimating that supply would grow slightly faster than demand would shrink due to conservation. By February 1975, the Times explained:

The core of Kissinger's argument for a minimum [floor] price was that it was necessary to "bring about adequate investment in the development of conventional, nuclear and fossil energy sources." He urged the consuming nations to join the U.S. in a consortium that over the next ten years would invest $500 billion in developing nuclear power, synthetic fuels and other energy alternatives. [emphasis added]

In three months, the focus had shifted from conservation to synfuels. What was going on? Staff at the Federal Energy Administration were worried by the recent suspension of a $450 million oil-shale project that the U.S. company Atlantic Richfield and three other firms had undertaken. Administration staff were also optimistic about new oil discoveries but worried that even the threat of lower oil prices would stall investment. The administration wanted the floor price to protect the investments of Big Oil.